UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
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Forward-Looking Statements
This Annual Report on Form 10-K (the “Annual Report”) includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Those statements include statements regarding the intent, belief or current expectations of our Company and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Those risks and uncertainties include, among others:
| ● | our expectations regarding our short and long-term capital requirements; | |
| ● | our history of operating losses and expectation to incur additional losses in the future; | |
| ● | our ability to raise additional capital to meet our liquidity needs; | |
| ● | because of our limited operating history, we may not be able to successfully operate our business or execute our business plan; | |
| ● | our products and technology requiring additional trials; | |
| ● | commercial success of our new generation products, as well as any future products, depends upon the degree of market acceptance by the packing house community as well as by other prospect markets and industries | |
| ● | our ability to comply with the continued listing standards of the Nasdaq Capital Market; | |
| ● | sales of our products; | |
| ● | the size and growth of our product market; | |
| ● | our marketing plans; | |
| ● | our activity in the civilian market; | |
| ● | our ability to obtain market acceptance of our environmentally friendly solutions for fruits and vegetables; | |
| ● | our inability to respond effectively to technological changes in our industry, which could reduce the demand for our products; | |
| ● | our ability to satisfy or maintain compliance in the U.S. (including the U.S. Food and Drug Administration, the United States Environmental Protection Agency and the California Department of Pesticide Regulation), and international regulatory requirements and obtain required approvals for sales or exports of our products; | |
| ● | our ability to achieve regulatory approvals and registration in the United States and abroad (Mexico, Israel, Spain and Italy), which might take longer than expected; | |
| ● | significant competition from other companies looking to develop or acquire new alternative environmentally friendly solutions for the treatment of fruits and vegetables, and other edible matter; | |
| ● | our reliance on a limited number of suppliers to produce certain key components of our products; | |
| ● | our plans to continue to invest in research and development; | |
| ● | our ability to establish and maintain strategic partnerships with third parties, including for the distribution of products; | |
| ● | our ability to establish sales, marketing and distribution capabilities or enter into successful relationships with third parties to perform these services; | |
| ● | our reliance on rapidly establishing global distributorship network in order to effectively market our products; | |
| ● | results of our early tests may not be indicative of results in future tests and we cannot assure you that any planned or future tests will lead to results sufficient for the necessary regulatory approvals; | |
| ● | inherent dangers in production and transportation of hydrogen peroxide and highly concentrated organic acids could cause disruptions and could expose us to potentially significant losses, costs or other liabilities; | |
| ● | our ability to attract and retain sufficient, qualified personnel; | |
| ● | our ability to obtain or maintain patents or other appropriate protection for the intellectual property; | |
| ● | our ability to grow both domestically and internationally; | |
| ● | our ability to adequately support future growth; | |
| ● | potential product liability or intellectual property infringement claims; | |
| ● | our business and operations may be affected by climate change conditions, which could materially harm our financial results; | |
| ● | risks relating to portfolio concentration; | |
| ● | risks relating to international expansion of our business and operations; | |
| ● | the effect of COVID-19 on our business; and | |
| ● | information with respect to any other plans and strategies for our business. |
These statements are only predictions and involve known and unknown risks, uncertainties and other factors. Readers are urged to carefully review and consider the various disclosures made by us in this Annual Report and in our other reports filed with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this Annual Report and unless otherwise indicated, the terms “Save Foods,” “we,” “us,” “our,” or “our Company” refer to Save Foods, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
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 information in this Annual Report relating to shares or price per share reflects the foregoing reverse stock split.
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Part I
Item 1. Business
Company Overview
We are an agri-food tech company specializing in eco crop protection that helps reduce food waste and ensure food safety. We develop eco-friendly “green” treatments for the food industry. Our treatments 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 treatments are based on Save Foods’ proprietary blend of food acids combined with certain types of oxidizing agent-based sanitizers and in some cases with fungicides at low concentrations. Save Foods products have a synergistic effect when combined with these oxidizing agent-based sanitizers and fungicides. Our “green” treatments 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.
The U.S. Food and Drug Administration (the “FDA”) Food Safety Modernization Act (the “FSMA”) is transforming the United States’ food safety system by shifting the focus from responding to foodborne illness to preventing it. According to the recent data from the Centers for Disease Control and Prevention, approximately 48 million people in the United States get sick each year from foodborne diseases. We believe this is a significant public health burden that is largely preventable. Since 2011, the FDA has had a legislative mandate to require comprehensive, science-based preventive controls across the food supply. In the context of fresh produce at packing houses, the FDA’s final produce safety rule (with an initial compliance date of January 26, 2018) provides for the use of sanitizers to ensure produce is cleaned from human pathogens.
In addition, most conventional chemical pesticides (fungicides), which are currently used to protect fresh produce from microbial spoilage and reduce food waste, are potentially toxic, they remain on fruit peel and present health concerns, while also polluting the environment. Therefore, the use of these products is strictly regulated and their residue on food and on the environment are carefully monitored. Today’s trends led by both consumers and regulatory bodies are to significantly reduce the use of fungicides and switch to greener solutions. In a series of studies conducted in collaboration with a large post-harvest service company during the second quarter of 2020, our products have shown impressive results in extending the shelf life of fresh produce in “organic” (where no fungicides are used at the post-harvest stage) and conventional (where fungicides are being used at the post-harvest stage) settings. On average, our products may reduce the rotten fruits at the retail level by 50%.
We have a unique opportunity to make a positive difference throughout the food value chain from field to fork and address two of the major’s challenges in the food industry today — safety and waste. We target major markets that use conventional chemical pesticides and sanitizers, including the pre- and post-harvest market, the greenhouse market and the fresh-cut market, where our “green” treatments are used as alternatives for, or mixed with, conventional products in order to reduce (i) health and environmental concerns, and/or (ii) microbial resistance that has reduced the efficacy of conventional chemical pesticides.
Recent Developments
Commercial Developments
On February 7, 2022, we announced that Mehadrin Tnuport Export L.P. (“Mehadrin”), began using our green treatment in their citrus packing houses. Mehadrin is Israel’s largest grower and exporter of citrus produce, a well-known distributor for major retailers in Europe, North America and Asia, and a global supplier of Jaffa brand oranges.
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Earlier, on January 24, 2022, we announced that following a series of successful trials, Galilee Export informed each of its suppliers that it must apply our treatments to all bell peppers in Galilee Export’s supply chain. Galilee Export is the second largest exporter of fruit and vegetables in Israel, with sales of over $200 million a year. Thereafter, on February 23, 2022, Galilee Export announced it began using our treatment on all of its avocados, after Galilee Export reported to us that our treatment kept its avocados fresh and in good condition for up to twice as long compared to conventionally treated produce.
Key Regulatory Approvals
On November 9, 2021, we announced the registration of our product, SavePROTECT™️, by the California Department of Pesticide Regulation (CDPR). California is a consistent leader in innovative and environmentally sensitive policies with the most comprehensive state pesticide regulation program in the United States. Applications with the CDPR are only approved for registration after a rigorous evaluation process that includes a peer-reviewed, scientific assessment of risk to all populations and the environment.
On February 17, 2022, we announced that our products are now registered by NSF International, a leading global independent public health and safety organization. Products with an NSF certification mark meet all standard requirements, and undergo testing and regular inspections to check they continue to comply with the standard. The mark confirms that a product has been impartially reviewed and that labeling and claims have been objectively verified.
Global Expansion – Turkey
On September 17, 2021, we announced our engagement with a local commercial post-harvest expert in Turkey with the intention of introducing us to local post-harvest operators with ties to the European Union (EU) produce market. Thereafter, on November 8, 2021, we announced the addition of Özler Tarim, a leading Turkish packing house, to our commercial program, which included a first step of launching a large commercial scale pilot in Turkey.
On March 2, 2022, we announced that the citrus packing house of Turkish packer Kalyoncu Nakliyat Turizm Ticaret ve Sanayi Limited Şirketi (“Kalyoncu”) became our first commercial customer in Turkey. Kalyoncu submitted a purchase order for the remaining citrus season of 2021-2022, and also indicated its intent to purchase additional products for the 2022-2023 citrus season.
Advisory Board
On August 2, 2021, our board of directors established a scientific advisory board (the “Advisory Board”), which consists of Art Dawson, PhD and seasoned veteran in the post-harvest space, Dror Eigerman, Chief Executive Officer of Galilee Export, and Dr. Adi Zuloff-Shani, Chief Technology Officer of SciSparc Ltd. and Chief Executive Officer of Clearmind Medicine, Inc. The Advisory Board was established by our board of directors to assist us in developing market awareness to our products and business, and to help facilitate the sales of our products and treatments.
Industry Overview and Market Opportunity
Background
The world’s population is expected to grow to almost 10 billion people by 2050, boosting agricultural demand by some 50%. Providing healthy and safe food to feed the world’s population is one of the biggest challenges of the twenty first century, accentuated with the backdrop of of a fragile global economy. Globally, around one-third of the food produced (estimated at circa 1.3 billion tons), is lost or wasted along the food chain – from production to consumption.
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Fruits and vegetables are considered essential food commodities and demonstrate their best benefits when consumed fresh. Consumption as well as production of fresh fruit and vegetables is growing globally; in 2020, the global production of fresh fruit amounted to about 887 million tons, while the production of fresh vegetable amounted to about 1.09 billion tons (2018). According to a report published by Technavio in October 2020, the fresh food market size has the potential to grow by 337.76 million tons from 2020 to 2024, growing at a CAGR of almost 3% during the forecast period, and the market’s growth momentum will accelerate during the forecast period due to the steady increase in year-over-year growth. In the United States, according to a report by Grand View Research, increasing health awareness among the U.S population and potential development of secondary diseases due to obesity and unhealthy eating habits are propelling the market of fruit and vegetables to reach an estimated $1.1 billion by 2025.
Food Safety and Food Loss
Food Safety
We believe foodborne diseases are a significant public health concern globally. Hundreds of diseases are caused by eating contaminated food. Many diseases are spread through unwashed or untreated produce. With approximately 48 million people in the United States (one in six) getting sick, 128,000 hospitalized, and 3,000 die each year from foodborne diseases, according to recent data published by the FDA, and 23 million in the European region getting sick due to food borne disease, food safety is another major concern and source of waste, placing a material burden on public health and significant healthcare cost. The economic burden of foodborne illness has been estimated to be as high as $90 billion annually.
When considering the farm-to-fork chain, microbial contamination of fresh produce can occur at multiple steps. Contamination can take place during the cultivation of fresh produce, at harvest, during preparation/washing, within distribution chains and transport to shops, and even at the final step in the consumers’ kitchen. We believe this is a significant public health burden that is largely preventable. The FSMA is transforming the United States food safety system by shifting the focus from responding to foodborne illness to preventing it. The Produce Safety rule of the FSMA establishes, for the first time, science-based minimum standards for the safe growing, harvesting, packing, and holding of fruits and vegetables grown for human consumption. The final rule went into effect on January 26, 2016. Sanitization is a cornerstone of FSMA compliance, which requires preventing or eliminating food safety hazards or reducing such hazards to a minimal level.
Markets require many types of produce to be washed prior to sale in order to remove dirt and other debris. Produce can be contaminated with foodborne pathogens before it enters the packing house, and these pathogens cannot be seen with the naked eye. Inability to visually spot pathogens makes the washing step one of the most important steps in packing because, if washing process is not controlled, it can become a source of cross-contamination (when foodborne pathogens fall off contaminated produce into the water where they can contaminate more produce). These washing steps are defined by the packing house safety managers as critical point because water mixed with organic materials are good conditions for pathogens to develop. Therefore, the use of sanitizers should be introduced during the washing step because they are, most of the time, one of the last treatments applied before the produce meets the consumer. Sanitizers are designed to inactivate/kill any bacteria in the water, drastically reducing the possibility of cross-contamination. We believe this represents a significant opportunity for us.
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Food Loss
The Food and Agriculture Organization of United Nations predicts that about one-third of the food produced globally is wasted or lost every year. Approximately 644 million tons of fruits and vegetables are thrown away each year (representing 42% of the total food wasted every year). A report published in April 2020, generated by the European Innovation Partnership Agricultural Productivity and Sustainability, estimates that in Europe an estimated 9 million tons of food is lost at the production stage (farm), while up to 16.9 million tons are lost at the processing stage (packing houses, etc.).
Much of this loss is caused by spoilage, which can be caused by microorganisms – primarily fungi and mold. In addition, mold and fungi represent the highest numbers of incidents of post-harvest microbial diseases in fresh produce worldwide. Taken together, it is estimated that nearly a third of all food grown is lost between the time that it is grown and harvested and the time that it is packaged for retail sale. Such waste equates to roughly $680 billion in industrialized countries and $310 billion in developing countries.
Post-harvest losses due to spoilage represent a significant problem along the supply chain and lead to profit losses in the millions. The main causes of these losses are pest or disease infestation and incorrect storage conditions, which lead to rotting or loss of fresh mass. Fruits and vegetables are largely damaged after harvest by fungi and other pathogens. It is estimated that an average of 45% of harvested fruit and vegetables are lost globally. Post-harvest diseases have been identified as the greatest cause of post-harvest losses in fruits and vegetables, causing significant economic losses. It is estimated that approximately 20 to 25% of the fruit and vegetables harvested are lost due to microbial spoilage during post-harvest handling in developed countries. Furthermore, the demand for fresh fruits and vegetables, especially exotic tropical fruit has contributed to the demand for post-harvest treatments to increase shelf life and maintain quality, resulting in more efficient export trade.
Today, the most common way to protect fresh produce and prevent loss is the use of hazardous chemicals such as fungicides in post-harvest applications. Post-harvest diseases are generally controlled by fungicides. Systemic (non-organic) fungicides, are one of the most commonly used fungicides, for example, non-organic citrus fruits are completely covered by the fungicides, and the residue is persistent for the life of the fruit providing protection. However, as they tend to affect a single biochemical pathway within the pathogen, fungi may readily develop resistance to systemic fungicides. To avoid potential issues with resistance, maximum concentration of fungicides will be generally used to ensure highly efficient eradication of the targeted pathogen which leaves high residue level on the treated produce. Such high concentration levels may have severe negative effects on human health, and the environment mainly due to the carcinogenic and/or teratogenic properties of the compounds, and by their cumulative toxic effects.
The effects of exposure to these hazardous chemicals on humans and the environment are a continuing concern as they are intrinsically toxic and pollute the environment through wastewater discharge from the packing house or a discarded fruit. Therefore, the agricultural use of certain pesticides (in the field or in the packing house) has been significantly reduced or abandoned in some countries leaving the growers with significant challenges.
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To control and monitor the potential negative impacts pesticides might have over time, regulatory agencies that regulate pesticides – for example, the EPA, the Pest Management Authority Agency in Canada, and the European Food Safety Authority (“EFSA”) in Europe, have defined a maximum residue level (the “MRL”) that can be present on the treated produce. Additionally, more countries require an MRL for the commodity to be imported into their country. As there is increased awareness regarding compliance with MRLs, MRLs have become a much greater concern. These changes have also impacted the market and we believe that consumers spearheaded this change by demanding organic or pesticide-free foods. Recently, consumers have increasingly wanted to understand where and how their food is grown. Retailers and processors have capitalized on what they view as an opportunity to offer more information to consumers. It is more common now for retailers and processors to ask which products have been used on the commodities they are purchasing. There are also retailers and processors banning the use of certain products, requiring any residues to be below the established MRLs. The reduction in MRLs results in lower efficacy of fungicide and increased loss.
We believe that the rising demand for healthy food among the global population will trigger the market’s growth in the forthcoming years. Over the last decade, the organic market in Europe continued to grow and reached €40.7 billion in 2018 with 15.6 million hectares (approximately 38,548,439 acres) (including 2.2 million hectares in Spain, the largest organic area in Europe, followed by 2.0 million hectares in France and 2.0 million hectares in Italy), providing farmers with further added value on their production. The strong growth rates in both production and consumption indicate that the organic market has not yet reached its peak and further growth can still be expected. Organic farming is already responding to further emerging consumer trends such as veganism and demand for locally produced food products, turning these challenges into opportunities.
As consumer demand for organic fruits and vegetables is increasing globally and there is an increasing promotion by government organizations for the adoption of environmentally friendly pesticides, the biorational pesticides market, estimated at $2.78 billion in 2017, is projected to reach a value of $5.02 billion by 2022, at a compound annual growth rate (the “CAGR”) of 12.5% from 2017. A biorational pesticide is a term used to define any pesticide material that causes relatively no harm to humans or animals and does little or no damage to the environment. We believe that our products could be defined as biorational products.
Analysts have predicted that the organic fresh food market will reach a CAGR of almost 15% by 2023. The market size will increase by $62.23 billion during the forecast period from 2019 to 2023. In addition, strict regulations have been imposed on the usage of pesticides and GMO-produced crops worldwide. This, in turn, has influenced consumer demand for organic fruits and vegetables.
Case Study – Citrus Fruit
Citrus fruit, which represent one of the main fruits produced worldwide with more than 100 million tons produced worldwide, can be infected by many fungal pathogens, and these pathogens can cause considerable losses during storage and transportation. Losses are mainly caused by Penicillium digitatum, P. italicum, Aspergillus flavus and Alternaria alternata for citrus fruit. Post-harvest treatments such as thiabendazole, imazalil, sodium ortho-phenil phenate or other active ingredients have been used for many years. They are currently the most commonly used fungicides effective for controlling post-harvest fungal pathogens in citrus and they are used in citrus packing houses to maintain fresh fruit, control post-harvest decay, and extend fruit shelf life. However, significant problems such as environmental issues and health concerns have risen in the citrus industry due to chemical residues or the occurrence of pathogenic resistant strains which require the use of even higher concentration of these post-harvest treatments. However, currently, the residues of imazalil on citrus fruits is being revised by the European Commission. The EFSA put forward a proposal in 2018 to cut the MRL for imazalil from 5 milligrams per kilogram to 0.01 milligrams per kilogram, causing worry among Europe’s main citrus producing countries and packers exporting their produce to European countries. Due to the significant impact this proposal could have on the citrus industry, the European Council has decided, in the meantime, to start reducing imazalil residues to four milligrams per kilogram for citrus fruit for a limited period of time to allow the citrus industry an extra time to find green and safe alternatives. Our treatments have already shown its benefits in reducing significantly the residues of imazalil while maintaining the produce shelf life.
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Current Market Drivers and Trends
In addition to food safety and food waste concerns, the following market drivers are also shaping the food industry by setting standards and conditions on the main actors in the industry:
| ● | Focus of consumers on health characteristics: consumers are more aware and conscious of the health characteristics of the food they consume. Consumers pay more attention to the qualities of the fresh produce they buy. Particularly in the United States and Europe, products such as berries, avocados, mangoes, pomegranates, papayas and sweet potatoes are gaining popularity and considered “super foods,” and these products are showing a strong annual import growth of 10% to 20%. | |
| ● | Increasing demand for organic produce: the demand for organic products is growing rapidly particularly in Europe and North America, and is closely related to consumer interest in healthy and pure eating. While the increasing demand created potential for oversees supply, it can be challenging and expansive for exporters in tropical climates to comply with the increasingly demanding organic standards. | |
| ● | Success of retailers determined by quality of produce: a recent report by Fruit Logistica published in 2019, based on consumer surveys that involved almost 7,000 consumers in 14 different markets across Europe and North America, demonstrated the increased importance of fresh produce for the profitability of food retailers. According to the report, when choosing the place to buy their groceries, consumers focus on the quality of the stores’ fresh food, with freshness of fruits and vegetable being their top priority. The report also showed that customers who are satisfied with the store’s fresh food quality, would visit the store more frequently than those who are not. In addition, consumers are also willing to pay more for better-quality produce and their basked will be 4% larger. | |
| ● | Promoting sustainability: a large range of sustainability aspects are directly related and affected by the fresh produce industry. Food waste accounts for 8% of global greenhouse gas emissions. Both consumers and businesses, are becoming more aware of the growing importance of sustainability issues. As consumers increasingly embrace social causes, they seek products and brands that align with their values. According to a recent analysis published by Research Insights, nearly six in 10 consumers surveyed are willing to change their shopping habits to reduce environmental impact, nearly eight in 10 respondents indicated sustainability is important for them, and among those respondents that indicated that sustainability is very or extremely important, over 70% indicated that they would pay a premium of 35%, on average, for brands that are sustainable and environmentally responsible. Increasing number of companies in the fresh food sector are investing in sustainability. Survey conducted by Champions 12.3 in 2017 showed that 99% of businesses that invested in reduction of food loss and waste, received a net positive financial return. Primary production companies are investing in aspects of food losses, energy efficiency and carbon footprint, through innovations such as drying produce, on-farm and off-grid cold rooms and post-harvest treatments. | |
| ● | Food retailers seek to reduce their waste and maximize their revenues: more than eight million tons of food are wasted every year in the United States in the retail sector alone, which translates into $18 billion in lost value (cost of waste) every year. Some retailers, including Walmart, have already committed to implement a zero-waste policy by 2025. Prevention solutions across the retail value chain offer the highest returns to retailers and are growing the fastest. | |
| ● | Regulators are promoting the use of safer chemical-based product: for example, the EPA offers a “Safer Choice” label that product manufacturers may use on qualifying products to help consumers and commercial buyers identify products with safer chemical ingredients. The EPA requires that every chemical, regardless of percentage, in a Safer Choice-certified product is evaluated and allows only the safest ingredients. | |
| ● | Increasing investment in foodtech and agritech companies: according to a recent report published by AgFunder, a venture capital firm active in the foodtech and agritech, startups developing agri-food tech solutions and products, raised approximately $26.1 billion in 2020, a 15.5% year-over-year increase. Reduction of food waste, extension of the shelf life of fresh produce and reduction of the use of pesticides are main focus of the industry and many companies are addressing these objectives, including: |
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The increased consumption of fruits and vegetables in combination with the current regulation and consumers’ demand for healthier food has placed a greater burden on the fresh produce industry to provide food products that are fresher in quality, demonstrate an extended shelf life and are safer to consume.
The aforementioned changes provide a unique opportunity for us to introduce our products and treatments. We are aiming to become a significant player in post-harvest green produce treatment, fully responsive to the world’s ongoing change in fruit and vegetables consumption, food safety requirements as well as regulations and consumer demand to eliminate the use of hazardous chemicals.
Our Core Products and Treatments
Our innovative products address what we believe to be two of the most significant challenges in the food industry: increase food safety and reduce food loss. Our main product lines consist of a proprietary blend of organic food acids applied in post-harvest applications, which is designed to work together with an oxidizing agent (Save Foods treatment) in order to improve food safety and increase fruit and vegetable’ shelf life by reducing microbial spoilage.
The main steps in post-harvest applications are cleaning, sanitization and coating (wax). Our treatments address the cleaning and sanitization application points which are the critical first steps for preserving the quality of fresh produce by controlling microbial contamination related to food safety (e.g., Listeria, Salmonella, E. coli) and food loss due to microbial spoilage (e.g., fungi, mold and yeast). In general, the current process includes an initial washing step to remove soil and other debris, which improves the product appearance and lowers the product temperature. The next step includes sanitation or disinfection methods combined with fungicides that can further reduce the presence and prevent the transfer of spoilage and pathogenic microorganisms on fresh produce surfaces. The last step usually includes application of wax sometimes combined with an additional application of fungicides to prevent or reduce physiological changes and risks of spoilage. Our main products and treatments are applied at the cleaning and sanitization steps.
One of the main advantages of our treatments based on our food acid blend is its non-toxic residues that are providing protection to the treated produce. And we believe that all the blend ingredients are recognized by the FDA as GRAS when used as intended in fruit and vegetable wash applications. Moreover, they significantly reduce or eliminate the need for additional post-harvest applications with conventional fungicide by at least 50%, and in some cases entirely, and can reduce food waste due to spoilage by up to 50% (see results below on easy peelers and mango).
Our main products are:
| ● | Processing Aids – SavePROTECT or PeroStar: post-harvest application added to fruit and vegetable wash water as a processing aid to peracetic acid (oxidizing agent) to increase its efficiency against plant pathogens and reduce produce loss; and | |
| ● | Sanitizers - SF3HS and SF3H: post-harvest cleaning and sanitizing solution to control both plant and foodborne pathogens to ensure both food safety as well as increase produce’s shelf life. |
Processing Aids – SavePROTECT or PeroStar
Processing aids are products that are intended to be used with other products to aid the application or enhance the effect of that product. Save Foods processing aids, which are marketed as SavePROTECT in the Americas and PeroStar in the rest of the world, are based on our proprietary blend of food acids and are added to the wash water at the cleaning and sanitization stages simultaneously with a low concentration of peracetic acid (“PAA”), the active agent. This food acid blend serves several functions:
| ● | SavePROTECT/PeroStar keeps the process wash waters at a relatively low stable pH level. We have observed that low pH levels strengthen the effectiveness of the PAA and the fungicide used which result in increased sanitation and biocide activity; |
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| ● | PAA-based products are used as disinfectant in wash water. When used with PAA-based products, SavePROTECT/PeroStar may optimize the efficacy of PAA and eliminates the strong odor of PAA, creating a more friendly and safe working environment; | |
| ● | When used with fungicides, including imidazole, imazalil, thiabendazole, etc. – most commonly used fungicides – SavePROTECT/PeroStar may optimize the efficacy of the fungicides used and prevent resistance buildup; | |
| ● | SavePROTECT/PeroStar helps to clean the fruit surface and can improve the performance of the wax applied leading to an improved appearance of treated fruit by leaving a glossy finish on the outer skin of the fruit; and | |
| ● | SavePROTECT/PeroStar helps to extend shelf life. |
During 2020, we ran a series of proof of concept and small trials in collaboration with commercial partners on pears, avocado, easy peelers, lime, mango, bell pepper, lemons, fresh cut vegetables and figs. During 2021 and the first quarter of 2022, we initiated a proof of concept in bananas, lychee, berries, pomegranate, broccoli, tomato and eggplant. As of December 31, 2021, we have commenced sales and fully commercialized our treatment with respect to easy peelers, lime, bell peppers, dates and avocado.
Results on Berries
Berries are easily perishable and maintaining fresh quality after harvest depends on proper handling, transportation, and storage. If berries are not properly handled during and after the harvest, they lose nutritional and monetary value.
Strawberries, raspberries, black raspberries, blackberries, and blueberries are picked fully ripe for best appearance and eating quality. Because they are so delicate and easily damaged, they are usually picked directly into final containers to minimize handling, so grading and sorting of damaged or decaying fruit happens as the crop is picked. Even when they are handled under optimal harvesting temperature and humidity conditions, their shelf life is still short compared to most fruits and vegetables. Finally, even though it is common knowledge that consumers should be washing the berries before consuming them, this doesn’t always happen. That makes farm food safety procedures crucial to minimize the risk of spreading foodborne pathogens.
During the fiscal quarter ended December 31, 2021, and the fiscal quarter ended March 31, 2022, we began working with raspberries and strawberries producers to apply our treatments with the goal to extend their shelf life. The results of the trials have shown that for raspberries, our treatments have reclaimed 80% of the raspberries that would otherwise have gone to waste. The trial pushed the boundaries of the raspberries’ shelf life, with 10 days in cold storage and three more days at room temperature, after which three times as many berries were viable to be sold. For strawberries, our treatment have shown a waste reduction of 85% after 15 days.
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Results on Avocado
During September 2021, we began a commercial pilot with Milopri, the avocado packer of Galilee Export, to evaluate Save Foods’ treatment on avocados. While our application was applied on the packing line, boxes of avocado were put aside for shelf-life evaluation. After 16 days at room temperature, the avocado treated with our treatment showed the lowest percentage of decay resulting in two times more avocado available for consumption.
Results on Bell-peppers
The Arava region in the south of Israel produces approximately 60% of all the fresh vegetables that Israel exports, and bell peppers are its leading exported vegetable. At the beginning of the bell pepper season (September 2021), we began commercial pilots in two large packing house in order to evaluate the benefits of our treatment as applied to bell peppers.
Our treatments have shown a decay reduction compared to the current industry standards and have maintained the firmness of the bell pepper overtime. While Israeli packers in the region are struggling to maintain a reasonable shelf life for their produce during the export process, our treatments have shown a significant improvement in export performance. The foregoing pilot demonstrated that bell peppers, after applying our treatment, sustained 70% less decay after 28 days (23 days in cold storage and an additional five days at room temperature) translating into 20% more bell peppers to sell and consume.
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Results on Easy Peelers
Easy peelers are citrus fruits that are easier to peel, such as tangerines, mandarins, satsumas, and clementines. As previously described, imazalil is currently one the most commonly used fungicide that is effective in controlling post-harvest fungal pathogens in citrus. Currently, the residues of imazalil on citrus fruit is being revised by the European Commission and have already been reduced, and this reduction poses challenges, especially to packing houses exporting to Europe.
Between February and June 2020, we collaborated with the Israeli branch of one of the largest worldwide post-harvest service companies to demonstrate the safety and ability of PeroStar to meet the new requirement of reduced residue level of imazalil and efficiently control decay against the most common pathogens attacking citrus fruit such as green mold (Penecillium digitatum) and sour rot (Geotrichum candidum). The experiment simulated the applications in a packing house which tested the use of imazalil with and without our products. The reference used in the trials to compare the results was the maximum amount of imazalil allowed and the current treatment in the packing house which is a combination of PAA and imazalil as well as PAA alone to simulate treatment in organic settings.
To ensure the efficacy of the products, it is customary to deliberately infect the fruit with the target pathogen at a concentration of around 10 and to inoculate it for 16 to 24 hours before treatment. Following the treatments, the fruit was stored in cold storage for between 9 to 21 days and then stored in room temperature for shelf-life evaluation.
During these months, we ran a series of trials from small scale/lab test (between 350 to 500 fruits per trial) to semi-commercial application (more than 1000 fruits per trial). The semi-commercial pilots were run in Ashkelon, Israel on the packing line of Mehadrin in Israel, a well-know and recognized citrus packer. As of January 2022, Mehadrin is applying our treatments on produce in one of its packing-lines in Ashkelon, Israel, in which Mehadrin has reported a reduction of 50% of pesticide usage.
The results of the trials have shown that PeroStar significantly reduced the need for additional post-harvest applications with imazalil by at least 50%, and in some cases entirely while improving the fruit shelf life, reducing waste). In addition, the use of PeroStar allows the packing house to meet the new limitations of imazalil utilization as well as meet its goal to apply greener and safer products (see graph below).
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Results on Mangos
We have recently tested our PeroStar on mangos in collaboration with the Israeli-based Volcani Center for Agricultural Research. The goal of the test was to evaluate the effectiveness of PeroStar in preventing decay in harvested mangos in comparison with fludioxonil. Fludioxonil is a fungicide that is commercially available in Israel at a level of 250 to 300 parts per million. Fludioxonil is deemed to be an effective fungicide against fungi that attack the mango post-harvest, yet there is a growing need for “greener” solutions, given Fludioxonil’s level of toxicity.
Mangos was stored for three weeks after treatment at 12°C and an additional week of shelf life at 20°C in what would typically simulate a mango crate shipment to Europe and retailers in similarly distanced markets.
Results after evaluation have shown us that the treatment with PeroStar, improved the biocide activity of the PAA, which resulted in a reduction in both side decay and stem-end rot (common pathogens in mango) leading to an extended shelf life with no use of fungicide (as demonstrated in the picture below). In addition, the results also showed that the combination of PeroStar with a low concentration of fludioxonil reduced the post-harvest decay to zero. The results (as presented in the graph below) demonstrate that applying PeroStar enables mango producers to achieve an improved shelf life of produce compared to the current treatment while reducing the use of conventional chemical pesticides.
We expect to start our commercial activities during the upcoming mango season in 2022.
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Results on Limes
Following a successful pilot in Mexico on Persian lime (where SavePROTECT has reduced to zero the fruit decay after 21 days as shown in the graph below), the packing house bought its first batch to start its utilization of our product. Thereafter, and beginning in June 2021, the packing house began applying our treatment to all of its packing facilities in Mexico.
Based on these results, food retailers may benefit from additional income of up to $126 per ton of limes assuming a conservative average price of $3,000 per ton (based on an average price per pound lime of $1.49 in 2019), as presented in the graph below.
The European Union is a significant target market for our organic food acid blends because of strict regulations that are being imposed on the use of pesticides and GMO-produced crops, as well as health conscious consumers who represent a growing demand for organic fruits and vegetables. In August 2020, we submitted a regulatory dossier for our PeroStar as a processing aid to be used with PAA in Spain and Italy, two of the largest fruit and vegetables producers in Europe. See “Government Regulation and Product Approval” below.
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Commercialization Stage
The table below summarizes our commercialization efforts and activities as of March 31, 2022.
| Easy peeler | Lime | Avocado | Bell pepper | Lemon | Dates | |||||||
| California, USA | v | |||||||||||
| Israel | v | v | v | v | v | |||||||
| Mexico | v | |||||||||||
| Turkey | v | v |
Sanitizer – SF3HS or SF3H
Post-harvest sanitizers are considered a pesticide and regulated by the EPA in the United States. The EPA will review toxicity data and results from tests to show how well the product kills bacteria to determine if the product should be approved. See “Government Regulation and Product Approval” below.
This sub-category of products is based on our proprietary blend of food acids combined with hydrogen peroxide as the oxizider and includes SF3HS and SF3H. We believe that this category of products will be an improved sanitizer as compared to traditional sanitizers. SF3HS and SF3H are public health antimicrobial pesticide products that bear a claim to control by at least a 3 log10 reduction (99.9%) pest microorganisms that pose a threat to human health (foodborne pathogens), and whose presence cannot readily be observed by the consumer.
After we have finalized our toxicological studies, we conducted a series of microbial trials in laboratories in both the United States and Israel in non-Good Laboratory Practice (“non-GLP”) settings in order to evaluate the efficacy of SF3H as an antimicrobial agent to reduce foodborne pathogenic bacteria in “processing water” for fruit and vegetables. We used a modification of the Association of Official Agricultural Chemists Germicidal and Detergent Sanitizing Action of Disinfectants method and test protocol EN1276 (European standard for the evaluation of chemical disinfectant or antiseptic for bactericidal activity). The tested organisms are Listeria monocytogenes, Salmonella enterica and Escherichia coli O157:H7.
The last test was performed by Analytical Lab Group on a mix culture of Listeria monocytogenes with an exposure time of 30 seconds. The results showed more than 99.99999% (7.51 Log10) reduction. In Israel, the tests were performed by the Institute for Food Microbiology and Consumer Good Health on a single strain for each pathogen (Listeria monocytogenes, Salmonella typhimurium and E. coli) with exposure time of 30 seconds and the results have shown between 99.99% to 99.9999% reduction. Exposure time is a key parameter in sanitization process, therefore allowing a short contact time is a significant advantage over the competition where the current minimum contact time available is 45 seconds.
We plan to conduct GLP efficacy studies during the first half of 2023 to complete our regulatory dossier for the EPA and the FDA to obtain the appropriate regulatory approvals for our products to be marketed and used as “sanitizers” to claim control of foodborne pathogens (food safety) as well as plant pathogens (food loss reduction). We plan to submit our regulatory dossier during the second half of 2023. It is planned that SF3HS/SF3H will be used in post-harvest to control both plant and foodborne pathogens for fruit and vegetables (including microgreens). For additional information regarding the regulatory approval process see “Government Regulation and Product Approval” below.
Results on Avocados (food safety)
We have tested the efficacy of our SF3H and SF3HS products against Listeria on 40 avocados of which 10 avocados were treated with our SF3H and SF3HS products. The peel of the avocado was punctured and infected with high level of Listeria. The results have shown a 99.99% reduction within fifteen seconds of exposure time. In addition, we have also tested the efficacy of SF3H on avocado’s shelf life compared to current treatments (12 avocados per treatment). The results (demonstrated below) show that after 18 days in room temperature the treated avocados display material reduction in microbial spoilage as compared to avocados treated with water and chlorine, a well-known sanitizer.
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Results on Microgreens (food safety)
An increasing number of studies point to the growing demand for locally sourced, organic vegetables. Various types of “young vegetables,” such as sprouts, microgreens and baby greens, are becoming increasingly popular due to their high nutritional value. Microgreens are deemed premium products and command higher retail value. They also belong to a group of “functional foods” and have high levels of bioactive compounds, while requiring less water and energy to grow, which they do year-round. Currently, microgreens are largely being cultivated in major greenhouses across the United States. According to Agrilyst, an agro-intelligence platform, greenhouse cultivation of microgreens was the highest in South and Northeast regions, each accounting for 71% and 59% in 2017. While consumers in the United States are more focused on growing leafy greens and microgreens than any other vegetables.
We have tested the efficacy of our SF3H products to control and prevent potential pathogen contamination on microherbs (pea and sorrel) produced by Israeli-based microgreens exporter 2BFresh. Our treatment combined a post-harvest spray application and a fogging treatment to be used in the cooldown storage room. In order to determine the efficacy of the product, 25 swabs were taken across 18 trays (nine of each microgreen species). The results (as presented herein) show more than a 90% reduction of the total bacterial load post-treatment (see table).
We believe that our SF3HS and SF3H provide improved sanitization of bacteria (including E. coli, Salmonella and Listeria) while leaving no toxic residues on fruits and vegetables.
We expect the first commercialization of SF3H and SF3HS at the earliest by mid-2024.
Other Products
Our product portfolio also includes the SpuDefender and FreshProtect.
SpuDefender
SpuDefender is one of our EPA-registered products which targets and is designed to control the post-harvest potato sprout. Due to the European Commission’s decision on January 1, 2020, to no longer allow the use of the herbicide chlorpropham (the “CIPC”), the post-harvest potato industry is looking for new solutions. For over 50 years, CIPC was widely used as a sprout suppressing agrochemical agent applied to potatoes that were stored in processing facilities.
Following recent discussions with post-harvest experts and potential customers, we believe our SpuDefender product may offer a successful alternative to CIPC. During 2022, we plan to initiate pilot tests with potential customers to treat potatoes pre-storage (three to six months storage in average).
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FreshProtect
FreshProtect is our second EPA registered product, which targets and is designed to control spoilage-creating microorganisms on post-harvest citrus fruit. The registered label of the product only allows us to market and sell FreshProtect in the United States (excluding California). However, we believe that FreshProtect has a significant potential in reducing the bacterial load entering the packing house in the pre-harvest market. The non-toxicity of FreshProtect allows its application up to the day of harvest (0-day pre-harvest interval), which is critical to prolong crop protection and reduce microbial spoilage.
We recently ran a proof-of-concept study under a controlled group environment of different plant fungi responsible for decay which showed promising initial results.
Recently, Dr. Jim Adaskaveg, Professor at the Microbiology and Plant Pathology Department at the University of California, Riverside, reported the completion of several successful field trials with FreshProtect on citrus trees where he demonstrated a significant reduction of decay in treated fruit and a reduction in bacterial populations.
The main conclusions of the trials were that FreshProtect with concentration of 1% and 2% applied at 400 gallons per acre materially reduced sour-rot on inoculated fruit. While both rates were also effective against fruit inoculated with P. digitatum, (i.e., fungus found in the soil of citrus-producing areas and major source of post-harvest decay), the 2% concentration of FreshProtect demonstrated significantly more efficacy at reducing sour-rot. Natural incidence of Penicillium spp. (a family of fungi) was also reduced on fruit inoculated with G. candidum, fungus that is a member of the human microbiome.
Furthermore, FreshProtect can be used in combination with several different kinds of pesticides and fertilizers which allows the application of more than one pesticide at once. This in turn reduces cost and facilitates implementation. The graph below summarizes these results:
The regulation for pre-harvest (in the field) application especially in California as well as in Israel may take more time than post-harvest application due the potential impact on the environment. We plan to submit the pre-harvest regulatory dossier by the end of Q2 2022 in the US. Therefore, we expect the product to reach the market during the second half of 2023.
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Our Strengths
We believe that our main strengths include:
| ● | Strong Management Team with Commitment to Green Products. Led by a team with over 30 years of experience in developing sanitization products and solutions for the agriculture industry, we plan on becoming a significant player in providing consumers with healthy and green fresh produce from farm to fork while endeavoring to ensure food safety and reducing food waste. We believe that our proprietary blend of food acids provides protection to the treated produce and works in synergy with well-known fungicides and sanitizers. This synergy allows us to significantly reduce the concentration of the fungicides that are heavily regulated in several countries and, in certain countries, outright banned and meet the food trends of sustainable and green produce. | |
| ● | Multi-Purpose Products that Simplify Crop Treatment Routine and Save Money. While most chemicals marketed in the industry address either food safety or food waste, our multi-purpose treatments are intended to provide a solution for both problems, while simplifying crop treatment and achieving cost saving. Our treatments are capable of cleaning and controlling pathogens that would otherwise render fresh produce as unsafe for human consumption. Our proprietary blend of food acids combined with well-known sanitizers are very efficient against foodborne pathogens like E. coli, Salmonella and Listeria as well as plant pathogens in short contact time (99.999% reduction within 30 seconds of contact). In addition, with multipurpose products, there is no need to order, ship or dispose of bottles of product, resulting in less energy consumed, less CO2, less fuel, and less waste. We believe our focus on natural product chemistries will allow us to continually drive lower costs, higher product gross margins and efficacy through longer shelf life and reduction of food waste. | |
| ● | Strong Intellectual Property Portfolio. We believe that we have built a strong intellectual property position throughout the food chain (from field to fork) as our patents claim compositions and methods that can be used to protect food and agricultural products from decay. We rely on a combination of important intellectual property assets, to protect our innovation. Our employees, consultants, customers, and vendors are subject to confidentiality agreements that protect our proprietary manufacturing processes. Our patent portfolio includes granted patents in the United States, Europe, and Israel, as well as several priority applications, across several patent families, including composition-of-matter claims, methods of use claims, including for treating edible matter, for improving the appearance of edible plant matter, and sterilization methods, as well as for articles for implementing these methods. These patents directly protect a proprietary method for extending life shelf and reducing edible matter from microbial decay. | |
| ● | Commercially Available Products and Seamless Implementation. One of the oxidizers being used with our products is PAA, a well-known and widely used sanitizer. Following the enforcement of the FSMA in connection with the use of sanitizers, more and more packers have been choosing this healthy and eco-friendly sanitizer over chlorine, and this choice facilitates implementation of our products. In addition, the application of our products does not require special equipment as they are used in combination with or replace existing products applied on the packing line or in the mix tank in the field. This allows a relatively cheap, seamless and fast implementation. | |
| ● | Significant Reduction of Hazardous Chemicals Food Residue. All the ingredients in our blend of food acids are recognized by the FDA as GRAS when used as intended in fruit and vegetable wash applications, while oxidizers we use such as hydrogen peroxide rapidly decompose into water and oxygen. The absence of toxicological residues not only improves food quality but also promotes occupational safety for the employees of packing houses, contributing to a friendlier and safer working environment. |
Our Strategy
In September 2018, the Company changed its organizational structure and management team. After reviewing the Company’s then existing strategy and results of operation, as well as examining the market opportunities, the new management team decided to update the Company’s strategy, reduce the marketing and sales of its existing products, and focus the Company’s efforts and financial resources in developing its next generation products. During the years 2019 and 2020, we developed, validated and tested the efficacy of our next generation product – a blend of food acids – on a variety of crops in small and large scale commercial pilots. During 2021, following the completion of certain successful pilots conducted in 2020, the Company shifted its strategic focus to marketing, sales and overall commercialization of its products.
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Our strategy is to develop and commercialize our products directly to leading packing house and through strategic partnerships with global post-harvest service companies and with large food distributors and retailers with the intent of: (i) extending the shelf life of fresh produce while reducing (and even eliminating) the use of harmful chemicals (fungicides); (ii) ensuring food safety and shelf life by controlling foodborne pathogens and allow our customers to meet FSMA regulatory requirements; (iii) reducing food loss and the associated carbon “footprint.” Our ultimate goal is to eventually gain presence in a variety of businesses compromising the food industry, including pre-harvest, post-harvest, retail and consumer businesses.
In order to achieve our goals, we intend to:
| ● | Advance our Breakthrough Technologies and Commercialization Efforts. During the first half of 2022, we plan to run a series of additional pilot studies in various commercial collaborations with post-harvest service vendors packing houses and food retailers. | |
| ● | Develop a Strong Marketing Message Around Promoting Safe Food While Avoiding Food Waste. We plan to brand our fresh produce with a “chemical residues free” seal of approval and we believe that like-minded fruit packers around the globe will seek to differentiate themselves from their competitors by obtaining this seal. | |
| ● | Acquire or License Complementary Products and Technologies. We actively search for products and technologies that can enhance our portfolio and grow our business to address all the post-harvest treatments such as fruit coating products or technologies. | |
| ● | Expand to Additional Produce and Geographies. Our plan is to focus first on key countries and regions with the largest markets for our crops, including Mexico, Spain, Italy, Israel, Turkey, Egypt, Morocco, Peru, Columbia and key markets in the United States such as California, Florida and Texas. We are also planning to increase the variety of crops that can be treated with our products, to include produce such as apples, tomatoes, pomegranate, berries, eggplant, broccoli, and papayas. | |
| ● | Leverage Our Products Through Collaborations. Our focus and expertise in the development of green products for the agritech industry and in post-harvest treatments allow us to be a partner of choice for other businesses looking for development partners and for larger companies wanting to leverage their product such as PAA into new combination products. For example, companies selling or owning fungicides, the MRL of which is being reduced, and that are working in synergy with our products are good partners. This type of collaboration could allow them to continue selling their product. | |
| Our selling and marketing strategy is twofold: | ||
| ● | Establish Collaborations with Food Retailers. Large food retailers play an important role in influencing the decisions of key suppliers down the food chain (i.e., they can dictate to their suppliers which cleaning solutions they will use when treating the fresh produce at their packing house). Food retailers must ensure food safety as well as reducing food loss occurring during distribution, storage and retail. In the United States alone, 4.65 million tons of fresh produce were thrown away at the retail level. This waste cost $8.9 billion and amounted to 12% of the U.S. fresh fruit supply and 10% of the fresh vegetable supply. With an average percentage of 5% of all strawberries, apples, avocadoes, tomatoes and broccoli in the United Kingdom and 12% and 10% of the fresh fruit supply and fresh vegetable supply in the United States, respectively, wasted at the retail and/or distribution level, we believe even a small reduction in fresh produce loss can generate large savings. | |
| ● | Partner with Service Vendors to Fruit and Vegetable Packing Houses. Post-harvest service companies provide packing houses with the necessary machinery and products, such as sanitizers and fungicides to enable the packing houses to treat the produce. Post-harvest service companies face competition due to the current regulations that dictate specific types of treatment products and set tolerable residue levels. In addition, these companies must provide their packing houses with state of the art, cost effective and green product to incentivize the packing houses to build long-term business relationship with them. Moreover, service vendors are important because they have strong influence on the decision of which cleaners, sanitizers, fungicides and waxes that the fruit and vegetable packing houses will use. Additional benefit of partnering with post-harvest service company is their strong global market presence in the relevant geography. In addition, both food retailers and post-harvest service companies have a significant interest in green and efficient post-harvest solutions. | |
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Selling and Marketing
We concentrate our selling and marketing efforts on high value crops, such as avocado, mango, citrus, apples, pears, bananas, papaya, bell pepper, lettuce and tomatoes and target large producers of these crops as well as large food distributors and retailers. As of March 31, 2022, we are exploring collaboration opportunities for our SavePROTECT or PeroStar with producers in the Americas (Chile, Mexico, Peru and Columbia), the United States, South Africa, Philippines, Thailand, Turkey, Egypt, Morocco, Spain, Israel and Italy, and we intend during the next 12 months to extend the commercial collaboration with local packers and retailers in the targeted locations previously mentioned. To facilitate our market penetration, we are collaborating with local agents/experts in the various foregoing jurisdictions, each of which that has connections with packers and retailers on the ground, which helps us bridge the language and cultural gap.
The table below summarizes the market opportunities for selected produce in our target markets.
| Apples Pears | Avocado | Bananas | Berries | Bell pepper | Citrus | Lettuce chicory | Mango | Papaya | Tomatoes | |||||||||||||||||||||||||||||||
| Global Production of the Crop (in million ton)1 | 109.2 | 6.8 | 115.9 | 10.1 | 35.3 | 63.5 | 27.0 | 52.5 | 13.4 | 181.1 | ||||||||||||||||||||||||||||||
| Production of the Crop in the Company’s Target Markets (in million ton)2 | 19.4 | 3.9 | 17.6 | 4.2 | 9.6 | 19.0 | 7.5 | 7.7 | 1.7 | 51.4 | ||||||||||||||||||||||||||||||
| Production of the Crop in the Company’s Target Markets (in %) | 18 | % | 58 | % | 15 | % | 42 | % | 27 | % | 30 | % | 28 | % | 15 | % | 13 | % | 28 | % | ||||||||||||||||||||
| 1. | Average global production for the years 2016, 2017, 2018, 2019 and 2020. | |
| 2. | Our target markets include Chile, Colombia, Egypt, Israel, Italy, Mexico, Morocco, Peru, Philippines, South Africa, Spain, Thailand, Turkey and the United States. |
To support our efforts, we will increase our marketing and sales team as well as services in our target location to support all our efforts.
Turkey
While Turkey is not a member of the EU, the EU estimates that more than 42 percent of all Turkish exports go to EU member states, which will soon be bound by stricter rules about the origin of their imports. Turkey’s Ministry of Trade estimated that in 2020 the total value of Turkish exports to the EU exceeded €120 billion.
Since August 2021, we have been working with a local post-harvest agent to introduce us to local Turkish packers. Our current focus in Turkey is the citrus sector, and as of December 2021, we had three pilots ongoing with leading packers in Turkey. Following these pilots, Kalyoncu began implementing our treatment in their citrus line next to Mersin.
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We are targeting additional citrus packing houses in Turkey, which we expect to be ready for the upcoming citrus season of 2022-2023. In addition to citrus, we plan to commence a pilot of our treatment on bell peppers in Turkey.
Mexico
To promote our activities in Mexico, we are collaborating with Agrinet S. A., an agritech consultancy firm with expertise in introducing new products into Mexico. Agrinet has initiated a pilot program across Mexico to demonstrate the benefits of Save Foods treatment. The program includes several packing house companies in Mexico that export to the United States and elsewhere worldwide, and in the context of the program our treatment is being applied to citrus, avocado, bell peppers, broccoli and tomatoes.
Following successful pilots conducted between August and October of 2020 on Persian lime, SiCar, one of the largest packers of Persian lime in Mexico, is now applying our treatment in all of their packing houses in Mexico. Mexico is the largest producer of Persian limes.
Israel
During January 2022, the beginning of the easy peeler season in Israel, Mehadrin, the largest citrus packing house in Israel, began using our treatment in their citrus packing houses.
We are running additional pilots with large packing houses in Israel on pears, berries, pomegranate and tomatoes. We expect to add additional produce in the second half of 2022 and have started to collaborate with local Israeli partners to test our treatments in the field before harvest.
On September 11, 2020, we signed a five-year exclusive distribution agreement with Safe-Pack Products Ltd., according to which we granted Safe-Pack an exclusive right to resell, distribute, advertise, and market our products in the citrus industry in Israel and the Palestinian territories.
United States
The first market we target for the sale and distribution of SavePROTECT is the post-harvest citrus industry in the State of California, which alone accounts for approximately 80% of all fruits and vegetables in the United States.
Over the last three years, we have treated more than 200,000 tons of citrus fruit with the different version of our SavePROTECT product. Under the supervision of a world leading packing house to the citrus fruit industry, we evidenced SavePROTECT utility as having a good safety profile, ensuring food safety and in controlling microbial spoilage. We plan to leverage this collaboration in order to further penetrate the citrus based fruit packing industry, both in California and beyond.
The Post-harvest treatment market for fruits and vegetables, which is projected to grow from $1.5 billion in 2019 to $2.3 billion by 2026, growing at a CAGR of 6.5% during the forecast period, is led globally by select companies, including DECCO U.S. Post-Harvest, Inc., (United States), Pace International, (United States), Xeda International (France), John Bean Technologies (United States) and Agrofresh (United States).
During October 2021, we secured the appropriate regulatory approvals and, accordingly, we plan to further penetrate this market for the upcoming citrus season of 2022-2023. We currently focus on post-harvest treatment for the citrus industry (as well as mangos and avocados) but are conducting pilot studies with leading players in the industry to evaluate and validate the efficiency of our treatments in their packing facilities.
On September 22, 2020, we entered into a non-exclusive commission agreement with Earthbound Technologies, LLC (“EBT”) for a period of 12 months, according to which EBT will introduce us to potential clients, pre-approved by us (the “Introduced Parties”) and will assist us in finalizing commercial agreements with the Introduced Parties. In consideration for its services, we agreed to pay EBT 12.5% of the net revenues generated from the Introduced Parties (during the agreement period and within 18 months following the termination of the agreement) up to a total aggregated amount of $2,000,000, provided that the compensation shall not exceed 25% of our gross profit under the given commercial agreement signed with the Introduced Party. In addition, in the event that the aggregated net revenues generated from the Introduced Parties exceeds $500,000, and subject to the approval of our board of directors, we will issue to EBT 7,143 options to purchase 7,143 shares of Common Stock at an exercise price of $8.4 per share. In the event that certain additional events detailed in the agreement occur, we will also issue to EBT, subject to the approval of our board of directors, an additional 7,143 options to purchase 7,143 shares of Common Stock at an exercise price of $8.4 per share.
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Spain
We have been collaborating with one of the world’s leading post-harvest treatment service vendors in Spain since June 2020, where we are examining our product on citrus fruit. We believe our product could be an improved alternative to current fungicides that will soon be significantly reduced in this market.
Intellectual Property
We rely on patents and trade secret protection laws to protect our proprietary products and intellectual property. We entered into confidentiality agreements with our employees, consultants, customers, service providers and vendors that cover, inter alia, our technology and proprietary manufacturing processes.
As of March 13, 2022, we own nine issued patents, and six pending patent applications, four of which may be submitted worldwide. Expiration dates of our patents, and any patents which may be granted under our pending patent applications, are from 2031 through 2041. Our patent family includes patents granted in Israel, the United States and Europe.
Compositions and Methods of Treating Edible Matter and Substrates Therefor
This patent family includes granted patents in the United States, Israel, and an allowed application in Europe and is directed to a method for protecting edible matter from decay by applying to the edible matter a disinfecting composition containing, among other things, (1) phosphonic or phosphoric acid, (2) a carboxylic acid, (3) performic acid, (4) a performic acid source (such as formic acid) and an oxidizer (such as hydrogen peroxide).
| File Number | Country | Type | Status | Application/Patent Number | Priority Date | |||||
| SVF-P-001-DE | Germany | Patent | Issued | DE 602011071750.2 | September 14, 2010 | |||||
| SVF-P-001-ES | Spain | Patent | Issued | 11825901.9 | September 14, 2010 | |||||
| SVF-P-001-FR | France | Patent | Issued | 11825901.9 | September 14, 2010 | |||||
| SVF-P-001-GB | Britain | Patent | Issued | 11825901.9 | September 14, 2010 | |||||
| SVF-P-001-IL | Israel | Patent | Issued | 225247 | September 14, 2010 | |||||
| SVF-P-001-IL1 | Israel | Patent | Pending | 254909 | September 14, 2010 | |||||
| SVF-P-001-US1 | United States | Patent | Issued | 10,212,956 | September 14, 2010 | |||||
| SVF-P-001-US2 | United States | Patent | Pending | 16/278,108 | September 14, 2010 |
Methods for Improving the Appearance of Edible Plant Matter
This patent family includes a granted patent in Israel and is directed to a method of improving the appearance of edible plant matter either during the pre-harvest or post-harvest stage. The method includes applying a composition based on phosphonic acid to the edible plant matter.
| File Number | Country | Type | Status | Application/Patent Number | Priority Date | |||||
| SVF-P-002-IL | Israel | Patent | Issued | 229724 | May 30, 2011 |
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Method and Apparatus for Maintaining Fresh Produce in a Transportation Container
This patent family includes granted patents in Israel and in the United States. The patent family is related to a method of using thereof for maintaining fresh produce stored in a transportation container. The apparatus is configured to generate an aerosol of one or more liquid pesticides, thereby reducing pathogenic contamination within the transportation container. This patent family covers any liquid pesticide for use in the above-mentioned apparatus.
| File Number | Country | Type | Status | Application/Patent Number | Priority Date | |||||
| SVF-P-003-IL | Israel | Patent | Issued | 227328 | June 23, 2013 | |||||
| SVF-P-003-US | United States | Patent | Issued | 9,487,350 | June 23, 2013 |
Sterilization Compositions and Methods for Use Thereof
This patent family is directed to compositions and methods for reducing pathogen load within a container or on a surface, including inter alia the surface of an edible plant matter. Furthermore, the application is directed to compositions and methods for disinfection of cooling systems.
| File Number | Country | Type | Status | Application/Patent Number | Priority Date | |||||
| SVF-P-004-USP | United States | Patent | Pending | 63/277,640 | November 10, 2021 |
Sterilization Devices and Methods for Use Thereof
This patent family is directed to a device for controlling pathogen load within a container or on a surface by spraying a disinfecting composition in response to a trigger, such as increased pathogenic contamination.
| File Number | Country | Type | Status | Application/Patent Number | Priority Date | |||||
| SVF-P-005-USP | United States | Patent | Pending | 63/277,648 | November 10, 2021 |
Compositions Comprising of Several Organic Acids and Use Thereof
This patent family is directed to kits and methods for controlling pathogen load within or on the surface of an edible plant matter.
| File Number | Country | Type | Status | Application/Patent Number | Priority Date | |||||
| SVF-P-006-PCT | International application | Patent | Pending | PCT/IL2021/050229 | March 1, 2020 |
Combined Fungicidal Preparations and Methods for Use Thereof
This patent family is directed to compositions and to methods for reducing pathogen load on a substrate.
| File Number | Country | Type | Status | Application/Patent Number | Priority Date | |||||
| SVF-P-007-PCT | International application | Patent | Pending | PCT/IL2021/050770 | June 23, 2020 |
We cannot be sure that any patent will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future. There is also a significant risk that any issued patents will have substantially narrower claims than those that are currently sought.
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Competition
Given that the market for the use of green and “residue free” solutions is evolving, we are continually facing growing competition. The market for post-harvest solutions is fragmented and includes various regional suppliers. The market of post-harvest treatments for fruits and vegetables is dominated by five large players with wide reach across the globe. We believe that a market edge will be given to a company that can solidify its reputation, product quality, customer service and customer intimacy, product innovation, technical service and value creation. Based on these variables, we believe that we compete favorably when compared with the global competition in this market.
Currently, our main competitors are companies providing PAA, chlorine and other sanitization solutions, such as Ozone as well as technology companies developing new biorational fungicides.
We also compete with heavily diversified multi-national chemical conglomerates, who produce various biocide formulations designed to kill or deactivate pathogenic micro-organisms. Of these, two companies are the most significant:
| ● | Peroxychem: Peroxychem is a subsidiary of Evonik Industries AG (Germany). It is a significant worldwide producer of hydrogen peroxide, persulfates and PAA. Peroxychem generated sales of approximately $300 million in 2019; and | |
| ● | Solvay (Belgium): Similar to Evonik Industries, Solvay is a heavily diversified multinational chemical conglomerate. During the fiscal year 2021, Solvay had approximately €10.1 billion in net sales, spread across the breadth of their product lines. Most relevant to us is their blends of PAA and hydrogen peroxide, sold in two primary formulations – OXYSTRONG for water treatment and PROXITANE for the food industry. |
In addition, we have several indirect competitors, which are companies with whom we seek to make strategic partnerships – large companies specializing in post-harvest solutions for the agricultural industry. Such companies include:
| ● | Decco US Post-Harvest: Decco is a subsidiary of Decco Worldwide, which itself is a division of United Phosphorous Ltd. Decco provides a variety of solutions, both mechanical and chemical, for the post-harvest industry. They produce conventional fungicides (imazalil, thiabendizole, etc.), as well as produce coatings; and | |
| ● | Pace International: Pace International is a subsidiary of the Sumitomo Chemical Company. Similar to Decco, it provides a variety of solutions – primarily in the realm of conventional fungicides and carnauba wax coatings for fruit. |
We also consider Xeda International, JBT and Agrofresh as our indirect competitors (and current or potential collaborators).
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The organic market offers a huge trade and income potential for producers, processors and trading companies globally. The rising demand of various organic products has driven the demand of organic post-harvest treatments. Green and organic technologies are increasingly being developed in a global market and several conventional post-harvest product and equipment suppliers, such as Citrosol, Fomesa and Peroxychem, have taken the opportunity and are starting to develop natural products.
Research and Development
In the last two years we spent an aggregate of $955,684 on research and development. We focus on developing innovative solutions consisting of new generation, patented products that address immediate and long-term needs. Our research efforts are aimed at optimizing the application protocols of our existing core products such as PeroStar/SavePROTECT for new crops, developing new blend of acids and enhancing our SF3H/SF3HS products’ antimicrobial efficacy as well as evaluating new technologies and products while taking into account costs, consumers trends and preferences, which will give the extra value needed to separate our products from those of our competitors in the marketplace.
Post-Harvest
We are currently working on the compatibility and synergistic effect of our processing aids products SavePROTECT/PeroStar with additional post-harvest treatments used in the packing house to provide an efficient, greener and cost-effective solution.
We are also focused on the characterization of our new sanitizers including the identification, improvement and other validations of our formulas. These products are based on a unique stabilization process that blends hydrogen peroxide and food acids to create a broad-spectrum, safe and eco-friendly solution for killing germs. The synergistic effects of combining hydrogen peroxide with food acids produce a stable yet environmentally safe and easy to handle sanitizer. We use a network of experts in related fields, such as microbiology, and food chemistry to obtain all the required regulatory approvals.
In addition, we are in the initial stages of development of natural antimicrobial edible coatings for microbial safety and food quality enhancement comprising our acid blend.
To accurately test the strength of a sanitizing solution, we are working on developing quantitative methods. Similarly, we are developing analytical methods that will enable rapid and effective monitoring of the active ingredients through a novel and improved testing kit that allows for testing at a faster pace and with greater certainty.
In addition to analytical methods, we are also working on developing new delivery systems combined with the collection and transmission of data to provide users with analytics and optimization tools and increase our presence in the packing house.
Pre-Harvest – FreshProtect
We are also focused on developing new eco-friendly pre-harvest products which will improve post-harvest management practices by reduction of total microbial load, before even entering the packing house. An effective pre-harvest treatment may reduce the need for post-harvest chemical fungicides while increasing profit through reduced spoilage in supply chains. In addition, the potential of addressing pre-harvest treatment might offer new opportunities for treating crops, such as rice and wheat, with large market potential.
In pre-harvest application, one of the main advantages of our products is the non-toxicity of its ingredients, allowing its application up to the day of harvest (0-day pre-harvest interval), which is critical to prolonged crop protection and reduced microbial spoilage while reducing the total bacterial load entering the packing house. Field studies are conducted by Dr. James E. Adaskeveg from University of California, Riverside and the largest grower cooperative in CA in the United States on citrus trees to determine the effectiveness, optimize use protocol and effect on the environment.
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Production
In Israel, we work exclusively with Zohar Dalia, a reputable chemical production company. Based on our formulation and guidance, Zohar Dalia is producing our PeroStar and any other small-scale formulation that we might need for research and development purposes and trials. Zohar Dalia is particularly regarded for its deep understanding and experience working with oxidizer like hydrogen peroxide and PAA.
In the United States, we work with Seeler Industries, a national leader in marketing, handling, and in the termination of hydrogen peroxide. Both Seeler and Zohar Dalia, purchase all raw materials necessary for the production of our products.
All ingredients and/or raw materials that are used in the creation of our products are commodities and are readily available for purchase off the shelf.
Government Regulation and Product Approval
Our products are subject to national, state and local government regulations. Based on the product claims and classification, different regulatory and registration requirements may apply at the state, provincial or federal level.
Regulation of Our Sanitizers – SF3H and SF3HS
In the United States, the primary federal laws that regulate the sale and distribution of our sanitizer products are the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”) and the Federal Food, Drug and Cosmetic Act (“FFDCA”).
FIFRA is the federal law that regulates the sale and distribution of pesticides and is administered by the EPA. Products that claim or are otherwise intended to control microorganisms on inanimate surfaces, in water and on raw agricultural commodities are regulated, under FIFRA, as pesticides. FIFRA generally requires the pre-market registration of pesticide products. To register a pesticide product, we are required to provide test data and related information to demonstrate that the product is safe and effective under the conditions of use, as specified on the product label. The cost and timeframe to achieve EPA product registration depends on the type of product and the claims made for the product. Registered products are also subject to a number of recordkeeping and reporting obligations which require constant product oversight by companies.
Pursuant to FIFRA and Section 408 of the FFDCA, the EPA establishes tolerances for pesticide chemical residues that could remain in or on food, including raw agricultural commodities. A tolerance is the EPA established maximum residue level of a specific pesticide chemical that is permitted in or on a human or animal food in the United States. Generally, any pesticide chemical residue must have either a tolerance or an exemption from the requirement to have a tolerance in order to be permitted in or on human or animal food. The FDA enforces the tolerances pursuant to its authority under the FFDCA.
The FFDCA regulates the sale and distribution of drugs, medical devices, cosmetics and foods (including substances added to and found in food such as pesticide residues) and is administered by the FDA. Under the FFDCA, the FDA does not register or approve products that are used on food commodities and certain food-contact surfaces, such as food packaging. However, all substances that are used on food or food-contact surfaces need to be subject to an FDA regulation or permitted through other clearance mechanisms, such as a Food-Contact Notification (FCN), Threshold of Regulation (TOR) opinion, by Prior Sanction or be “Generally Recognized as Safe” or “GRAS”. If all the substances or ingredients in a particular product are cleared for use on food or food-contact surfaces or are GRAS then a company can market a product without obtaining any additional clearances. GRAS substances do not require pre-market approval or clearance by the FDA although the FDA does have a notification process for GRAS substances.
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At the federal level, antimicrobial agents are subject to regulation by the FDA and/or EPA, either singly or jointly, depending upon the intended use of the product. Antimicrobial products applied to processed food are solely regulated by the FDA per longstanding FDA and EPA policy outlined in an EPA Notice titled “Legal and Policy Interpretation of the Jurisdiction Under the Federal Food, Drug, and Cosmetic Act of the Food and Drug Administration and the Environmental Protection Agency Over the Use of Certain Antimicrobial Substances” (63 Fed. Reg. 54,532 at 54,536 54,541 (Oct. 9, 1998)) and EPA’s Pesticide Registration Manual, Chapter 18. Antimicrobial products applied to raw agricultural commodities (e.g. fruits and vegetables) are jointly regulated by the EPA and the FDA if their application takes place in a food-processing facility. If the antimicrobial product is applied to a raw agricultural commodity in a treatment facility that solely washes and packs food commodities, and the treatment does not change the status of the food as a raw agricultural commodity, then the EPA has sole federal regulatory jurisdiction.
Since our sanitizers will be and are intended to be used solely to treat raw agricultural commodities in post-harvest washing and packing facilities, at the federal level they are regulated solely by the EPA (as opposed to FDA): product registration is required under FIFRA and any food residues are regulated under the FFDCA. To complete the registration process, we will be required to submit a number of studies in the form of a registration application or dossier, which has not yet been submitted to EPA. These studies will specifically include: (i) safety studies - six acute toxicity studies (already finalized), (ii) physio-chemical properties testing (already finalized), (iii) one-year storage stability and corrosion (ongoing), and (iv) an efficacy study to demonstrate that the product is an effective sanitizer (studies conducted under non-good laboratory practices already performed and they show the product meets EPA performance standards). We have already identified and engaged with a third-party company in the United States to perform our good laboratory practices efficacy studies.
In addition, every state has its own laws that regulate pesticides and these laws require registration of pesticide products at the state level. Accordingly, products must also be registered in the states in which they are distributed prior to any sale.
Regulation of Our Processing Aid – SavePROTECT or PeroStar
In the United States, our SavePROTECT product does not make any pesticidal claims and is not intended for use as a pesticide and, therefore, is not subject to the registration requirements of FIFRA. However, since the product is used on raw agricultural commodities in food processing facilities, the product is subject to regulation under the FFDCA. We believe that the product is in compliance with the FFDCA since every ingredient in the product can be considered GRAS when used as intended.
Although SavePROTECT is not a pesticide under FIFRA, it is still required to be registered in California because the California statute requires the registration of both pesticide and adjuvant products.
On July 31, 2020, we submitted an “Application for Registration of Adjuvant” for SavePROTECT to the CDPR. The dossier submitted included the following studies: (i) acute oral toxicity and acute dermal toxicity studies, (ii) physico-chemical property testing (determination of color, physical state, odor, density, pH, viscosity and oxidation/reduction chemical incompatibility), (iii) validation of the high-performance liquid chromatography method assay, (iv) stability test, and (iv) efficacy data.
Based on the intended use and claims for SavePROTECT, our product was registered with CDPR on October 27, 2021 as an adjuvant.
In addition, based on the opinion of our U.S. regulatory experts, all SavePROTECT ingredients are GRAS when used as intended.
In December 2021, we submitted an application for certification for our SavePROTECT to the Organic Materials Review Institute (the “OMRI”), an international nonprofit organization that determines which input products are allowed for use in organic production and processing. OMRI Listed® products are allowed for use in certified organic operations under the United States Department of Agriculture (the “USDA”) National Organic Program. OMRI reviews input products to verify that they meet the organic standards for use on organic farms or in organic processing. OMRI is recognized by the USDA National Organic Program as a reputable third-party input reviewer in Interim Instruction 3012 of the NOP Handbook. In addition, OMRI is accredited under the International Organization for Standardization (ISO) 17065 by the USDA Quality Assessment Division.
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In Europe, processing aids are defined as substances that are added to exert a technological function during food processing and which may end up in the finished product. According to Regulation (EC) No. 1333/2008, processing aids means any substance which (i) is not consumed as food by itself; (ii) is intentionally used in the processing of raw materials, foods or their ingredients, to fulfil a certain technological purpose during treatment or processing; and (iii) may result in the unintentional but technically unavoidable presence in the final product as residues of the substance or its derivatives, provided they do not present any health risk and do not have any technological effect on the final product.
Processing aids are differentiated from food additives, which are substances that are added to food with the intention to exert a technological function within the final food product. Therefore, processing aids must not follow the European Food Safety Authority (the “EFSA”) guideline of “Data Requirements for the Evaluation of Food Additive Applications.”
In Europe, our PeroStar is not considered a processing aid in the enzymatic preparation category and, therefore, PeroStar is only regulated at the national level. While there are no harmonised requirements regarding the registration of a processing aids, some data (such as full composition and some toxicological data) must be disclosed and discussed with the competent authorities before the submission of a registration request.
In Spain, the guidelines for precise documentation for evaluation of technological adjuvants intended to be used in human food, state specific conditions for the assessment, authorization and use of all other types of processing aids, which are not processing aids in the enzymatic preparation category. During the third quarter of 2020, we submitted a regulatory dossier as a processing aid for PeroStar in Spain and Italy with very similar information as the regulatory dossier submitted in California.
In Mexico, based on the product composition and the legal status of the substances to be used as food additives, our PeroStar/SavePROTECT can be marketed and used in Mexico as a food additive (processing aid) and no registration is required (pending the final confirmation from Mexican government).
In Israel, the guidelines of the National Food Services, Ministry of Health, define the requirements for cleaning and disinfectant agents used with food. These guidelines state that such cleaning and disinfectant agents applied to the cleaning equipment which comes into direct contact with food, must not contain carcinogens. Specifically, List A and List B published by the Inter-ministerial Committee on Carcinogens, Mutagens and Teratogens of the Ministry of Health identify products and ingredients with carcinogenic, mutagenic and teratogenic properties. Our regulatory consultant in Israel has confirmed that our PeroStar does not contain carcinogens, mutagens and/or teratogens, and, therefore, is considered approved in terms of the relevant regulations of the National Food Services, Ministry of Health, and can be used as an additive to cleaning and disinfectant agents for fresh produce.
On January 22, 2022, we received an approval from Peru’s Ministry of Agricultural Development and Irrigation to sell our products in Peru.
Registration of Our SpuDefender and FrehProtect
We currently have registrations for our SpuDefender (EPA Reg. No. 86381-1) and our FreshProtect (EPA Reg. No. 86381-2), at both the federal level and in the individual states where the products are sold for the use in post-harvest settings. To allow the utilization of our FreshProtect in pre-harvest settings, additional studies will need to be submitted to the EPA.
Organizational Structure
As of December 31, 2021, we have one 98.48% owned subsidiary: Save Foods Ltd., which is incorporated in the State of Israel. Save Foods Ltd. is responsible for all of our research and development and sales activities.
Human Capital Management
As of March 31, 2022, we employ nine (9) full-time employees/consultants and one (1) part-time employee. None of our employees are members of a union or subject to the terms of a collective bargaining agreement.
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We believe that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel. In particular, we depend on the skills, experience and performance of our senior management and research personnel. We compete for qualified personnel with other agritech companies, as well as universities and non-profit research institutions.
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health and safety of our employees. In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This includes having employees work from home, while implementing additional safety measures for employees continuing critical on-site work.
We consider our employees to be a key factor to our success and we are focused on attracting and retaining the best employees at all levels of our business. We employ people based on relevant qualifications, demonstrated skills, performance and other job-related factors. We do not tolerate unlawful discrimination related to employment, and strive to ensure that employment decisions related to recruitment, selection, evaluation, compensation, and development, among others, are not influenced by race, color, religion, gender, age, ethnic origin, nationality, sexual orientation, marital status, or disability. We are committed to creating a trusting environment where all ideas are welcomed and employees feel comfortable and empowered to draw on their unique experiences and backgrounds.
We consider our relations with our employees to be good.
Company History
We were incorporated under the name Pimi Agro Cleantech, Inc. on April 1, 2009, under the laws of the state of Delaware. On April 11, 2016, we changed our name from Pimi Agro Cleantech, Inc. to Save Foods, Inc. Our subsidiary was incorporated on January 14, 2004, under the name Pimi Marion Holdings Ltd., to exploit the knowledge, intellectual property and business assets of Nir Ecology Ltd., a company founded in September 1989, focused on developing sanitizing solutions for the water and food industry. During the initial years of its activity and until 2009, Pimi Marion Holdings Ltd. focused on the development of new products and applications within the potato-growing industry. On October 5, 2008, Pimi Marion Holdings Ltd. changed its name to Pimi Agro Cleantech Ltd. In September 2018, we changed our organizational structure and leadership team to support our new strategy and objectives. The goal of the organizational change was to drive the Company towards regulatory approvals for our new generation of products. Our revamped strategy was developed following research we conducted on the applicable and potential commercial markets for our products. The results of this research demonstrated a clear and significant market for our new products to be deployed as sanitizers for the agricultural and food tech industries. On May 2, 2019, Pimi Agro Cleantech Ltd. changed its name to Save Foods Ltd.
item 1a. risk factors
You should carefully consider the risks described below, as well as the financial or other information in this Annual Report, including our consolidated financial statements and the related notes, before deciding whether to invest in our securities. The risks and uncertainties described below are not the only risks we face. We may face additional risks and uncertainties not currently known to us or that we currently deem to be immaterial. Any of the risks described below, and any such additional risks, could materially adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment.
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Risks Related to Our Financial Condition and Capital Requirements
We have a history of operating losses and expect to incur additional losses in the future.
We have sustained losses in recent years, which as of December 31, 2021, accumulated to $17.1 million, including an operating net loss of $4.7 million and $1.3 million for the years ended December 31, 2021 and 2020, respectively. We are likely to continue to incur significant net losses for at least the next several years as we continue to pursue our strategy, which is currently focused on research and development. Our losses have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. Any failure to achieve and maintain profitability would continue to have an adverse effect on our stockholders’ equity and working capital and could result in a decline in our share price or cause us to cease operations.
We may need to raise significant additional capital, which we may be unable to obtain.
Our capital requirements in connection with our research and development activities and transition to commercial operations have been, and will continue to be significant. We will require additional funds to continue research, development and testing of our technologies and products, to obtain intellectual property protection relating to our technologies when appropriate, and to market our products. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. In either of the aforementioned situations, we may not be able to fully implement its growth plans.
Additional financings that we may require in the future will dilute the percentage ownership interests of our stockholders and may adversely affect our earnings and net book value per share. In addition, we may not be able to secure any such additional financing on terms acceptable to us, if at all. Moreover, if we are unable to obtain such additional capital as discussed above, we will be required to stop our operations, and will resume our activities, only after capital is raised.
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Risks Related to Our Business, Industry and Business Operations
Because of our limited operating history, we may not be able to successfully operate our business or execute our business plan.
In September 2018, the Company changed its organizational structure and management team. After reviewing the Company’s then existing strategy and results of operation, as well as examining the market opportunities, the new management team decided to update the Company’s strategy, reduce the marketing and sales of its existing products, and focus the Company’s efforts and financial resources in developing its next generation products. During the years 2019 and 2020, we developed, validated and tested the efficacy of our next generation product – a blend of food acids – on a variety of crops in small and large scale commercial pilots. In 2021, we commenced commercialization in various jurisdictions, while continuing to conduct commercial pilots.
Given our limited operating history, it is hard to evaluate our proposed business and prospects. Our proposed business operations will be subject to numerous risks, uncertainties, expenses and difficulties associated with early-stage enterprises. Such risks include, but are not limited to, the following:
| ● | the absence of a lengthy operating history, in connection with, inter alia, implementation of effective logistics for the export of our product globally; | |
| ● | insufficient capital to fully realize our operating plan; | |
| ● | expected continual losses for the foreseeable future; | |
| ● | operating in multiple currencies; | |
| ● | our ability to anticipate and adapt to a developing market(s); | |
| ● | acceptance of our products by the pre- and post-harvest industry players and consumers; | |
| ● | limited marketing experience; | |
| ● | a competitive environment characterized by well-established and well-capitalized competitors; | |
| ● | the ability to identify, attract and retain qualified personnel; and | |
| ● | operating in an environment that is highly regulated by a number of agencies. |
Because we are subject to these risks, evaluating our business may be difficult, our business strategy may be unsuccessful and we may be unable to address such risks in a cost-effective manner, if at all. If we are unable to successfully address these risks our business could be harmed.
Our products and technology require additional trials.
The efficacy of our products has only been shown in the limited number of pathogens tested on certain produce and aforementioned climates, and therefore our products have yet to be proven against certain additional and relevant pathogens, produce and market climates to validate the efficacy and benefits of our products. However, due to COVID-19, and the current restrictions on travels, we may delay or postpone certain of our planned trials.
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The commercial success of our new generation products, as well as any future products, depends upon the degree of market acceptance by the packing house community as well as by other prospect markets and industries.
In order to achieve high volume sales and attain a leading market share and become the new standard of treatment, our products must not only be approved by the regulators, but also endorsed by the major packing houses and service providers, retailers of fruits and vegetables as well as environmental organizations. Our success depends on our ability to create significant value to the growers, the packing houses and the food retailers. We are aware of this key factor and are focusing on conducting large scale trials with major fruits and vegetables packers and retail suppliers of fresh consumed goods in several countries, in order to show the efficacy of the products and our technology, and to receive the recognition of packers and retailers. However, there can be no assurances that we will succeed in such an endeavor, nor is it clear how long it will take until we receive market recognition.
There can be no assurance that any product that we bring to the market will gain market acceptance by prospective customers. The commercial success of our new generation products and any future product depends in part on the packing house community as well as other industries for various use cases, depending on the acceptance by such industries of our technology as a useful and cost-effective solution compared to current solutions. If our new generation products or any future product does not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of our products will depend on a number of factors, including:
| ● | the results of our large-scale trials; | |
| ● | the cost, safety, efficacy, and convenience of our new generation products; | |
| ● | the acceptance of our products as a superior solution in the fresh produce industry; | |
| ● | the ability of third parties to enter into relationships with us without violating their existing agreements; | |
| ● | the effectiveness of our selling and marketing efforts; | |
| ● | the strength of marketing and distribution support for, and timing of market introduction of, competing products; and | |
| ● | publicity concerning our products or competing products. |
Our efforts to penetrate the packing house industry and educate the marketplace on the benefits of our products may require significant resources and may never be successful.
COVID-19, including the efforts to mitigate its impact, have, and may continue to have, an impact our business, liquidity, results of operations, financial condition and price of our securities.
The ongoing COVID-19 pandemic, as well as the measures designed to contain and mitigate its effects, have had and will likely continue to have an impact on our business and operations, as well as the operations of our customers. Current efforts to contain or mitigate the spread of COVID-19 and its variants include governmental mandates or voluntary elections taken by companies as preventative measures (e.g. travel restrictions, and quarantine requirements). Our operations have been moderately impacted by the foregoing measures, specifically given the increasing difficulty with travelling abroad for on-site visits with suppliers and other business partners, as well as various packing houses’ restrictions on our entry into their facilities for operational purposes. In the event future variants emerge and trigger additional restrictions and other preventative measures, such efforts may contribute to an economic downturn, which could decrease consumer spending on our products and services, as well as impact our ability to expand our customer base or provide additional services to our current users.
In addition, continuation or exacerbation of the global supply chain crisis, whether resulting from the COVID-19 pandemic or for reasons otherwise unrelated, may impact our ability to forecast and control costs for raw materials necessary for our treatments. For instance, given our dependency on third-party suppliers, our operations may be adversely affected by disruptions or delays to the supply chain resulting from temporary closures of our supplier’s facilities, spikes in demand for our supplier’s goods and/or services from other customers, interruptions in product supply, restrictions on export or shipment or disruptions in product fulfillment due to closure or delays of our supplier’s delivery process.
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We may face significant competition from other companies looking to develop or acquire new alternative environmentally friendly solutions for the treatment of fruits and vegetables, and other edible matter.
We expect to face significant competition in every aspect of our business, and particularly from other companies that seek to enter our focal market. As regulators continue to move away from current residue chemical solutions, such as chlorpropham or CIPC, existing suppliers of these solutions are continually looking to develop or acquire new alternative environment-friendly solutions that can sustain their market share and revenue streams, or to enable the continuance of CIPC at current levels in new ways of treatment. Additionally, as market opportunity becomes eminent, competitors and new players will most likely attempt to develop similar or comparable solutions. It is possible that superior or more cost-effective alternative technology will emerge that will achieve greater market acceptance and render our products less competitive. Furthermore, existing vendors can cooperate to combat new players by reducing market prices and margins or other competitive initiatives. Our future success will therefore depend, to a large extent, upon our ability to achieve market acceptance of our innovative solutions as well as develop and introduce new products and enhancements to existing products. No assurance can be given that we will be able to compete in such a marketplace.
The market for post-harvest solutions is fragmented with various regional suppliers. The market of post-harvest treatments for fruits and vegetables is dominated by five large players with wide reach across the globe. We believe that the principal factors of competition in our industry include reputation, product quality, customer service and customer intimacy, product innovation, technical service and value creation.
Our success is dependent upon the acceptance of our environmentally friendly solutions for fruits and vegetables.
Our future success is dependent upon the acceptance of our environmentally friendly, non-toxic residual treatment solutions for fruits and vegetables. While the market is signaling that such a direction is likely, certain trends as well as the future size of this market, and other potential markets for our products, rely upon a number of factors, many of which are beyond our control. For example, both the failure to convince retailers to bear additional costs for “green” fruit and vegetables as well as the failure to persuade consumers to purchase “green” fruits and vegetables for higher prices may adversely affect our business, financial condition, operating results and cash flow going forward.
We may be unable to respond effectively to technological changes in our industry, which could reduce the demand for our products.
Our future business success will depend upon our ability to maintain and enhance our technological capabilities and develop and market products, services and applications that meet changing customer needs and market conditions in a cost-effective and timely manner. Maintaining and enhancing technological capabilities and developing new products may also require significant investments in research and development. We may not be successful in developing new products, services and technology that successfully compete or be able to anticipate changing customer needs and preferences, and our customers may not accept one or more of our new products or services. If we fail to keep pace with evolving technological innovations or fail to modify our products and services in response to customers’ needs or preferences, then our business, financial condition and results of operations could be adversely affected.
We currently rely on a limited number of suppliers to produce certain key components of our products.
We rely on unaffiliated contract manufacturers to produce certain key components of our products. In Israel, we work exclusively with a well-known producer of chemicals, Zohar Dalia, who is responsible for the production of our products. Zohar Dalia is well known for its knowledge and handling of hydrogen peroxide. In the United States, we have worked for the past few years with Seeler Industries, a national leader in the marketing and handling of hydrogen peroxide. There is limited available manufacturing capacity that meets our quality standards and regulatory requirements, especially for the manufacturing of the SF3H and SF3HS with one of their active ingredients – hydrogen peroxide – as well as for FreshProtect with one of its active ingredients – PO3. If we are unable to arrange for sufficient production capacity among our contract manufacturers or if our contract manufacturers encounter production, quality, financial, or other difficulties, including labor or geopolitical disturbances, we may encounter difficulty in meeting customer demands as we seek alternative sources of supply, or we may have to make financial accommodations to such contract manufacturers or otherwise take steps to mitigate supply disruption. We may be unable to locate an additional or alternate contract manufacturer that meets our quality controls and standards and regulatory requirements in a timely manner or on commercially reasonable terms. Any such difficulties could have an adverse effect on our business, financial condition and results of operations, which could be material.
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If we are unable to establish sales, marketing and distribution capabilities or enter into successful relationships with third parties to perform these services, we may not be successful in commercializing our products.
We have a limited selling and marketing infrastructure and have limited experience in the sale, marketing or distribution of products. To achieve commercial success for any product for which we have obtained marketing approval, we will need to enter into collaborations with third parties like post-harvest service companies and establish a selling and marketing infrastructure or to out-license our products.
In the future, we may consider building a focused selling and marketing infrastructure to market our products in the United States or elsewhere in the world. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force could be expensive and time consuming and could delay any product launch. This may be costly, and our investment would be lost if we cannot retain or reposition our selling and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
| ● | our inability to recruit, train and retain adequate numbers of effective selling and marketing personnel; | |
| ● | the inability of sales personnel to obtain access to potential customers; | |
| ● | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and | |
| ● | unforeseen costs and expenses associated with creating an independent selling and marketing organization. |
If we are unable to establish our own sales, marketing and distribution capabilities or enter into successful arrangements with third parties to perform these services, our revenues and our profitability may be materially adversely affected.
In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our products in our target markets, including Chile, Mexico, Peru, Columbia, the United States, South Africa, the Philippines, Thailand, Turkey, Egypt, Morocco, Spain, Italy and Israel, or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We rely on rapidly establishing global distributorship network in order to effectively market our products.
We have developed initial partnerships with local partners. In order to expand selling and marketing globally, and capture leading market share before any potential reaction from the competitors, we will need to rapidly expand geographically and establish a global distribution network. This is likely to put pressure on our management, financial and operational resources. In order to mitigate this factor, once we establish a significant presence in the market, we will proceed to establish strategic partnerships with some of the leading players in the market; however, there are no assurances that we will succeed in establishing such partnerships, which may harm the marketing of our products and the development of our business.
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The results of our early tests may not be indicative of results in future tests and we cannot assure you that any planned or future tests will lead to results sufficient for the necessary regulatory approvals.
Our products have been tested in multiple commercial and small-scale pilots on certain types of produce and during specific time of the year. We are currently in the development and optimization phases of these products. Results from our later-stage commercial tests may show lower efficacy than our early-tests conducted previously, and we cannot guarantee that when commercialized, our products will be effective and stable and product improvements as well as possible changes in the application and usage protocol may be required. These factors may significantly delay receipts of regulatory approvals, and the introduction of our products into the market. Likewise, we cannot be sure these products will be commercially viable, and have no assurances that we will be able to expand upon our current product offerings or that any such expansion will generate revenue.
Our products are highly regulated by governmental agencies in the countries where we conduct business and into which we plan to expand. Our failure to obtain regulatory approvals and registration, to comply with registration and regulatory requirements or to maintain regulatory approvals would have an adverse impact on our ability to market and sell our products.
Some of our products are subject to technical review and approval by government authorities in each country where we currently conduct our business and where we intend to sell our products.
The regulatory requirements to which we are subject are complex and vary from country to country. To obtain new registrations, it is necessary to have a local registrant, and to understand the country’s regulatory requirements, both at the time an application for registration is submitted and when the registration decision is made, which may be several years later. A significant investment in registration data is required (covering all aspects from manufacturing specifications through storage and transport, use, and, finally, disposal of unwanted product and used containers) to ensure that product performance (e.g., efficacy), intrinsic hazards and use patterns are fully characterized. Risk assessments are conducted by government regulatory authorities who make the final decision on whether the documented risk associated with a product and active ingredient is acceptable prior to granting approval for sale. This process may be prolonged due to requirements for additional data or internal administrative processes. There is a risk that registration of a new product may not be obtained or that a product label may be severely reduced, restricting the use of the product. If these circumstances arise, there is a risk that the substantial investments made in product development will generate the projected sales that justified the investment, and our business, financial condition and results of operations may be adversely affected by failure to obtain new registrations.
Products that are already approved may be subject to periodic review by regulatory authorities in many countries. Such reviews frequently require the provision of new data and more complex risk assessments. The outcome of such reviews of existing registrations cannot be guaranteed and registrations may be modified or canceled. Since all government regulatory authorities have the right to review existing registrations at any time, the sustainability of the existing portfolio cannot be guaranteed. Existing registrations may be lost at any time, resulting in an immediate impact on sales. Furthermore, prior to expiration, it is necessary to renew registrations. The renewal period and processes vary by country and may require additional studies to support the renewal process. Failure to comply could result in cancellation of the registration, resulting in an impact on sales.
In addition, new laws and regulations may be introduced, or existing laws and regulations may be changed or may become subject to new interpretations, which could result in additional compliance costs, seizures, confiscations, recalls, monetary fines or delays that could affect us or our customers.
In the United States, to complete the registration process of our sanitizers, we will need to submit a number of studies in the form of a registration application or dossier, which has not yet been submitted to the United States Environmental Protection Agency (the “EPA”). In addition, applicable rules and regulations in California require registration of processing aids with the California Department of Pesticide Regulation (the “CDPR”). On July 31, 2020 we submitted an “Application for Registration of Adjuvant” for our SavePROTECT processing aid to the CDPR. On October 27, 2021, we were informed that our application to CDPR was approved.
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Our success is dependent upon our ability to achieve regulatory approvals and registration in the United States and abroad (Mexico, Israel, Spain and Italy), which might take longer than expected.
We are subject to extensive national, state and local government regulation. A critical key to our success and ability to expand our business is our ability to obtain regulatory approvals and registration in the United States and in other countries for the use of our products. The regulatory approvals of some of our products are dependent on trials to show the efficacy and the non-toxicity of our products, and are time and cost consuming. We do not anticipate any significant problems in obtaining future required licenses, permits or approvals that are necessary to expand our business, however such registration filling might take longer period than expected due to various factors including the recent disruptions in regular services as a result of COVID-19, and it might delay obtaining such regulatory approvals, or might cause delays in starting operations on a large scale in these countries and other jurisdictions.
The inherent dangers in production and transportation of hydrogen peroxide and highly concentrated organic acids could cause disruptions and could expose us to potentially significant losses, costs or other liabilities.
Our operations are subject to significant hazards and risks inherent to the transportation of the active ingredient of one of our products – hydrogen peroxide. In high concentrations, our blend of acids has a very low pH which may lead to skin burn and hydrogen peroxide is an aggressive oxidizer and both can corrode many materials. We are working with limited low concentration of the material, however in high concentrations of H2O2 it will react violently. Hydrogen peroxide should be stored in a cool, dry, well-ventilated area and away from any flammable or combustible substances. It should be transported in special tanks and vehicles and should be stored in a container composed of non-reactive materials. These hazards and risks include, but are not limited to fires, explosions, third-party interference (including terrorism) and mechanical failure of equipment at our or third-party facilities. The occurrence of any of these events could result in production and distribution difficulties and disruptions, personal injury or wrongful death claims and other damage to properties.
Our business and operations may be affected by climate change conditions, which could materially harm our financial results.
Our business may be affected from changes in climate conditions as such events would affect the crops and their storability in those cases where there is unusually warm, dry, humid or cold weather before cropping.
In such instances, we may suffer a decrease in revenues as a result of a smaller storage volume of rooms or shorter storage period. We anticipate that once we increase our operations, and enter certain markets which experience or will experience significant climate change, such as above-common rain fall, heat waves, dry air conditions, and unusually cold or prolonged cold weather conditions, such events may materially impact our financial results.
Conditions in the global economy may adversely affect our business, financial condition and results of operation.
Although demand for fresh horticultural products is considered inelastic in developed economies, the fresh produce and citrus industries that we sell to may be affected by material changes in supply, market prices, exchange rates and general economic conditions. Delays or reductions in our customers’ purchasing or shifts to lower-cost alternatives that result from tighter economic market conditions would reduce demand for our products and services and could, consequently, have a material adverse effect on our business, financial condition and results of operations.
Our relationship with our employees could deteriorate, and certain key employees could leave, which could adversely affect our business and results of operations.
Our business involves complex operations and demands a management team to determine and implement our strategy and workforce that is knowledgeable and has expertise in many areas necessary for our operations. As a company focused on research and development in the highly-specialized horticultural post-harvest field, we rely on our ability to attract and retain skilled employees, consultants and contractors, including our specialized research and development. As of March 31, 2022, we employed nine full-time employees and one part-time employees, including the employees employed by our subsidiary, Save Foods Ltd. The departure of highly skilled employees, consultants or contractors or one or more employees who hold key regional management positions could have an adverse impact on our operations, including customers choosing to follow a such regional manager to one of our competitors.
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In addition, to execute our growth plan we must attract and retain highly qualified personnel. Competition for these employees exists; new members of management must have significant industry expertise when they join us or engage in significant training which, in many cases, requires significant time before they achieve full productivity. If we fail to attract, train, retain, and motivate our key personnel, our business and growth prospects could be severely harmed.
Furthermore, we are dependent upon the managers to oversee our operations. Thus, there can be no assurance that the managers’ experience will be sufficient to successfully achieve our business objectives. All decisions regarding the management of our affairs will be made exclusively by our officers and directors. In the event these persons are ineffective, our business and results of operation would likely be adversely affected.
We are subject to risks relating to portfolio concentration.
Our business is highly dependent on a small number of products, which are based on our main active ingredients. Our core post-harvest business includes solutions designed to improve the yields of the packing house but mainly ensure food safety and assisting packing houses to meet the new FSMA requirements. Our ability to market and sell products containing our active ingredient to key service providers for treatment in post-harvest food safety industry in order to utilize their market position is important to our future success.
Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly, year-to-date and annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause our stock price to fall. Each of the following factors, among the other risks described herein, may affect our operating results:
| ● | our ability to penetrate the packing house industry with our products; | |
| ● | our ability to generate revenue from our products; | |
| ● | the amount and timing, of operating costs and capital expenditures related to the maintenance and expansion of our businesses, and operations; | |
| ● | our focus on long-term goals over short-term results; | |
| ● | the global economic situation; and | |
| ● | fluctuations in weather conditions and its impact on the growing of fruits and vegetables. |
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States, Mexico or Israel.
Other than our headquarters and other operations which are located in Israel (as further described below), we currently have limited international operations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product candidates. We also plan to retain sales representatives and third-party distributors, outside of the United States and Israel at a later date. Doing business internationally involves a number of risks, including but not limited to:
| ● | multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits, and licenses; | |
| ● | failure by us to obtain regulatory approvals for the use of our product candidates in various countries; |
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| ● | additional potentially relevant third-party patent or other intellectual property rights; | |
| ● | complexities and difficulties in obtaining protection and enforcing our intellectual property; | |
| ● | limits in our ability to penetrate international markets; | |
| ● | financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; | |
| ● | natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade, and other business restrictions; | |
| ● | certain expenses including, among others, expenses for travel, translation and insurance; and | |
| ● | regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, as amended (the “FCPA”) its books and records provisions, or its anti-bribery provisions. |
Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
Our business depends to some extent on international transactions.
As a result of the international nature of our business, we are exposed to risks associated with changes in foreign currency exchange rates. A majority of our revenues and substantially all of our cost of sales are in USD, whilst our management, marketing, sales and RD costs are in NIS. We are therefore exposed to foreign currency risk due to fluctuations in exchange rates. This may result in gains or losses with respect to movements in exchange rates, which may be significant and may also cause fluctuations in reported financial information that are not necessarily related to our operating results.
Risks Related to Intellectual Property
If we are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our products, our ability to compete will be harmed.
Our commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection for the proprietary blend used in our products and our manufacturing process, as well as continuing to develop and secure trade secrets. We might in the future opt to license intellectual property from other parties. If we, or the other parties from whom we may license intellectual property, fail to obtain and maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property used in our products, resulting in harm to our competitive business position. In addition, patent and other intellectual property protection may not provide us with a competitive advantage against competitors that devise ways of making competitive products without infringing any patents that we own or have rights to.
U.S. patents and patent applications may be subject to interference proceedings, and U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices. Any of these proceedings could result in loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. Changes in either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the scope of our protection. Interference, re-examination and opposition proceedings may be costly and time consuming, and we, or the other parties from whom we might potentially license intellectual property, may be unsuccessful in defending against such proceedings. Thus, any patents that we own or might license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may have claims narrowed during prosecution or may not result in patents being issued. Even if any of our pending or future applications are issued, they may not provide us with adequate protection or any competitive advantages. Our ability to develop additional patentable technology is also uncertain.
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Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States.
If we are unable to prevent unauthorized use or disclosure of our proprietary trade secrets and unprotected know-how, our ability to compete will be harmed.
Proprietary trade secrets, copyrights, trademarks and unprotected know-how are also very important to our business. We rely on a combination of trade secrets, copyrights, trademarks, confidentiality agreements and other contractual provisions and technical security measures to protect certain aspects of our technology, especially where we do not believe that patent protection is appropriate or obtainable. We require our office holders, employees, consultants and distributers of our products and most third parties to execute confidentiality agreements in connection with their relationships with us. However, these measures may not be adequate to safeguard our proprietary intellectual property and conflicts may, nonetheless, arise regarding ownership of inventions. Such conflicts may lead to the loss or impairment of our intellectual property or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. Our office holders, employees, consultants and other advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. As a result, other parties may be able to use our proprietary technology or information, and our ability to compete in the market would be harmed.
We could become subject to patent and other intellectual property litigation that could be costly, result in the diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.
Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of a patent litigation action is often uncertain. No assurance can be given that patents containing claims covering our products, parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Furthermore, our competitors or other parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents which our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware. As the number of competitors in the post-harvest market grows, and as the number of patents issued grows, the possibility of patent infringement claims against us increases.
Infringement actions and other intellectual property claims and proceedings brought against or by us, whether with or without merit, may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation. Some of our competitors may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can because they have substantially greater resources.
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We cannot be certain that we will successfully defend against allegations of infringement of patents and intellectual property rights of others. In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the other party’s patents or other intellectual property were upheld as valid and enforceable and we were found to infringe the other party’s patents or violate the terms of a license to which we are a party, we could be required to pay damages. We could also be prevented from selling our products unless we could obtain a license to use technology or processes covered by such patents or will be able to redesign the product to avoid infringement. A license may not be available at all or on commercially reasonable terms or we may not be able to redesign our products to avoid infringement. Modification of our products or development of new products could require us to conduct clinical trials and to revise our filings with the applicable regulatory bodies, which would be time consuming and expensive. In these circumstances, we may be unable to sell our products at competitive prices or at all, our business and operating results could be harmed.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patents or other intellectual property. Ownership disputes may arise in the future, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may experience claims that our products infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products or services.
We continually seek to improve our business processes and develop new products and applications in a crowded patent space that we must continually monitor to avoid infringement. We cannot guarantee that we will not experience claims that our processes and products infringe issued patents (whether present or future) or other intellectual property rights belonging to others.
From time to time, we oppose patent applications that we consider overbroad or otherwise invalid in order to maintain the ability to operate freely in our various business lines without the risk of being sued for patent infringement. If, however, patents are subsequently issued on any such applications by other parties, or if patents belonging to others already exist that cover our products, processes or technologies, we could experience claims for infringement or have to take other remedial or curative actions to continue our manufacturing and sales activities with respect to one or more products. Likewise, our competitors may also already hold or have applied for patents in the United States or abroad that, if enforced or issued, could prevail over our patent rights or otherwise limit our ability to manufacture or sell one or more of our products in the United States or abroad. Any actions asserted against us could include payment of damages for infringement, stopping the use, require that we obtain licenses from these parties or substantially re-engineer our products or processes in order to avoid infringement. We may not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer our products successfully. Further, intellectual property litigation is expensive and time-consuming, regardless of the merits of any claim, and could divert our management’s attention from operating our business.
Risks Related to Regulatory Compliance
If we or our contractors or service providers fail to comply with laws and regulations, we or they could be subject to regulatory actions, which could affect our ability to develop, market and sell our products or future products that we may develop and may harm our reputation in our industry.
If we or our manufacturers or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, including with respect to food treatment, we could be subject to regulatory actions, which could affect our ability to develop, market and sell our current products or any future products which we may develop in the future and could harm our reputation and lead to reduced demand for or non-acceptance of our proposed products by the market.
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Regulatory reforms may adversely affect our ability to sell our products profitably.
From time to time, legislation is drafted and introduced in the United States, Mexico, Israel or other countries in which we operate, that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of our products, including in the food health industry. In addition, regulations and guidance may often be revised or reinterpreted by the regulatory authorities in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or interpretations changed, and what the impact of such changes, if any, may be.
Risks Related to Our Operations in Israel
Conditions in Israel may limit our ability to manage and market our products, which would lead to a decrease in revenues.
Because most of our operations is conducted in Israel and our management is located in Israel, our operations are directly affected by economic, political, geopolitical and military conditions affecting Israel. Accordingly, political, economic and military conditions in Israel 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 neighboring countries. These conflicts involved missile strikes against civilian targets in various parts of Israel including most recently, central Israel, and negatively affected business conditions in Israel as well as home starts and the building industry in Israel.
Our facilities are in range of rockets that may be fired from Lebanon, Syria or the Gaza Strip into Israel. In the event that our facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of our facilities, our ability to deliver products to customers could be materially and adversely affected. Our commercial insurance in Israel does not cover losses that may occur as a result of acts of war; however, losses as a result of terrorist attacks to our facilities and disruption to the ongoing operations, are covered by our insurance for damages of up to $40 million, if such damages are not covered by the Israeli government. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained and will be adequate in the event we submit a claim. Even if insurance is maintained and adequate, we cannot assure you that it will reduce or prevent any losses that may occur as a result of such actions or will be exercised in a timely manner to meet our contractual obligations with customers and vendors.
In addition, popular uprisings in various countries in the Middle East and North Africa have affected the political stability of those countries. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these countries, such as Turkey, from which we import a significant amount of our raw materials. Moreover, some countries around the world restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictions may limit materially our ability to obtain raw materials from these countries or sell our products to companies and customers in these countries. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods. Such efforts, particularly if they become more widespread, may materially and adversely impact our ability to sell our products out of Israel.
Our employees in Israel, generally males, including executive officers, may be called upon to perform military service on an annual basis until they reach the age of 40 (and in some cases, up to 45 or 49). In emergency circumstances, they could be called to immediate and prolonged active duty. Our operations could be disrupted by the absence of a significant number of our employees related to military service or the absence for extended periods of one or more of our key employees for military service. Such a disruption could materially and adversely affect our business and results of operations. Additionally, the absence of a significant number of the employees of our Israeli suppliers and contract manufacturers related to military service may disrupt their operations, in which event our ability to deliver products to customers may be materially and adversely affected.
Any hostilities involving Israel or the 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 materially and adversely affect our operations and product development, cause our revenues to decrease and materially harm the share price of publicly traded companies with operations in Israel, such as us.
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We may not be able to enforce covenants not-to-compete under current Israeli law that might result in added competition for our products.
We have non-competition agreements with all of our employees, all of which are governed by Israeli law. These agreements prohibit our employees from competing with or working for our competitors, generally during their employment and for up to 12 months after termination of their employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to enforce those provisions for relatively brief periods of time in restricted geographical areas, and only when the employee has obtained unique value to the employer specific to that employer’s business and not just regarding the professional development of the employee. If we are not able to enforce non-compete covenants, we may be faced with added competition.
It may be difficult to acquire jurisdiction and enforce liabilities against our officers and directors who are based in Israel.
The majority of our officers and present directors reside outside of the United States and most of our operations as of December 31, 2021 are located outside the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws. Moreover, we have been advised that Israel does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, it is unclear if extradition treaties now in effect between the United States and Israel would permit effective enforcement of criminal penalties of the federal securities laws.
Risks Related to Ownership of Our Common Stock
We may not satisfy Nasdaq’s requirements for continued listing. If we cannot satisfy these requirements, Nasdaq could delist our securities.
Our Common Stock is listed on Nasdaq under the symbol “SVFD”. To continue to be listed on Nasdaq, we are required to satisfy a number of conditions, including a minimum bid price of at least $1.00 per share of Common Stock, a market value of our publicly held shares of at least $1 million and shareholders’ equity of at least $2.5 million.
If we are delisted from the Nasdaq, trading in our securities may be conducted, if available, on the OTC Markets or, if available, via another market. In the event of such delisting, our shareholders would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of our securities, and our ability to raise future capital through the sale of our securities could be severely limited. In addition, if our securities were delisted from the Nasdaq, our Common Stock could be considered a “penny stock” under the U.S. federal securities laws. Additional regulatory requirements apply to trading by broker-dealers of penny stocks that could result in the loss of an effective trading market for our securities.
The market price of our Common Stock may be highly volatile.
The market price of our Common Stock is likely to be volatile. Our Common Stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
| ● | reports of adverse events with respect to the commercialization and distribution of our products; | |
| ● | inability to obtain additional funding; | |
| ● | any delay in filing a regulatory submission for any of our products and any adverse development or perceived adverse development with respect to the review of that regulatory submission by the EPA, the FDA or other regulatory authority; | |
| ● | failure to successfully develop and commercialize our products; |
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| ● | failure to enter into strategic collaborations; | |
| ● | failure by us or strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights; | |
| ● | changes in laws or regulations applicable to future products; | |
| ● | inability to scale up our manufacturing capabilities through third-party manufacturers, inability to obtain adequate product supply for our products or the inability to do so at acceptable prices; | |
| ● | introduction of new products or technologies by our competitors; | |
| ● | failure to meet or exceed financial projections we may provide to the public; | |
| ● | failure to meet or exceed the financial expectations of the investment community; | |
| ● | announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by our competitors; | |
| ● | disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our platform technologies, technologies, products or product candidates; | |
| ● | additions or departures of key scientific or management personnel; | |
| ● | significant lawsuits, including patent or stockholder litigation; | |
| ● | changes in the market valuations of similar companies; | |
| ● | sales of our securities by us or our stockholders in the future; and | |
| ● | trading volumes of our securities. |
In addition, companies trading in the stock market have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Common Stock, regardless of our actual operating performance.
Sales of a substantial number of shares of our Common Stock in the public market by our existing stockholders could cause our share price to fall.
Sales of a substantial number of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock.
Our principal stockholders, officers and directors beneficially own approximately 14.1% of our outstanding shares of Common Stock. They will therefore be able to exert significant control over matters submitted to our stockholders for approval.
As of December 31, 2021, our principal stockholders, officers and directors beneficially own approximately 14.1% of our outstanding Common Stock. This significant concentration of share ownership may adversely affect the trading price for our Common Stock because investors often perceive disadvantages in owning shares in companies with controlling stockholders. As a result, these stockholders, if they acted together, could significantly influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders.
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Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the market price of our Common Stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of the Company more difficult, including the following:
| ● | our stockholders will only be able to take action at a meeting of stockholders and will not be able to take action by written consent for any matter; | |
| ● | our board of directors is classified into three classes of directors with staggered three-year terms; | |
| ● | a special meeting of our stockholders may only be called by a majority of our board of directors; | |
| ● | advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; and | |
| ● | certain litigation against us can only be brought in Delaware. |
These provisions, alone or together, could discourage, delay or prevent a transaction involving a change in control of the Company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock, and could also affect the price that some investors are willing to pay for our Common Stock.
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our Common Stock, our stock price and trading volume could decline.
The trading market for our Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our shares, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analysts who may cover us were to cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our Common Stock as a source for any future dividend income. Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.
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We may need additional capital, and the sale of additional shares or equity or debt securities could result in additional dilution to our stockholders.
We may require additional cash resources due to changed business conditions or other future developments, including further adverse effects to our business from COVID-19 related issues. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain one or more credit facilities. The sale of additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.
General Risk Factors
Disruptions to our information technology systems due to cyber-attacks or our failure to upgrade and adjust our information technology systems, may materially impair our operations, hinder our growth and materially and adversely affect our business and results of operations.
We believe that an appropriate information technology (“IT”), infrastructure is important in order to support our daily operations and the growth of our business. If we experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify our management information systems or respond to changes in our business needs, we may not be able to effectively manage our business, and we may fail to meet our reporting obligations. Additionally, if our current back-up storage arrangements and our disaster recovery plan are not operated as planned, we may not be able to effectively recover our information system in the event of a crisis, which may materially and adversely affect our business and results of operations.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We can provide no assurance that our current IT system or any updates or upgrades thereto and the current or future IT systems of our distributors use or may use in the future, are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt our IT systems or to manage the IT systems of third parties to accommodate these changes. We have experienced and expect to continue to experience actual or attempted cyber-attacks of our IT networks. Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future.
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Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to the FCPA and other anticorruption, anti-bribery and anti-money laundering laws in the jurisdictions in which we do business, both domestic and abroad. These laws generally prohibit us and our employees from improperly influencing government officials or commercial parties in order to obtain or retain business, direct business to any person or gain any advantage. The FCPA and other applicable anti-bribery and anti-corruption laws also may hold us liable for acts of corruption and bribery committed by our third-party business partners, representatives and agents. In addition, we leverage third parties to sell our products and conduct our business abroad. We and our third-party business partners, representatives and agents may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners and agents, even if we do not explicitly authorize such activities. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible and our exposure for violating these laws increases as our international presence is established and as we increase sales and operations in foreign jurisdictions. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, loss of export privileges, severe criminal or civil sanctions or suspension or debarment from U.S. government contracts, substantial diversion of management’s attention, a decline in the market price of our Common Stock or overall adverse consequences to our reputation and business, all of which may have an adverse effect on our results of operations and financial condition.
We incur additional increased costs as a result of the listing of our Common Stock for trading on Nasdaq, and our management is required to devote substantial time to new compliance initiatives and reporting requirements.
As a public company, we incur significant accounting, legal and other expenses as a result of the listing of our Common Stock on Nasdaq. These include costs associated with corporate governance requirements of the Securities Exchange Commission, or the SEC, and the Marketplace Rules of Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These rules and regulations increase our legal and financial compliance costs, introduce costs such as investor relations, stock exchange listing fees and shareholder reporting, and make some activities more time consuming and costly. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the rules of the Nasdaq Stock Market may result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
We face risks related to compliance with corporate governance laws and financial reporting standards.
The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the SEC and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, have materially increased the legal and financial compliance costs of small companies and have made some activities more time-consuming and more burdensome.
The ongoing conflict in Ukraine may result in market volatility that could adversely affect our stock price.
In late February 2022, Russia invaded Ukraine, significantly amplifying already existing geopolitical tensions among Russia and other countries in the region and in the west, including the U.S. Russia’s invasion, the responses of countries and political bodies to Russia’s actions, the larger overarching tensions, and Ukraine’s military response and the potential for wider conflict may increase financial market volatility and could have severe adverse effects on regional and global economic markets. The foregoing may, in particular, adversely affect our customers’ ability to sell produce to Russia or other countries in the geographic vicinity.
Following Russia’s actions, various countries, including the U.S., Canada, the United Kingdom, Germany and France, as well as the European Union, issued broad-ranging economic sanctions against Russia. Such sanctions included, among other things, a prohibition on doing business with certain Russian companies, officials and oligarchs; a commitment by certain countries and the European Union to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) electronic banking network that connects banks globally; and restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. The current sanctions (and potential further sanctions in response to continued Russian military activity) and other actions may have adverse effects on regional and global economic markets, and may result in increased volatility in the price of our Common Stock.
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If we fail to implement and maintain effective internal control over financial reporting, we may be unable to report our financial results accurately or meet our reporting obligations.
The process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404(a) and whether there are any material weaknesses or significant deficiencies in our existing internal controls requires the investment of substantial time and resources, including by our Chief Executive Officer, Chief Financial Officer and other members of our senior management and finance team. This determination and any remedial actions required could divert internal resources and take a significant amount of time and effort to complete and could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. We could experience higher than anticipated operating expenses and higher independent auditor fees during and after the implementation of these changes.
Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. In connection with the issuance of our financial statements for each of the years ended December 31, 2019 and 2020, we identified a material weakness in our internal control over financial reporting that we subsequently remediated. If we identify future material weaknesses in our internal control of financial reporting, and if we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and/or results of operations and could result in an adverse opinion on internal controls from our management and, once we lose our emerging growth company status, our independent auditors. Further, if our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned and our share price may suffer.
Item 1b. unresolved staff comments
None.
Item 2. properties
Our research and development and manufacturing operations are currently conducted at Neve Yarak (Israel) where we lease approximately 230 square meters of space to run our trials. The lease expires on August 31, 2022 with the option to extend the lease agreement for two additional one-year periods. Our current monthly rent payment is NIS 6,500 (approximately $2,000) which includes taxes.
We also lease an office space in Miami, Florida, which includes an initial term of one year with monthly rent payments of $600 and an option to extend the lease for an additional one year term with monthly rent payments of $630.
item 3. legal proceedings
We are not aware of any pending legal proceedings to which we are a party, or to which any director, officer or affiliate of our Company, or any owner of record or beneficially of more than 5% of any class of our voting securities, is a party adverse to us or has a material interest adverse to us.
item 4. mine safety disclosures.
Not applicable.
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part II
item 5. market for registrant’s common equity, related stockholder matters and issuer purchases
Market Information
The shares of our Common Stock are currently traded on the Nasdaq Capital Market under the symbol “SVFD”. The last reported sales price of our Common Stock on Nasdaq on March 30, 2022, was $5.77 per share. As of March 15, 2022, there were approximately 150 holders of record of our Common Stock. Action Stock Transfer serves as transfer agent for our Common Stock.
Dividends
We have never paid cash dividends on any of our capital stock and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not intend to pay cash dividends to holders of our Common Stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
As of the date of this Annual Report, our Company has authorized 289,942 shares of Common Stock for issuance under our 2018 Equity Incentive Plan. The following table presents the information as of December 31, 2021.
| Plan Category | (a) Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | (b) Weighted-average Exercise Price of Outstanding Options, Warrants and Rights | (c) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||||||
| Equity compensation plans approved by security holders | 192,576 | $ | 3.38 | 91,016 | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 192,576 | 3.38 | 91,016 | |||||||||
2018 Equity Incentive Plan
We maintain one equity incentive plan – the 2018 Equity Incentive Plan. As of December 31, 2021, the number of shares of Common Stock reserved for the exercise of options granted under Equity Incentive Plan was 289,942.
Our Equity Incentive Plan was adopted by our board of directors in October 2018, and became effective immediately thereafter. The 2018 Equity Incentive Plan permits the grant of incentive stock options to employees of the Company, including officers and directors, and non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and other stock or cash awards as the administrator of the plan may determine, to the Company’s employees and service providers.
The 2018 Equity Incentive Plan may be administered by the board of directors or by different committees that may be established with respect to different groups of service providers; in that event, the committee established with respect to a group of service providers shall administer the 2018 Equity Incentive Plan with respect to awards granted to members of such group.
Subject to the provisions of the 2018 Equity Incentive Plan, and in the case of a committee, subject to the specific duties delegated by the board to such committee, the administrator will have the authority, in its sole discretion to determine subject to Israeli law and section 16 of the Exchange Act, the grantees of awards and the terms of the grant, including, exercise prices, vesting schedules, acceleration of vesting and conditions and restrictions applicable to an award, as well other matters necessary in the administration of the 2018 Equity Incentive Plan. The 2018 Equity Incentive Plan enables us to issue awards under various tax regimes, including, without limitation, pursuant to Section 102 of the Ordinance, and under Section 3(i) of the Ordinance and Section 422 of the United States Internal Revenue Code of 1986, as amended (the “Code”).
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The 2018 Equity Incentive Plan provides that awards granted to our employees, directors and officers who are not controlling shareholders and who are not considered Israeli residents are intended to qualify for special tax treatment under the “capital gain track” provisions of Section 102(b) of the Ordinance as detailed above. Our Israeli non-employee service providers and controlling shareholders may only be granted awards under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
Awards granted under the 2018 Equity Incentive Plan to U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code. The exercise price for “incentive stock options” must not be less than the fair market value on the date on which an option is granted, or 110% of the fair market value if the option holder holds more than 10% of our share capital. Notwithstanding the foregoing provisions, options may be granted with a per share exercise price of less than 100% of the fair market value per share on the date of grant pursuant to the issuance or assumption of an option in a transaction to which Section 424(a) of the Code applies in a manner consistent with said Section 424(a).
The vesting schedule of options granted under the 2018 Equity Incentive Plan is set forth in each grantee’s award agreement.
Awards terminate upon the date set out in the grantee’s specific award agreement or at the end of an extended period following the termination of the grantee’s employment or service. In the event of the death of a grantee while employed by or performing service for us or an affiliate, or in the event of termination of a grantee’s employment or services for reasons of disability, the grantee or his or her estate or legal successor (in the case of death), may exercise awards that have vested prior to termination within a period of nine (9) months from the date of disability or death but in any event no later than the expiration date of the awards. If a participant ceases to be a service provider, other than upon the participants termination as the result of the participant’s death or disability, may exercise his or her option within such period of time as is specified in the award agreement to the extent that the option is vested on the date of termination (but in no event later than the expiration of the term of such option as set forth in the award agreement). In the absence of a specified time in the award agreement, the option will remain exercisable for three (3) months following the participant’s termination. Unless otherwise provided by the administrator, if on the date of termination, the participant is not vested as to his or her entire option, the Common Stock covered by the unvested portion of the option will revert to the 2018 Equity Incentive Plan. If after termination, the participant does not exercise his or her option within the time specified by the award agreement or by operation of this paragraph, the option will terminate, and the Common Stock covered by such option will revert to the 2018 Equity Incentive Plan.
Israeli options may not be assigned or transferred other than by will or laws of descent, unless otherwise determined by the committee.
In the event of our proposed dissolution or liquidation, the administrator will notify each participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an award will terminate immediately prior to the consummation of such proposed action.
In the event of a merger or change in control, each outstanding award will be treated as the administrator determines, including, without limitation, that each award will be assumed or an equivalent option or right substituted by the successor corporation or a parent or subsidiary of the successor corporation. The administrator will not be required to treat all awards similarly in the transaction.
In the event that the successor corporation does not assume or substitute for the award, the participant will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights, including Common Stock as to which such awards would not otherwise be vested or exercisable. All restrictions on restricted stock will lapse, and, with respect to restricted stock units, performance shares and performance units, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. In addition, if an option or stock appreciation right is not assumed or substituted for in the event of a change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation right will be fully vested and exercisable for a period of time determined by the administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period.
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In the year ended December 31, 2020, we granted to our directors and officers options to purchase a maximum aggregated number of 92,574 of the Company’s Common Stock, under our equity incentive plan. 92,574 options were granted at an exercise price of $3.15 to $3.78 per share, and the latest expiration date for such options is July 1, 2030.
Recent Sales of Unregistered Securities
Set forth below is information regarding shares of Common Stock and preferred stock issued, and options granted, by us during the years ended December 31, 2019, 2020 and 2021, that were not registered under the Securities Act. Also included is the consideration, if any, received by us, for such shares and options and information relating to the Securities Act, or rule of the SEC, under which exemption from registration was claimed.
During January 2019, we issued an aggregate of 19,050 shares of Common Stock to accredited investors for total consideration of $120,000.
During February 2019, we issued an aggregate of 35,717 shares of Common Stock to accredited investors for total consideration of $225,000.
During March 2019, we issued (i) 31,748 shares of Common Stock to an accredited investors for total consideration of $216,666, and (iii) warrants to purchase 7,937 shares of Common Stock at an exercise price of $12.60 per share.
During June 2019, we issued: (i) 31,747 shares of Common Stock to accredited investors for total consideration of $200,000; and (ii) 10,004 shares of Common Stock to an accredited investor for total consideration of $84,034 and at the same time issued that accredited investor 10,004 warrants to purchase shares of Common Stock at an exercise price of $12.60.
During August 2019, we issued 11,905 shares of Common Stock to an accredited investor for total consideration of $100,000. In addition, we issued him 11,905 warrants to purchase shares of Common Stock at an exercise price of $12.60.
During July, August and September 2020, we issued: (i) 67,369 shares of Common Stock in respect of the conversion of convertible loans; (ii) 32,769 units, for an aggregate amount of $250,000, at a price of $7.63 per unit, where each unit consists of one share of Common Stock and one warrant to purchase one share of Common Stock with an exercise price of $8.40 per share.
During September 2020, we issued 13,107 units, for an aggregate amount of $100,000, at a purchase price of $7.63 per unit to Medigus Ltd., where each unit consists of one share of Common Stock and one warrant to purchase one share of Common Stock with an exercise price of $8.40 per share.
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During December 2020, we issued 6,350 shares of Common Stock following the exercise of options.
On June 20, 2021, we issued 12,000 shares of Common Stock to a consultant in exchange for investor relation services. We estimated the value of the shares issued to be $126,600.
On August 2, 2021, we issued 14,285 shares of Common Stock to a consultant in exchange for investor and public relations services. We estimated the value of the shares issued to be $127,622.
On each of August 5, 2021, September 30, 2021 and November 3, 2021, we issued 2,000 shares of Common Stock to a consultant in exchange for strategic consulting services, which included digital marketing campaigns. We estimated the value of the shares issued to be $53,856.
On November 3, 2021, we issued 700 shares of Common Stock to a consultant, which related to investor relations and public relations services provided to the Company pursuant to an agreement between the parties dated June 15, 2021. We estimated the value of the shares issued to be $5,747.
Also on November 3, 2021, we issued 9,000 shares of Common Stock to a consultant, which related to investor relations services provided to the Company pursuant to an agreement between the parties dated October 24, 2021. We estimated the value of the shares issued to be $61,200. On January 27, 2022, we issued an additional 12,500 shares of Common Stock to the foregoing consultant in accordance with the terms of the above-stated agreement.
On March 10, 2022, we issued 14,000 shares of Common Stock to a consultant, which related to investor relations services provided to the Company pursuant to an agreement between the parties dated March 10, 2022.
Issuer Purchases of Equity Securities
During the year ended December 31, 2021, we did not purchase any of our equity securities.
Item 6. selected financial data
[Reserved]
item 7. management’s discussion and analysis of financial condition and results of operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Annual Report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-looking Statements” for a discussion of the uncertainties and assumptions associated with these statements. Our actual results may differ materially from those discussed below.
Overview
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.
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:
| Year Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Revenues from sale of products | $ | 438,141 | $ | 232,274 | ||||
| Cost of sales | (135,943 | ) | (43,405 | ) | ||||
| Gross profit | $ | 302,198 | $ | 188,869 | ||||
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.
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The following table discloses the breakdown of research and development expenses:
| Year Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Salaries and related expenses | $ | 176,520 | $ | 39,021 | ||||
| Share based compensation | 19,235 | 91,190 | ||||||
| Subcontractors | 238,784 | 130,592 | ||||||
| Laboratory and field tests | 20,025 | 72,593 | ||||||
| Depreciation | 38,166 | 29,319 | ||||||
| Other expenses | 45,954 | 54,285 | ||||||
| Total | $ | 538,684 | $ | 417,000 | ||||
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.
The following table discloses the breakdown of selling and marketing expenses:
| Year Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Salaries and related expenses | $ | 30,329 | $ | 30,450 | ||||
| Share based compensation | 7,694 | (20,971 | ) | |||||
| Professional services | 90,249 | 13,267 | ||||||
| Other expenses | 72,027 | 28,359 | ||||||
| Total | $ | 200,299 | $ | 51,105 | ||||
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.
The following table discloses the breakdown of general and administrative expenses:
| Year Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Professional services | $ | 2,527,076 | $ | 443,883 | ||||
| Share based compensation | 598,699 | 416,996 | ||||||
| Salaries and related expenses | 214,570 | - | ||||||
| Legal expenses | 160,814 | 67,492 | ||||||
| Insurance | 473,985 | 63,380 | ||||||
| Registration fees | 233,395 | 28,477 | ||||||
| Other expenses | 58,315 | 49,881 | ||||||
| Total | $ | 4,266,854 | $ | 1,070,109 | ||||
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Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Results of Operations
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020, together with the changes in those items in dollars:
| Year Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Revenues from sales of products | $ | 438,141 | $ | 232,274 | ||||
| Cost of sales | (135,943 | ) | (43,405 | ) | ||||
| Gross profit | 302,198 | 188,869 | ||||||
| Research and development expenses | (538,684 | ) | (417,000 | ) | ||||
| Selling and marketing expenses | (200,299 | ) | (51,105 | ) | ||||
| General and administrative expenses | (4,266,854 | ) | (1,070,109 | ) | ||||
| Operating loss | (4,703,639 | ) | (1,349,345 | ) | ||||
| Finance income (expenses), net | (161,737 | ) | (270,393 | ) | ||||
| Other income, net | - | (2,532 | ) | |||||
| Gain on disposal of affiliated company | - | 15,690 | ||||||
| Net loss | (4,865,376 | ) | (1,606,580 | ) | ||||
| Less: Net loss attributable to non-controlling interests | (44,796 | ) | 13,441 | |||||
| Net loss attributable to the Company | (4,820,580 | ) | (1,593,139 | ) | ||||
| Loss per share | (2.06 | ) | (1.05 | ) | ||||
| Weighted average number of shares of Common Stock outstanding attributable to shareholders | 2,343,088 | 1,519,122 | ||||||
Revenues
Revenues for the year ended December 31, 2021 were $438,141, an increase of $205,867, or 89%, compared to total revenues of $232,274 for the year ended December 31, 2020. The increase is mainly a result of the Company’s sales of its new products, which the Company 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 year ended December 31, 2021 was $135,943, an increase of $92,538, or 213%, compared to total cost of revenues of $43,405 for the year ended December 31, 2020. The increase is mainly a result of our increase in sales of our products, which commenced in the fourth quarter of 2020 as well as increase in salary and related expenses.
Gross Profit
Gross loss for the year ended December 31, 2021 was $302,198, an increase of $113,329, or 60%, compared to gross loss of $188,869 for the year ended December 31, 2020. The increase is mainly a result of the increase in revenues as a result of the commencement of our commercial sales, as detailed above as well as increase in salary and related expenses.
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Research and Development Expenses
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 year ended December 31, 2021 were $538,684, an increase of $121,684, or 29%, compared to total research and development expenses of $417,000 for the year ended December 31, 2020. The increase is mainly attributable to an increase in salary and related expenses and professional fees, offset by a decrease in share based compensation 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. Selling and marketing expenses for the year ended December 31, 2021 were $200,299, an increase of $149,194, or 292%, compared to total selling and marketing expenses of $51,105 for the year ended December 31, 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 non-personnel related expenses such as legal expenses and directors and insurance costs. General and administrative expenses for the year ended December 31, 2021 were $4,266,854, an increase of $3,196,745, or 299%, compared to total general and administrative expenses of $1,070,109 for the year ended December 31, 2020. The increase is mainly a result of the increase in professional services, insurance costs and compensation payable to directors as a result of 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 expenses, net for the year ended December 31, 2021 were $161,737, a decrease of $108,656, or 40%, compared to total financing expenses of $270,393 for the year ended December 31, 2020. The decrease in financing expenses is mainly a result of decrease in Interest and amortization expenses and fair value of our convertible loans related to convertible notes.
Total Comprehensive Loss
As a result of the foregoing, our total comprehensive loss for the year ended December 31, 2021 was $4,820,580, compared to $1,593,139 for the year ended December 31, 2020, an increase of $3,227,441, or 203%.
Impact of COVID-19
The global spread of COVID-19 led many countries, including the United States, Europe and Israel (where we maintain material operations), to impose stringent limitations on movement, gatherings, transit of passengers and goods and to close the borders between countries. The responses of governments have notably impacted many economies as well as capital markets worldwide.
Based on guidelines provided by the Israeli Government, employers (including us) are required to prepare and increase as much as possible the capacity and arrangement for employees to work remotely. In that regard, and in compliance with all applicable Israeli rules and guidelines, our offices have were closed from the middle of March 2020 until September 2021, and during that period certain of our employees worked remotely and other employees were placed on temporary leave without pay (furlough). However, we did 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.
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Critical Accounting Policies and Estimates
We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements included elsewhere in this Annual Report. We believe that the accounting policy described in Note 2 is critical in order to fully understand and evaluate our financial condition and results of operations.
We prepare our financial statements in accordance with U.S. GAAP. At the time of the preparation of the financial statements, our management is required to use estimates, evaluations and assumptions which affect the application of the accounting policy and the amounts reported for assets, obligations, income and expenses. Any estimates and assumptions are continually reviewed. The changes to the accounting estimates are credited during the period in which the change to the estimate is made.
Stock-based Compensation
Employees and other service providers of the Company may receive benefits by way of stock-based compensation settled with company options exercised for shares of our Common Stock. The cost of transactions with employees settled with capital instruments is measured based on the fair value of the capital instruments on the granting date. The fair value is determined using an accepted options pricing model. The model is based on share price, grant date and on assumptions regarding expected volatility and expected lifespan.
The cost of the transactions settled with capital instruments is recognized in profit or loss together with a corresponding increase in the equity over the period in which the performance and/or service takes place, and ending on the date on which the relevant employees are entitled to the benefits (the “Vesting Period”). The aggregate expense recognized for transactions settled with capital instruments at the end of each reporting date and until the Vesting Period reflects the degree to which the Vesting Period has expired. The expense or income in profit or loss reflects the change of the aggregate expense recognized as of the end of the reported period.
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 December 31, 2021, we have funded our operations principally with approximately $16 million (net of issuance expenses) from the issuance of shares of shares of our Common Stock, options and loans.
The table below presents our cash flows for the periods indicated:
| Year Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (4,098,266 | ) | $ | (798,740 | ) | ||
| Net cash used in investing activities | (82,790 | ) | (6,734 | ) | ||||
| Net cash provided by financing activities | 10,725,016 | 741,760 | ||||||
| Increase (decrease) in cash and cash equivalents and restricted cash | $ | 6,542,317 | $ | (63,714 | ) | |||
As of December 31, 2021, we had cash of $6,750,938, as compared to $242,900 as of December 31, 2020. As of December 31, 2021, we had a working capital of $6,297,793, 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 our net loss described above and payments to account payables offset by our equity financing and convertible loans.
Operating Activities
Net cash used in operating activities was $4,098,266 for the year ended December 31, 2021, as compared to $798,740 for the year ended December 31, 2020 an increase of $3,299,526. The increase is mainly attributable to our net loss of $4,865,376 as well as increase in other current assets and other liabilities and operating lease liabilities, partially offset by increase in share based compensation and Increase in accounts payable.
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Investing Activities
Net cash used in investing activities was $82,790 for the year ended December 31, 2021, as compared to net cash used in investing activities of $6,734 for the year ended December 31, 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 $10,725,016 for the year ended December 31, 2021, as compared to $741,760 for the year ended December 31, 2020. The increase is mainly the result of proceeds from to the Underwritten Offering described above.
Financial Arrangements
Since our inception, we have financed our operation primarily through proceeds from sales of our shares of Common Stock and convertible loan agreements.
On June 24, 2020, we entered into a Securities Purchase Agreement (the “June 2020 SPA”) with the December 2019 Lenders in connection with the sale and issuance of 67,369 units, at a purchase price of $7.63 per unit. Each unit consists of: (i) one share of the Company’s Common Stock; and (ii) one warrant to purchase one share of Common Stock with an exercise price of $8.40. In connection with the June 2020 SPA, the Company issued to the December 2019 Lenders an aggregate of 67,369 shares of Common Stock and warrants to purchase an aggregate of 67,369 shares of Common Stock. The shares of Common Stock were issued on July 2, 2020.
Simultaneous with and conditioned upon the execution of the June 2020 SPA, the Company and each of the December 2019 Lenders, agreed to effectively cancel the December 2019 CLA and the equity securities issued thereunder. In connection therewith, each of the December 2019 Lenders, voluntarily waived any right to receive interest that accrued thereupon pursuant to the December 2019 CLAs.
On September 23, 2020, we entered into a Securities Purchase Agreement (the “September 2020 SPA”) with Medigus Ltd. (“Medigus”) in connection with the sale and issuance of 13,107 units, at a purchase price of $7.63 per unit, and for an aggregate purchase price of $100,000. Each unit consists of: (i) one share of Common Stock and (ii) one warrant to purchase one share of Common Stock with an exercise price of $1.20. In connection with the September 2020 SPA, the Company issued to Medigus an aggregate of 13,107 shares of Common Stock and warrants to purchase an aggregate of 13,107 shares of Common Stock. Furthermore, the September 2020 SPA contemplates an additional investment by Medigus not to exceed $25,000 (the “Additional Investment”), which investment shall be triggered following the parties’ initiation of a proof of concept procedure to test the effectiveness of the Company’s sanitizers and its residual effects against different pathogens. In consideration for the Additional Investment, the Company has agreed to issue an additional 3,277 units at a purchase price of $7.63, which units shall contain the same composition of securities as described in the aforementioned description of the September 2020 SPA.
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During September 2020, we entered into a series of convertible loan agreements (each a “September 2020 CLA”) with certain lenders (the “September 2020 Lenders”), to sell convertible promissory notes with an aggregate principal amount of $125,000 (the “September 2020 Notes”). The September 2020 Notes will bear interest at a rate of 5% per annum. 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 (as defined therein). The loan amount represented by the September 2020 Notes will be repaid to the September 2020 Lenders according to the following schedule: (i) the principal amount represented by the September 2020 Notes will be repaid in four bi-annual installments, commencing on the first anniversary following the closing of each September 2020 CLA, and (ii) the interest accrued on the loan amount will be paid in two bi-annual installments, commencing on the first anniversary of the first payment of that principal amount. 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 the closing of an underwritten public offering (the “Mandatory Conversion Event”), at a conversion price of $7.63 per share. In addition, the September 2020 Notes will be automatically converted into shares of Common stock immediately prior to a Mandatory Conversion Event, at a conversion price as shall be determined in connection with the Mandatory Conversion Event.
During October 2020, we entered into a series of convertible loan agreements (each a “October 2020 CLA”) with certain lenders (the “October 2020 Lenders”), to sell convertible promissory notes with an aggregate principal amount of $100,000 (the “October 2020 Notes”). The October 2020 Notes will bear interest at a rate of 5% per annum. The outstanding loan amount will mature on the earlier of (i) the third anniversary of each October 2020 CLA or (ii) a deemed liquidation event (as defined therein). The loan amount represented by the October 2020 Notes will be repaid to the October 2020Lenders according to the following schedule: (i) the principal amount represented by the notes will be repaid in four bi-annual installments, commencing on the first anniversary following the closing of each October 2020 CLA, and (ii) the interest accrued on the loan amount will be paid in two bi-annual installments, commencing on the first anniversary of the first payment of that principal amount. The October 2020 Notes will be automatically converted into shares of Common stock immediately prior to a Mandatory Conversion Event, at a conversion price as shall be determined in connection with the Mandatory Conversion Event. In addition, the October 2020 Lenders may convert all or any portion of the notes into shares of Common Stock at any time prior to a Mandatory Conversion Event, at a conversion price of $7.63 per share.
During January 2021, we entered into a series of convertible loan agreements (each a “January 2021 CLA”) with certain lenders (the “January 2021 Lenders”), to sell convertible promissory notes with an aggregate principal amount of $274,000 (the “January 2021 Notes”). The January 2021 Notes bear interest at a rate of 5% per annum. The outstanding loan amount matures on the earlier of (i) the third anniversary of each January 2021 CLA or (ii) a deemed liquidation event (as defined therein). The loan amount represented by the January 2021 Notes will be repaid to the January 2021 Lenders according to the following schedule: (i) the principal amount represented by the notes will be repaid in four bi-annual installments, commencing on the first anniversary following the closing of each January 2021 CLA, and (ii) the interest accrued on the loan amount will be paid in two bi-annual installments, commencing on the first anniversary of the first payment of that principal amount. The January 2021 Notes will be automatically converted into shares of Common stock immediately prior to a Mandatory Conversion Event, at a conversion price as shall be determined in connection with the Mandatory Conversion Event. In addition, the January 2021 Lenders may convert all or any portion of the notes into shares of Common Stock at any time prior to a Mandatory Conversion Event, at a conversion price of $7.63 per share.
As part of the September 2020 CLAs, the October 2020 CLAs and the January 2021 CLAs, we entered into a registration rights agreement with each of the September 2020 Lenders, October 2020 Lenders and the January 2021 Lenders, whereby each of such lenders received piggyback registration rights for the shares issuable upon conversion of the September 2020 Notes, October 2020 Notes and the January 2021 Notes to shares of Common Stock.
Current Outlook
We have financed our operations to date primarily through proceeds from sales of our shares of Common Stock. We have incurred losses and generated negative cash flows from operations since inception in 2009. Most of our revenues are currently generated in U.S. dollars from the sale of our products and services.
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As of December 31, 2021, our cash and cash equivalents were $6,750,938. We expect that our existing cash and cash equivalents will be sufficient to fund our current operations until at least August 2023. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including:
| ● | the progress and costs of our studies and other research and development activities; | |
| ● | the costs of manufacturing our products; | |
| ● | the costs and timing of obtaining regulatory approval for our products; | |
| ● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; | |
| ● | the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and | |
| ● | the magnitude of our general and administrative expenses. |
item 7a. 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 8. financial statements and supplementary data
The information called for by Item 8 is included following the “Index to Financial Statements” on page F-1 of this Annual Report.
item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On July 25, 2021, our Board of Directors approved the dismissal of Halperin Ilanit CPA, or Halperin, as its independent registered accounting firm, effective as of the same date, and appointed Somekh Chaikin, member firm of KPMG International, as our new independent registered public accounting firm for the fiscal year ended December 31, 2021, effective as of the same date.
The audit reports prepared by Halperin on the Company’s financial statements for the fiscal years ended 2019 and 2020, each contained a statement expressing substantial doubt as to the Company’s ability to continue as a going concern and Halperin previously informed the Company’s Board of Directors of certain material weaknesses in the Company’s disclosure control and procedures during each of the fiscal years ended 2019 and 2020, and each of the subsequent periods through the date hereof; that notwithstanding, there were no disagreements with Halperin on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Halperin, would have caused Halperin to make reference to the subject matter of the disagreements in connection with its reports. None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the Company’s two most recent fiscal years.
item 9a. controls and Procedures
| A. | 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 Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2021, our disclosure controls and procedures were effective.
| B. | Management’s Annual Report on Internal Control over Financial Reporting |
Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) and 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 our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements.
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 risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
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, 2021. In making this assessment, our management used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has concluded, based on its assessment, that our internal control over financial reporting was effective as of December 31, 2021.
| C. | Attestation Report of the Registered Public Accounting Firm |
This annual report does not include an attestation report of our registered public accounting firm due to the Company’s status as an emerging growth company, as defined in Rule 12b-2 of the Exchange Act.
| D. | Changes in Internal Control over Financial Reporting |
Except for the remediation of the previously identified material weaknesses discussed below, there were no other changes in internal control over financial reporting during the year ended December 31, 2021 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Remediation Efforts of Previously Disclosed Material Weaknesses
As discussed in our Annual Report on Form 10-K, in connection with the audit of our financial statements for the year ended December 31, 2020, management and our previous independent registered public accounting firm previously identified a material weakness in our internal control over financial reporting.
In response to that material weakness, we implemented a remediation plan for the identified material weakness. As part of our remediation plan, during 2021 we recruited additional personnel with a requisite level of qualification and experience, including accounting and finance employees with the specific technical accounting and financial reporting experience necessary for a public company, including the hiring of a full-time chief executive officer and chief financial officer, both of which have financial expertise, as well as a financial manager, bookkeeper and operation manager. Additionally, we established an independent audit committee upon our uplist to the Nasdaq Capital Market that provides management oversight on matters related to our internal control. We have recruited these personnel after considering the appropriateness of each individual’s experience and believe that these personnel are qualified to serve in their current respective roles.
In addition, we reviewed our existing processes and controls in order to identify additional control deficiencies and designed new controls or adjusted the design of existing controls in order to improve our processes and controls. The new controls and the revised existing controls included controls to address the complex accounting issues, period-end financial reporting and segregation of duties. Moreover, we implemented controls for the initial identification of potential contracts and transactions that may be non-routine and complex during a reporting period, followed thereafter by conducting the necessary procedures together with the full internal accounting team and external consultants to review and research the proper guidance and approach toward such accounting.
Based on the above, and the results of testing conducted during the year ended December 31, 2021, we concluded that the identified material weakness was remediated as of December 31, 2021.
Item 9b. Other information
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
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part iii
Item 10. Directors, Executive Officers and corporate governance
The following table sets forth information regarding our executive officers, key employees and directors as of March 31, 2022:
Directors and Executive Officers
| Name | Age | Position | ||
| Amitay Weiss (1) (6) | 70 | Chairman of the Board of Directors | ||
| David Palach | 56 | Chief Executive Officer | ||
| Dan Sztybel | 45 | Chief Executive Officer of Save Foods Ltd. | ||
| Omri Kanterovich | 38 | Interim Chief Financial Officer | ||
| Neta Matis, PhD | 39 | Chief Operating Officer of Save Foods Ltd. | ||
| Ronen Rosenbloom (1) (2) (3) (4) (5) | 49 | Director | ||
| Israel Berenshtein (1) (2) (4) (5) | 50 | Director | ||
| Eliahou Arbib (1) (2) (3) (4) (7) | 55 | Director | ||
| Udi Kalifi (1) (3) (7) | 43 | Director |
| (1) | Independent Director |
| (2) | Member of the Compensation Committee |
| (3) | Member of the Audit Committee |
| (4) | Member of the Nominating and Corporate Governance Committee. |
| (5) | Member of Class I with a term ending at the 2023 annual meeting of stockholders. |
| (6) | Member of Class II with a term ending at the 2024 annual meeting of stockholders. |
| (7) | Member of Class III with a term ending at 2025 annual meeting of stockholders. |
Amitay Weiss, Director
Mr. Weiss has served as a member of our board of directors since August 2020 and as our chairman of the board of directors since May 24, 2021. Mr. Weiss also serves as a director in other public companies, including but not limited to Gix Internet Ltd., Arazim Investments Ltd., Maris-Tech Ltd. and Upsellon Brands Holdings Ltd. Mr Weiss also serves as Chairman of the Board for Automax Motors Ltd., Clearmind Medicine Inc., SciSparc Ltd. and Internet Golden Lines Ltd. amongst others. In April 2016, Mr. Weiss founded Amitay Weiss Management Ltd., an economic consulting company and now serves as its chief executive officer. Mr. Weiss holds a B.A in economics from New England College, an M.B.A. in business administration from Ono Academic College in Israel, an Israeli branch of University of Manchester and an LL.B from the Ono Academic College.
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David Palach, Chief Executive Officer
Mr. Palach has served as our chief executive officer since January 2021. Mr. Palach has owned and served as chief executive officer of S.T. Sporting LTD and Sun Light Lightning Solutions LTD, companies operating in the environmental industry since 2009 and 2015, respectively. Mr. Palach holds a BBA in Accounting from Baruch College/City University of New York and completed a Directors Course at Bar Ilan University in Israel. Mr. Palach previously maintained a certified public accounting license in the State of Maryland.
Dan Sztybel, Chief Executive Officer of Save Foods Ltd.
Mr. Sztybel has served as the chief executive officer of Save Foods Ltd. since April 2019. Mr. Sztybel previously served as the chief executive officer of the Company from April 2019 to January 2021. Prior to this, Mr. Sztybel served as our vice president of business development from October 2018 to March 2019. Prior to joining us, Mr. Sztybel has served as principal at Goldmed Ltd., a consulting firm from September 2016 to September 2018. Mr. Sztybel is the founder of Dan Sztybel Consulting Group, a boutique firm advising global leaders and emerging startups in the healthcare field on strategy, partnerships, and investments and has served as its managing director/ since November 2014. Mr. Sztybel is also the co-founder of MyndYou, a digital health-tech company. Prior to that, Mr. Sztybel led the life sciences and healthcare advisory team at Kost, Forer, Gabbay Kasierer, a member firm of Ernst Young Global from July 2007 to November 2014. Mr. Sztybel received his B.Sc. and M.Sc. in molecular biology and biotechnology from Bar-Ilan University. Mr. Sztybel also completed a special EY-Kellogg-Recanati business program for employee excellence.
Omri Kanterovich, Interim Chief Financial Officer
Mr. Kanterovich (38) will serve as the Company’s interim Chief Financial Officer, VP of Finance, Treasurer and Secretary beginning January 31, 2022. From November 2021 to January 31, 2022, Mr. Kanterovich served as the Company’s financial controller. Prior to that, Mr. Kanterovich was a corporate controller for Hisense Group Ltd. from 2020 until 2021. Earlier in his career, Mr. Kanterovich was a senior associate at Kesselman Kesselman, a member firm of PricewaterhouseCoopers International Limited from 2018 until 2020, and an assistant controller at Nextage Ltd. from 2016 until 2018. Mr. Kanterovich holds a B.A. in computers and information systems from the Center of Academic Studies, Israel. Mr. Kanterovich is also a certified public accountant in Israel.
Neta Matis, PhD, Chief Operating Officer of Save Foods Ltd.
Dr. Matis has served as our vice president of research and development since January 2019. Prior to joining us, Dr. Matis served in various roles at Virdia Inc. including head of process development from January 2017 to October 2018 and research and development chemist from January 2012 to December 2017. Dr. Matis has a proven track record of leading innovation and proficiency in developing refinery-scale agricultural processes. Dr. Matis holds a PhD in Chemistry and an MBA from Tel Aviv University.
Ronen Rosenbloom, Director
Mr. Rosenbloom has served as a member of our board of directors since August 2020. Mr. Rosenbloom is an independent lawyer and has been working out of a self-owned law firm specializing in white collar offences since 2004. Mr. Rosenbloom has served on the board of directors of Medigus Ltd. (Nasdaq and TASE: MDGS) since September 2018 and ScoutCam Inc. (OTC: SCTC) since December 2019. Prior to that, Mr. Rosenbloom served as chairman of the Israeli Money Laundering Prohibition committee and the Prohibition of Money Laundering Committee of the Tel Aviv District, both of the Israel Bar Association from November 2015 to December 2019. Mr. Rosenbloom holds an LL.B. from the Ono Academic College, an Israeli branch of University of Manchester.
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Israel Berenshtein, Director
Mr. Berenshtein has served as a member of our board of directors since August 2020. Mr. Berenshtein has also served on the board of directors of Chrion Refineries Ltd. (TASE: CHR) since May 2019 and recently started working as a lawyer in Ben Yakov, Shvimer, Dolv – Law Office. He previously served in the legal department of Sonol Israel Ltd. since April 2010 to December 2020. Before that, Mr. Berenshtein worked as a commercial lawyer and litigator for a leading Israeli law firm from July 2000 to April 2010. Mr. Berenshtein earned an LL.B. in law and an M.A. in political science from Bar Ilan University, Israel. Mr. Berenshtein was admitted to the Israel Bar Association in 2000.
Eliahou Arbib, Director
Mr. Arbib has served as a member of our board of directors since January 2021. Mr. Arbib has also served as chairman of the board of directors of Chiron Refineries Ltd. (TASE: CHR) since September 2016. He has also the current owner and manager of Eliahou Arbib Law Offices, since May 2013. Prior to that, from 1993 until 2000, Mr. Arbib was the managing director of AA Arbib Agriculture Supply Ltd. Mr. Arbib holds an LLB from the Law and Business Academic Center of Ramat Gan, Israel. Mr. Arbib has been an active member of the Israeli Bar Association since 2013, and served as deputy chairman of the Security and Defense Committee of the Israeli Bar Association since 2014.
Udi Kalifi, Director
Mr. Kalifi has served as a member of our board of directors since May 18, 2021. Mr. Kalifi is the owner and manager of Udi Kalifi Law Offices since 2006. He has also served as a member of the board of directors of Matomi Media Group Ltd. (TASE: MTMY) since May 2020. Mr. Kalifi holds an LLB, BSc in Accounting and LLM from the Tel Aviv University, Israel and a master’s degree in law and economics from the University of Bologna, Humbourg and Roterdam. Mr. Kalifi has been an active member of the Israeli Bar Association since 2006.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Composition of Board of Directors
Our board of directors consists of five directors. Our directors are appointed by the board of directors at the annual general meeting. Each director’s term will continue until the annual meeting of the stockholders held following his or her election and the election and qualification of his or her successor, or his or her earlier death, disqualification, resignation or removal.
When considering whether directors have the experience, qualifications, attributes or skills, taken as a whole, to enable our board of directors to satisfy its oversight responsibilities effectively in light of our business and structure, the board of directors focuses primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.
Arrangements for Election of Directors and Members of Management
There are no arrangements or understandings with major stockholders, customers, suppliers or others pursuant to which any of our executive management or our directors were selected.
Director Independence
Our board of directors has determined that Ronen Rosenbloom, Israel Berenshtein, Amitay Weiss, Eliahou Arbib and Udi Kalifi do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the rules of The Nasdaq Stock Market LLC (the “Nasdaq Rules”).
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Committees of the Board of Directors
Our board of directors directs the management of our business and affairs, as provided by Delaware law, and conducts its business through meetings of the board of directors and standing committees. We will have a standing audit committee, nominating and corporate governance committee and compensation committee following the consummation of this offering. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues.
Audit Committee
Our audit committee is responsible for, among other things:
| ● | appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm; | |
| ● | discussing with our independent registered public accounting firm their independence from management; | |
| ● | reviewing with our independent registered public accounting firm the scope and results of their audit; | |
| ● | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; | |
| ● | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the quarterly and annual consolidated financial statements that we file with the SEC; | |
| ● | overseeing our financial and accounting controls and compliance with legal and regulatory requirements; | |
| ● | reviewing our policies on risk assessment and risk management; | |
| ● | reviewing related person transactions; and | |
| ● | establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters. |
Our audit committee consists of Udi Kalifi, Eliahou Arbib and Ronen Rosenbloom, with Udi Kalifi serving as chair. Our board of directors has affirmatively determined that Udi Kalifi, Eliahou Arbib and Ronen Rosenbloom each meet the definition of “independent director” for purposes of serving on the audit committee under Rule 10A-3 under the Exchange Act and Nasdaq rules. Each member of our audit committee also meets the financial literacy requirements of Nasdaq listing standards. In addition, our board of directors has determined that Udi Kalifi will qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Our board of directors adopted a written charter for the audit committee, which is available on our principal corporate website at www.savefoods.co.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is responsible for, among other things:
| ● | identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors; | |
| ● | overseeing our succession plan for the CEO and other executive officers; | |
| ● | overseeing the evaluation of the effectiveness of our board of directors and its committees; and | |
| ● | developing and recommending to our board of directors a set of corporate governance guidelines. |
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Our nominating and corporate governance committee consists of Ronen Rosenbloom, Israel Berenshtein and Eliahou Arbib, with Ronen Rosenbloom serving as chair. Our board of directors adopted a written charter for the nominating and corporate governance committee, which is available on our principal corporate website at www.savefoods.co.
Compensation Committee
Our compensation committee is responsible for, among other things:
| ● | reviewing and approving the compensation of our chief executive officer and other executive officers; | |
| ● | reviewing and making recommendations to the board of directors regarding director compensation; and | |
| ● | appointing and overseeing any compensation consultants. |
Our compensation committee consists of Ronen Rosenbloom, Israel Berenshtein and Eliahou Arbib, with Israel Berenshtein serving as chair. Our board has determined that Ronen Rosenbloom, Israel Berenshtein and Eliahou Arbib meet the definition of “independent director” for purposes of serving on the compensation committee under Nasdaq rules, including the heightened independence standards for members of a compensation committee, and are “non-employee directors” as defined in Rule 16b-3 of the Exchange Act. Our board of directors adopted a written charter for the compensation committee, which is available on our principal corporate website at www.savefoods.co.
Risk Oversight
Our board of directors is responsible for overseeing our risk management process. Our board of directors focuses on our general risk management strategy, the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. Our audit committee is also responsible for discussing our policies with respect to risk assessment and risk management. Our board of directors believes its administration of its risk oversight function has not negatively affected our board of directors’ leadership structure.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has been an officer or employee of the Company. None of our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our board of directors or compensation committee.
Code of Business Conduct and Ethics
We adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is posted on our website, www.savefoods.co. In addition, we post on our website all disclosures that are required by law or Nasdaq listing standards concerning any amendments to, or waivers from, any provision of the code.
item 11. Executive Compensation
Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2021 and 2020.
| Name and principal position | Fiscal Year | Salary ($) | Bonus ($) | Stock awards ($) | Option awards ($) | All other compensation ($) | Total ($) | |||||||||||||||||||||
| David Palach | 2021 | 164,017 | - | - | - | - | 164,017 | |||||||||||||||||||||
| Chief Executive Officer (1) | 2020 | 14,667 | - | - | - | - | 14,667 | |||||||||||||||||||||
| Dan Sztybel | 2021 | 289,087 | 65,000 | - | 73,974 | - | 428,061 | |||||||||||||||||||||
| Former co-Chief Executive Officer, Chief Executive Officer of Save Foods Ltd. (2) | 2020 | 120,282 | - | - | 135,778 | - | 256,060 | |||||||||||||||||||||
| Neta Matis | 2021 | 250,570 | 55,000 | - | 44,962 | - | 350,532 | |||||||||||||||||||||
| Chief Operating Officer of Save Foods Ltd. | 2020 | 75,202 | - | - | 94,474 | - | 169,675 | |||||||||||||||||||||
| Vered Raz Avayo | 2021 | 111,194 | - | - | 9,726 | - | 120,920 | |||||||||||||||||||||
| Former Chief Financial Officer (3) | 2020 | - | - | - | 16,462 | - | 16,462 | |||||||||||||||||||||
| Shlomo Zakai | 2021 | 210,470 | 30,000 | - | 3,049 | - | 243,519 | |||||||||||||||||||||
| Former Chief Financial Officer (4) | 2020 | 55,721 | - | - | 9,986 | - | 65,706 | |||||||||||||||||||||
| (1) | Mr. Palach was appointed as the Company’s co-Chief Executive Officer on November 5, 2020, and as the Company’s Chief Executive Officer of the Company on January 11, 2021, upon the resignation of Mr. Sztybel. |
| (2) | Mr. Sztybel resigned from his position as co-Chief Executive Officer of the Company, effective January 11, 2021, and thereafter continued serving as the Chief Executive Officer of Save Foods Ltd. |
| (3) | Ms. Raz-Avayo resigned from her position as Chief Financial Officer of the Company, effective January 31, 2022. |
| (4) | Mr. Zakai resigned from his position as Chief Financial Officer of the Company, effective May 18, 2021, and thereafter continued serving as a financial controller of the Company. |
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Outstanding Equity Awards at Fiscal Year-End
The following table provides information about the number of outstanding equity awards held by each of our named executive officers as of December 31, 2021:
| Option Awards | Stock Awards | |||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (Exercisable) | Number of Securities Underlying Unexercised Options (Unexercisable) | Option Exercise Price | Option Expiration Date | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares That Have Not Vested | ||||||||||||||||||
| David Palach | - | - | - | - | - | - | ||||||||||||||||||
| Chief Executive Officer | - | - | - | - | - | - | ||||||||||||||||||
| Dan Sztybel | 14,286 | - | 3.15 | 1/3/2029 | - | - | ||||||||||||||||||
| Former co-Chief Executive Officer, Chief Executive Officer of Save Foods Ltd. | 26,191 | 2,381 | 3.15 | 4/2/2029 | ||||||||||||||||||||
| 21,429 | 7,143 | 3.78 | 7/1/2030 | |||||||||||||||||||||
| Vered Raz-Avayo | 4,762 | - | 3.15 | 1/3/2029 | ||||||||||||||||||||
| Former Chief Financial Officer | 3,215 | 1,071 | 3.78 | 7/1/2030 | ||||||||||||||||||||
| Neta Matis | 6,548 | 595 | 3.15 | 1/3/2029 | - | - | ||||||||||||||||||
| Chief Operating Officer of Save Foods Ltd. | 5,357 | 1,786 | 3.15 | 10/31/2029 | ||||||||||||||||||||
| 15,857 | 5,286 | 3.15 | 6/23/2030 | |||||||||||||||||||||
| Shlomo Zakai | 9,524 | - | 3.15 | 1/3/2029 | - | - | ||||||||||||||||||
| Former Chief Financial Officer | - | - | - | - | - | - | ||||||||||||||||||
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Employment Agreements with Executive Officers
We, and through our Israeli subsidiary, have entered into written employment agreements with certain of our executive officers. We have entered into written employment and service agreement with each of our executive officers. Such employment and service agreement will contain customary provisions and representations, including confidentiality, non-competition, non-solicitation and inventions assignment undertakings by the executive officers. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we entered into agreements with each executive officer and director pursuant to which we will indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance.
Consulting Agreement with David Palach
On November 6, 2020, we entered into a consulting agreement with S.T Sporting (1996) Ltd., for the services of David Palach (the “CEO Consulting Agreement”). Pursuant to the terms of the CEO Consulting Agreement, Mr. Palach provides us services as chief executive officer. Pursuant to the terms of the CEO Consulting Agreement, Mr. Palach was entitled to a monthly fee in the amount of $8,000 plus value added tax per month and a grant of options to purchase shares of our Common Stock, which amount shall be determined by good faith negotiations by the board of directors on a future date.
On June 23, 2021, our board of directors approved updated compensation for Mr. Palach pursuant to which Mr. Palach is entitled to a (1) monthly fee of $14,000 plus value added tax per month, (2) reimbursement of expenses not exceeding $500 per month (3) one-time grant of options to purchase shares of Common Stock representing 4.5% of the Company’s outstanding capital stock as of the date of June 23, 2021, and (4) the immediate repayment of $8,000, representing debt payable to Mr. Palach that accrued during the period beginning November 2020 until April 2021.
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Services Agreement with Dan Sztybel
On October 10, 2018, Save Foods Ltd. entered into a service agreement (as amended on March 28, 2019, the “Save Foods Ltd. CEO Services Agreement”) with Mr. Sztybel and Dan Sztybel Consulting Group Ltd., a consulting services company owned and controlled by Mr. Sztybel, pursuant to which Mr. Sztybel provides us with services as the chief executive officer of Save Foods Ltd. Pursuant to the terms of the Save Foods Ltd. CEO Services Agreement, Mr. Sztybel is currently entitled to a monthly fee in the amount of NIS 47,125 (approximately $14,500) plus value added tax and car allowance in the amount of NIS 3,250 (approximately $1,000) plus value added tax per month. In addition, under the Save Foods Ltd. CEO Services Agreement, Mr. Sztybel was granted options to purchase shares of our Common Stock, including the following:
| (a) | Options to purchase up to 14,286 shares of Common Stock, under our Equity Incentive Plan, in the event that we will receive EPA and FDA approvals by the end of the second quarter of 2020. Such conditions were not met as of June 30, 2020. | |
| (b) | Options to purchase up to 28,572 shares of Common Stock, under our Equity Incentive Plan. |
Both parties may terminate the Save Foods Ltd. CEO Services Agreement at any time for any reason upon a 30-day prior written notice.
Commencing April 2020, the Company and Mr. Sztybel agreed to temporarily reduce the monthly fixed fee to $9,000 per month.
On July 13, 2021, Save Foods Ltd. entered into an employment agreement with Mr. Sztybel as its Chief Executive Officer, pursuant to which Mr. Sztybel is employed by Save Foods Ltd. on a full time basis. In accordance with the foregoing agreement, Mr. Sztybel is entitled to a gross salary of NIS 54,000 (approximately $17,400) and certain additional social benefits customarily provided to officers of similar companies in Israel. On November 3, 2021, Save Foods Ltd. entered into an amendment to the employment agreement with Mr. Sztybel, according to which, effective October 1, 2021, the gross salary of Mr. Sztybel will be reduced to NIS 45,880 (approximately $14,800). In addition, it was agreed that in the event that the agreement with Mr. Sztybel would be terminated by Save Foods Ltd. Prior to the lapse of 18 months following May 30, 2021, Mr. Sztybel would be entitled to a dismissal grant in an amount equal to Mr. Sztybel’s last salary multiplied by the number of months left between the termination date and November 30, 2022.
On June 23, 2021, our board of directors approved a one-time lump sum bonus to Mr. Sztybel in an amount of $65,000 in connection with his contributions to the Company’s uplist to the Nasdaq Capital Market which closed on May 13, 2021.
Services Agreement with Neta Matis
On January 15, 2019, we entered into a service agreement (the “VP Research and Development Services Agreement”), with NSNC Consulting Ltd. (the “Contractor”), pursuant to which Ms. Neta Matis, on behalf of the Contractor, provides us with services as our VP of research and development. Pursuant to the terms of the VP Research and Development Service Agreement, Ms. Matis provides the services in a part time position scope of 50% and is entitled to a monthly fee in the amount of NIS 15,000 (approximately $4,615) plus value added tax. In addition, Ms. Matis will be granted options to purchase up to 7,143 shares of our Common Stock. Such options shall vest over a 36-month period commencing in January 2019 as follows: (i) options to purchase up to 2,381 shares of Common Stock shall vest following the initial 12-month period as of the date of grant, (ii) options to purchase up to 4,762 shares of Common Stock shall vest following the lapse of each additional three-month period thereafter. All other terms and conditions of the options shall be consistent to those applicable under our Equity Incentive Plan. Commencing January 2020, Ms. Matis became a full-time employee and is entitled to a monthly fee in the amount of NIS 30,000 (approximately $9,230) plus value added tax. Commencing April 2020, the Company and Ms. Matis agreed to temporarily reduce the monthly fixed fee to $6,200 per month.
On July 13, 2021, Save Foods Ltd. entered into an employment agreement with Ms. Matis as its Chief Operating Officer, pursuant to which Ms. Matis is employed by the Company on a full time basis. In accordance with the foregoing agreement, Ms. Matis is entitled to a gross salary of NIS 45,000 (approximately $14,500) and certain additional social benefits customarily provided to officers of similar companies in Israel. On November 3, 2021, Save Foods Ltd. entered into an amendment to the employment agreement with Ms. Matis according to which it was agreed that in the event that the agreement with Ms. Matis would be terminated by Save Foods Ltd. prior to the lapse of 18 months following May 30, 2021, Ms. Matis would be entitled to a dismissal grant in an amount equal to Ms. Matis’ last salary multiplied by the number of months left between the termination date and November 30, 2022.
On June 23, 2021, our board of directors approved a one-time lump sum bonus to Ms. Matis in an amount of $55,000 in connection with her contributions to the Company’s uplist to the Nasdaq Capital Market which closed on May 13, 2021.
Employment Agreement with Omri Kanterovich
On January 18, 2022, we entered into an amended employment agreement with our interim Chief Financial Officer, Mr. Omri Kanterovich, which amended Mr. Kanterovich’s existing employment agreement with us in connection with his service as our financial controller prior to his promotion to his current position. In accordance with the terms of Mr. Kanterovich’s agreement, he is entitled to a monthly salary of NIS 25,000 (including global overtime compensation) as well as certain additional customary Israeli social benefits, including an education fund (keren hishtalmut).
Director Compensation
Summary Compensation Table
The following table sets forth the compensation we paid our non-executive directors during the fiscal year ended December 31, 2021.
| Name | Fees earned or paid in cash ($) | Stock awards ($) | Option awards ($) | All other compensation ($) | Total ($) | |||||||||||||||
| Amitay Weiss | 78,625 | - | - | - | 78,625 | |||||||||||||||
| Eliahou Arbib | 29,637 | - | - | - | 29,637 | |||||||||||||||
| Udi Kalifi | 18,992 | - | - | - | 18,992 | |||||||||||||||
| Israel Berenshtein | 41,585 | - | - | - | 41,585 | |||||||||||||||
| Ronen Rosenbloom | 41,443 | - | - | - | 41,443 | |||||||||||||||
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder matters
Security Ownership of Certain Beneficial Owners and Management
The table below provides information regarding the beneficial ownership of our Common Stock as of March 31, 2022 of (i) each of our current directors, (ii) each of the Named Executive Officers, (iii) all of our current directors and officers as a group, and (iv) each person (or group of affiliated persons) known to us who owns more than 5% of our outstanding Common Stock.
The beneficial ownership of our Common Stock is determined in accordance with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. For purposes of the table below, we deem shares of Common Stock issuable pursuant to options that are currently exercisable or exercisable within 60 days of March 31, 2022, if any, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. The percentage of shares of Common Stock beneficially owned is based on 2,833,036 shares of Common Stock outstanding as of March 31, 2022.
Unless otherwise indicated below, the address for each beneficial owner listed in the table below is c/o Save Foods, Inc., 730 NW 107 Avenue, Miami, Florida, 33172.
| Owner | Number of Shares Beneficially Owned(1) | Percentage Beneficially Owned(1) | ||||||
| 5% or more shareholders: | ||||||||
| Amir Uziel / Amir Uziel Economic Consultant Ltd.(2) | 155,443 | 5.5 | % | |||||
| L.I.A. Pure Capital Ltd. (3) | 144,173 | 5.1 | % | |||||
| Directors and named executive officers who are not 5% holders: | ||||||||
| Amitay Weiss(*) | - | ** % | ||||||
| Eliahou Arbib(*) | - | ** % | ||||||
| Udi Kalifi(*) | - | ** % | ||||||
| Israel Berenshtein(*) | - | ** % | ||||||
| Ronen Rosenbloom(*) | - | ** % | ||||||
| Dan Sztybel(4) | 71,034 | 2.4 | % | |||||
| David Palach | - | ** % | ||||||
| Omri Kanterovich | - | ** % | ||||||
| Neta Matis(5) | 31,596 | 1.1 | % | |||||
| All directors and named executive officers as a group (9 persons) | 102,630 | 3.5 | % | |||||
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| * | Indicates director of the Company. |
| ** | Indicates beneficial ownership of less than 1% of total Common Stock outstanding. |
| (1) | The percentages shown are based on 2,833,036 Common Stock issued and outstanding as of the date of March 31, 2022. |
| (2) | Includes 33,336 shares held by Amir Uziel, and 122,107 shares held by Amir Uziel Economic Consultant Ltd., as reported in Amendment No. 1 to Mr. Uziel’s Schedule 13G, filed with the SEC on February 7, 2022. Amir Uziel is the owner of Amir Uziel Economic Consultant Ltd. and has voting and dispositive power over the shares held by Amir Uziel Economic Consultant Ltd. |
| (3) | Includes 144,173 shares held by L.I.A. Pure Capital Ltd., as reported in Amendment No. 2 to the Schedule 13G filed with the SEC on March 21, 2022. Kfir Zilberman is the Owner of L.I.A Pure Capital Ltd. and has the voting and dispositive power over the shares held by L.I.A Pure Capital Ltd. |
| (4) | Consists of (i) 3,175 shares of Common Stock and (ii) options to purchase 67,859 shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 31, 2022. |
| (5) | Includes of options to purchase 31,596 shares of Common Stock, which are currently exercisable or will become exercisable within 60 days of March 31, 2022. |
Item 13. Certain relationships and related transactions, and director independence
Related Party Transactions
The following is a description of transactions since January 1, 2019, to which we were a party or will be a party, in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Employment Agreements
Certain of our executive officers have employment and service agreements with us. We have entered into written employment and service agreement with each of our executive officers. Such employment and service agreement will contain customary provisions and representations, including confidentiality, non-competition, non-solicitation and inventions assignment undertakings by the executive officers. However, the enforceability of the noncompetition provisions may be limited under applicable law. See “Management—Employment Agreements with Executive Officers” and “— Service Contracts with Non-Executive Directors.”
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Indemnification Agreements
We entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us or will require us to indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a director or executive officer. For further information, see “Executive and Director Compensation—Limitations of Liability and Indemnification.”
Consulting and Service Agreements
Consulting Agreement with Amir Uziel
On March 2, 2021, we entered into a consulting agreement with Amir Uziel (the “Amir Uziel Consulting Agreement”), effective as of January 1, 2021, pursuant to which, Mr. Amir Uziel, a holder of greater than 5% of our Common Stock, provides us with consulting services. Pursuant to the terms of the Amir Uziel Consulting Agreement, Amir Uziel is entitled to a fee in the amount of $100 per hour up to a maximum of 60 hours. The Amir Uziel Consulting Agreement will terminate on December 31, 2021.
Corporate Advisory Consulting Agreement with Nir Ecology Ltd.
On August 30, 2017, we entered into a corporate advisory consulting agreement with Nir Ecology Ltd. (the “Nir Ecology Agreement”), pursuant to which, Mr. Ben Yehuda, our chief technology officer, provided us with services since September 1, 2017. Pursuant to the terms of the Nir Ecology Agreement, Nir Ecology Ltd. was entitled to a monthly fee in the amount of $3,000. The Nir Ecology Agreement remained in effect until August 31, 2019.
Convertible Loan Agreements
During December 2019, we entered into the December 2019 CLAs, with certain lenders, including three of our holders of greater than 5% of our Common Stock, pursuant to which the December 2019 Lenders agreed to provide us loans in the aggregate amount of $379,000 in exchange for convertible promissory notes and warrants. The following table sets forth the aggregate amount provided by our related parties in the December 2019 CLAs:
| Participant | Loan Amount | |||
| Amir Uziel / Amir Uziel Economic Consultant Ltd. | $ | 100,000 | ||
| L.I.A Pure Capital Ltd. | $ | 35,000 | ||
| YAAD Consulting Management Services (1995) Ltd | $ | 100,000 | ||
Simultaneous with and conditioned upon the execution of the June 2020 SPA, the Company and each of the December 2019 Lenders, January 2020 Lender and February agreed to effectively cancel the December 2019 CLA and the equity securities issued thereunder. In connection therewith, each of the December 2019 Lenders voluntarily waived any right to receive interest that accrued thereupon pursuant to the December 2019 CLA.
Lease Agreement with YAAD Consulting Management Services (1995) Ltd.
On September 1, 2019, we entered into a lease agreement, through our Israeli subsidiary, with YAAD Consulting Management Services (1995) Ltd., a holder of greater than 5% of our Common Stock (the “YAAD Lease Agreement”). Pursuant to the YAAD Lease Agreement, we paid YAAD Consulting Management Services (1995) Ltd. a monthly payment of NIS 5,000 (approximately $1,430) plus value added tax in consideration for office space located at 20 Raul Wallenberg, Tel Aviv, Israel. The YAAD Lease Agreement remained in effect until September 1, 2019.
Private Placements of our Securities
On June 24, 2020, we entered into the June 2020 SPA with certain investors, including three of our holders of greater than 5% of our Common Stock, pursuant to which we issued an aggregate of 67,369 shares of Common Stock and warrants to purchase an aggregate of 67,369 shares of Common Stock for an aggregate purchase price of $565,868. The following table sets forth the aggregate number of Common Stock issued to our related parties in the June 2020 SPA:
| Participant | Common Stock | |||
| Amir Uziel / Amir Uziel Economic Consultant Ltd. | 13,106 | |||
| L.I.A Pure Capital Ltd. | 4,588 | |||
| YAAD Consulting Management Services (1995) Ltd | 13,107 | |||
During July 2020, we entered into securities purchase agreements (the “July 2020 SPAs”) with certain investors, including two of our holders of greater than 5% of our Common Stock, pursuant to which we issued an aggregate of 6,554 shares of Common Stock and warrants to purchase an aggregate of 6,554 shares of Common Stock for an aggregate purchase price of $55,046. The following table sets forth the aggregate number of Common Stock issued to our related parties in the July 2020 SPAs:
| Participant | Common Stock | |||
| Amir Uziel / Amir Uziel Economic Consultant Ltd. | 3,277 | |||
| YAAD Consulting Management Services (1995) Ltd. | 3,277 | |||
| Nir Reinhold / Buffalo Investments Ltd. | 13,107 | |||
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During August 2020, we entered into securities purchase agreements (the “August 2020 SPAs”) with certain investors, including three of our holders of greater than 5% of our Common Stock, pursuant to which we issued an aggregate of 13,108 shares of Common Stock and warrants to purchase an aggregate of 13,108 shares of Common Stock for an aggregate purchase price of $110,093. The following table sets forth the aggregate number of Common Stock issued to our related parties in the August 2020 SPAs:
| Participant | Common Stock | |||
| Amir Uziel / Amir Uziel Economic Consultant Ltd. | 6,554 | |||
| L.I.A Pure Capital Ltd. | 3,277 | |||
| YAAD Consulting Management Services (1995) Ltd | 3,277 | |||
Stock Options
Since our inception, we have granted options to purchase shares of our Common Stock to our officers and certain of our directors. Such option agreements may contain acceleration provisions upon certain merger, acquisition, or change of control transactions. We describe our option plans under “Executive and Director Compensation—Equity Incentive Plan.” If the relationship between us and an executive officer or a director is terminated, except for cause (as defined in the various option plan agreements), options that are vested will generally remain exercisable for three months after such termination.
Policies and Procedures for Related Person Transactions
We have adopted a written related person transaction policy setting forth the policies and procedures for the review and approval or ratification of “related person transactions.” For purposes of this policy, a “related person transaction” is any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and any “related person” are participants involving an amount that exceeds $120,000 including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. Transactions involving compensation for services provided to us as an employee, consultant or director will not be considered related-person transactions under this policy. A “related person” is any executive officer, director or a holder of more than five percent of our Common Stock, including any of their immediate family members and any entity owned or controlled by such persons.
Under this policy, where a transaction has been identified as a related person transaction, management must present information regarding the proposed related-person transaction to our audit committee (or, where review by our audit committee would be inappropriate, to another independent body of our board of directors) for review. In reviewing and approving any such transactions, our audit committee or other independent body of our board of directors, is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval. All of the transactions described in this section occurred prior to the adoption of this policy.
Director Independence
Our board of directors has determined that Ronen Rosenbloom, Israel Berenshtein, Amitay Weiss, Eliahou Arbib and Udi Kalifi do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the rules of The Nasdaq Stock Market LLC.
Item 14. Principal accounting fees and services
Independent Public Accounting Firm
On
July 25, 2021, the Company’s board of directors appointed Somekh Chaikin, Tel Aviv Israel, PCAOB ID
Audit and Accounting Fees
The following table sets forth the fees billed to our Company for professional services rendered by (i) Halperin Ilanit CPA, an independent registered public accounting firm, for the period ended July 25, 2021, and the fiscal year ended December 31, 2020, and (ii) Somekh Chaikin, Tel Aviv, Israel (PCAOB ID 1057), a member firm of KPMG International, has served as our independent registered public accounting firm for fiscal year ended December 31, 2021. Following are KPMG International’s fees for professional services in each of the respective fiscal years:
| Services | 2021 | 2020 | ||||||
| Audit fees | $ | 172,500 | (1) | $ | 24,150 | |||
| Audit related fees | - | - | ||||||
| Tax fees | 18,069 | 2,488 | ||||||
| All other fees | - | - | ||||||
| Total fees | $ | 190,569 | $ | 26,638 | ||||
| (1) | Audit Fees consists of $27,500 in connection with the services rendered by Halperin Ilanit CPA, and $145,000 in connection with the services rendered by Somekh Chaikin, member firm of KPMG International. |
Audit fees consist of fees for professional services rendered for the audit of our annual financial statements.
| 72 |
Part IV
Item 15. exhibits, financial statement schedules
* Filed herewith
** Furnished herewith
+ Management contract or compensatory plan or arrangement
| 73 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SAVE FOODS, INC. | ||
| By: | /s/ David Palach | |
| Name: | David Palach | |
| Title: | Chief Executive Officer | |
| Date: | March 31, 2022 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ David Palach | Chief Executive Officer | March 31, 2022 | ||
| David Palach | (Principal Executive Officer) | |||
| /s/ Omri Kanterovich | Chief Financial Officer | March 31, 2022 | ||
| Omri Kanterovich | (Principal Financial Officer) | |||
| /s/ Amitay Weiss | Chairman of the Board | March 31, 2022 | ||
| Amitay Weiss | ||||
| /s/ Ronen Rosenbloom | Director | March 31, 2022 | ||
| Ronen Rosenbloom | ||||
| /s/ Israel Berenshtein | Director | March 31, 2022 | ||
| Israel Berenshtein | ||||
| /s/ Udi Kalifi | Director | March 31, 2022 | ||
| Udi Kalifi | ||||
| /s/ Eliahou Arbib | Director | March 31, 2022 | ||
| Eliahou Arbib |
| 74 |
SAVE FOODS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
| F-1 |
Save Foods, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
TABLE OF CONTENTS
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SAVE FOODS, INC.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Save Foods, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Save Foods, Inc. and its subsidiary (the Company) as of December 31, 2021, the related consolidated statements of comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the year ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021 in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Member Firm of KPMG International
We have served as the Company’s auditor since 2021.
March 31, 2022
| F-3 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SAVE FOODS, INC.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Save Foods, Inc (the “Company”) and its subsidiary, Save Foods Ltd. as of December 31, 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for each of the year in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for each of the year in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1C to the consolidated financial statements, the Company has not yet generated material revenues from its operations to fund its activities and is therefore dependent upon external sources for financing its operations. As of December 31, 2020, the Company has incurred accumulated deficit of $12,277,647 and negative operating cash flows. These factor among others, as discussed in Note 1C to the consolidated financial statements raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1C to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of’ these uncertainties.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Certified Public Accountants (Isr.)
March 9, 2021
We have served as the Company’s auditor since 2018
| F-4 |
SAVE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars except share and per share data)
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash (Note 2D) | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Other current assets (Note 3) | ||||||||
| Total Current assets | ||||||||
| Right-of-use asset arising from operating leases (Note 9) | ||||||||
| Property and Equipment, net (Note 4) | ||||||||
| Funds in respect of employee rights upon retirement | ||||||||
| Total assets | ||||||||
| Liabilities and Shareholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Short-term loan from banking institutions (Note 7) | ||||||||
| Current maturities of convertible loans | - | |||||||
| Accounts payable | ||||||||
| Other liabilities (Note 5) | ||||||||
| Total current liabilities | ||||||||
| Fair value of convertible component in convertible loans (Note 6) | - | |||||||
| Convertible loans (Notes 6) | - | |||||||
| Long-term loan from banking institutions (Note 7) | - | |||||||
| Operating lease liabilities (Note 9) | - | |||||||
| Liability for employee rights upon retirement | ||||||||
| Total liabilities | ||||||||
| Stockholders’ Equity (Deficit) (Note 10) | ||||||||
| Common stocks of $ par value each (“Common Stocks”): shares authorized as of December 31, 2021 and 2020; issued and outstanding and shares as of December 31, 2021 and 2020, respectively. | ||||||||
| Preferred stocks of $ par value (“Preferred stocks”): shares authorized as of December 31, 2021 and 2020; issued and outstanding shares as of December 31, 2021 and 2020. | - | - | ||||||
| Additional paid-in capital | ||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| ( | ) | |||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-5 |
SAVE FOODS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. dollars except share and per share data)
| Year ended | ||||||||
| December 31 | ||||||||
| 2021 | 2020 | |||||||
| Revenues from sales of products | ||||||||
| Cost of sales (Note 12) | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Research and development expenses (Note 13) | ( | ) | ( | ) | ||||
| Selling and marketing expenses | ( | ) | ( | ) | ||||
| General and administrative expenses (Note 14) | ( | ) | ( | ) | ||||
| Operating loss | ( | ) | ( | ) | ||||
| Financing expenses, net (Note 15) | ( | ) | ( | ) | ||||
| Other expenses, net | - | ( | ) | |||||
| Gain on disposal of affiliated company | - | |||||||
| Net loss | ( | ) | ( | ) | ||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ||||||
| Net loss attributable to the Company’s shareholders | ( | ) | ( | ) | ||||
| Loss per share (basic and diluted) (Note 17) | ( | ) | ( | ) | ||||
| Basic and diluted weighted average number of shares of common stock outstanding (Note 17) | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-6 |
SAVE FOODS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(U.S. dollars, except share and per share data)
| Number of Shares | Amount | Additional paid-in capital | Foreign currency translation adjustments | Accumulated deficit | Total Company’s stockholders’ equity (deficit) | Non-controlling interest | Total stockholders’ equity (deficit) | |||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2020 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| CHANGES DURING THE YEAR ENDED DECEMBER 31, 2020: | ||||||||||||||||||||||||||||||||
| Issuance of shares | - | - | - | |||||||||||||||||||||||||||||
| Value of warrant issued in convertible loans | - | - | - | - | - | |||||||||||||||||||||||||||
| Conversion of convertible loans | - | - | - | |||||||||||||||||||||||||||||
| Exercise of warrants | - | - | - | |||||||||||||||||||||||||||||
| Exercise of options | - | - | - | |||||||||||||||||||||||||||||
| Share based compensation | - | - | - | - | ||||||||||||||||||||||||||||
| Comprehensive loss for the year | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2020 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| CHANGES DURING THE YEAR ENDED DECEMBER 31, 2021: | ||||||||||||||||||||||||||||||||
| Issuance of shares, net of issuance costs of $ | - | - | - | |||||||||||||||||||||||||||||
| Conversion of convertible loans | - | - | - | |||||||||||||||||||||||||||||
| Share based compensation | - | - | - | - | ||||||||||||||||||||||||||||
| Share based compensation for services providers | - | - | - | |||||||||||||||||||||||||||||
| Comprehensive loss for the year | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-7 |
SAVE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars)
| Year ended | ||||||||
| December 31 | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Loss for the year | $ | ( | ) | $ | ( | ) | ||
| Adjustments required to reconcile net loss for the period to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss from sales of property and equipment | - | |||||||
| Gain on disposal of affiliated company | - | ( | ) | |||||
| Increase in liability for employee rights upon retirement | ||||||||
| Share based compensation | ||||||||
| Revaluation and interest expenses on loans | ||||||||
| Conversion of convertible loans | - | |||||||
| Increase in accounts receivable, net | ( | ) | ( | ) | ||||
| Increase in inventories | ( | ) | ( | ) | ||||
| Increase in other current assets | ( | ) | ( | ) | ||||
| Increase (decrease) in accounts payable | ( | ) | ||||||
| Increase (decrease) in other liabilities and operating lease liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments on investment in unconsolidated entity | - | |||||||
| Increase in funds in respect of employee rights upon retirement | ( | ) | ( | ) | ||||
| Proceeds from sales of property and equipment | - | |||||||
| Purchase of property and equipment | ( | ) | - | |||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible loans | ||||||||
| Repayments of long-term loans from banking institutions | ( | ) | ( | ) | ||||
| Repayments of right of use asset arising from operating leases | ( | ) | ( | ) | ||||
| Proceeds from stock issued for cash, net of issuance costs of $ | ||||||||
| Exercise of options | - | |||||||
| Exercise of warrants | - | |||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | - | |||||
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-8 |
SAVE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars)
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Non-cash transactions: | ||||||||
| Disposal of affiliated company | - | |||||||
| Termination of lease agreement | ||||||||
| Termination of lease liability | ||||||||
| Issuance of warrants in convertible loans | - | |||||||
| Conversion of convertible loans | ||||||||
| Deferred issuance expenses | - | |||||||
| Initial recognition of operating lease right-of-use assets | - | |||||||
| Initial recognition of operating lease liability | - | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-9 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL
| A. | Operations |
Save
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
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 shares of its Common Stock at a price to the
public of $ per
share. The gross proceeds to the Company from this offering were $
Commencing on May 14, 2021, Company’s common stock began to be listed on the Nasdaq Capital under the symbol “SVFD”.
| B. | Reverse stock split |
On
February 23, 2021, the Company amended its Certificate of Incorporation to effect a
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 consolidated financial statements have been restated to reflect the stock split.
| F-10 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL (continue)
| C. | Effects of the spread of the coronavirus |
The COVID-19 pandemic continues to create business and economic uncertainty and volatility in the global markets. Many countries around the world are experiencing further outbreaks of the pandemic, following which governments are once again imposing various restrictions. At the same time, there is a recovery trend in the volume of economic activity around the world that leads on one hand, to significant demand for certain products and services and on the other hand, disruptions to worldwide supply chain routes and some raw materials. The Group continues to take measures to ensure the health and safety of its employees, suppliers, other business partners and the communities in which it operates in order to ensure, among others, the operation level, the proper functioning of its facilities and to minimize the pandemic’s potential impact on its business. Manufacturing continues at the Group’s sites without interruptions. However, there is still a difficulty in assessing the future impacts of the pandemic on the Group’s operations, inter alia, in light of the uncertainty of its duration, the extent of its intensity and effects on global supply chains and global markets, and additional countermeasures that may be taken by governments and central banks.
| D. | Liquidity |
Since
inception, the Company has incurred significant losses and negative cash flows from operations and has an accumulated deficit of $
The Company’s management expects that the Company will continue to generate losses and negative cash flows from operations for the foreseeable future. Based on the projected cash flows and cash balances as of the date of these financial statements, management is of the opinion that its existing cash will be sufficient to meet its obligations for a period which is longer than 12 months.
NOTE 2– SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).
| A. | Use of estimates in the preparation of financial statements |
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to share based compensation.
| B. | Functional currency |
A majority of the Group’s revenues is generated in U.S. dollars. In addition, most of the Group’s costs are denominated and determined in U.S. dollars. Management believes that the dollar is the currency in the primary economic environment in which the Group operates. Thus, the functional and reporting currency of the Group is the U.S. dollar. Transactions and monetary balances in other currencies are translated into the functional currency using the current exchange rate.
Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification (ASC) 830, “Foreign Currency Matters”. All transaction gains and losses of the remeasured monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
| F-11 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue)
| C. | Principles of consolidation |
The accompanying consolidated financial statements include the accounts of the Company and its subsidiary, Save Foods Ltd. All significant intercompany balances and transactions have been eliminated on consolidation.
| D. | Cash and cash equivalents, and Restricted cash |
Cash equivalents are short-term highly liquid investments which include short term bank deposits (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.
Restricted
cash as of December 31,2021 and 2020 included a $
| E. | Accounts receivables |
The
Group maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing
the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’
financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. As of December
31, 2021, and 2020, an allowance for doubtful debts in the amount of $
| F. | Property, plant and equipment, net |
| 1. | Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the Statements of Comprehensive Loss. | |
| 2. | Rates of depreciation: |
| % | ||
| Furniture and office equipment | ||
| Machines | ||
| Computers | ||
| Vehicle |
| G. | Impairment of long-lived assets |
The Group’s long-lived assets are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. No impairment expenses were recorded during the years ended December 31, 2021 or 2020.
| F-12 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue)
| H. | Income taxes |
The Group accounts for income taxes in accordance with ASC Topic 740, “Income Taxes”. Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
The Group accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in a Company’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal years 2021 and 2020 financial statements and did not recognize any liability with respect to an unrecognized tax position in its balance sheets.
| I. | Liability for employee rights upon retirement |
Under Israeli law and labor agreements, Save Foods Ltd. is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances. In respect of the liability to the employees, individual insurance policies are purchased, and deposits are made with recognized severance pay funds. The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. Employees are entitled to one month’s salary for each year of employment, or a portion thereof. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision. Such liability is removed, either upon termination of employment or retirement.
According to Section 14 to the Severance Pay Law (“Section 14”) the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. Save Foods, Ltd. has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, the payment of monthly deposits by Save Foods, Ltd. into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore Save Foods, Ltd. incurs no additional liability since that date with respect to such employees. Amounts accumulated in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by Save Foods, Ltd. and therefore neither such amounts nor the corresponding accrual are reflected in the balance sheet.
Severance
income for the year ended December 31, 2021 amounted to $
| J. | Revenue recognition |
The Group has revenue from customers. The Group recognizes revenue when it satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products. This process involves identifying the customer contract, determining the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it (a) provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and (b) is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or product to a customer, meaning the customer has the ability to direct the use and obtain the benefit of the product.
The Company’s primary source of revenues is from sales of eco-friendly “green” products for the food industry. The Company does not act as an agent in any of its revenue arrangements. Contracts with customers generally state the terms of the sale, including the quantity and price of each product purchased. Payment terms and conditions may vary by contract, although terms generally include a requirement of payment within a range of 30 to 60 days after the performance obligation has been satisfied. As a result, the contracts do not include a significant financing component. In addition, contracts typically do not contain variable consideration as the contracts include stated prices.
| F-13 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue)
| K. | Research and development expenses |
Research and development expenses are charged to comprehensive loss as incurred.
| L. | Royalty-bearing grants |
Royalty-bearing
grants from the Israeli Innovation Authority (the “IIA”) for funding approved research and development projects are recognized
at the time Save Foods Ltd. is entitled to such grants (i.e. at the time that there is reasonable assurance that the Save Foods Ltd will
comply with the conditions attached to the grant and that there is reasonable assurance that the grant will be received), on the basis
of the costs incurred and reduce research and development costs. The cumulative research and development grants received by Save Foods
Ltd from inception through December 2021 and 2020, amounted to $
As of December 31, 2021, and 2020, the Group did not accrue for or pay any royalties to the IIA since no revenues were recognized in respect of the funded projects.
| M. | Inventories |
Inventories are valued at the lower of cost or net realizable value. Cost of raw and packaging materials, purchased products, manufactured finished products and products in process are determined on the average cost basis.
The Group regularly reviews its inventories for impairment and reserves are established when necessary.
| N. | Basic and diluted loss per common stock |
Basic loss per common stock is computed by dividing the loss for the period applicable to shareholders, by the weighted average number of shares of common stock outstanding during the period. Securities that may participate in dividends with the shares of common stock (such as the convertible preferred) are considered in the computation of basic loss per share under the two-class method. However, in periods of net loss, only the convertible preferred shares are considered, since such shares have a contractual obligation to share in the losses of the Company.
In computing diluted loss per share, basic loss per share is adjusted to reflect the potential dilution that could occur upon the exercise of potential shares.
| O. | Stock-based compensation |
The Group measures and recognizes the compensation expense for all equity-based payments to employees and nonemployees based on their estimated fair values in accordance with ASC 718, “Compensation-Stock Compensation”. Share-based payments including grants of stock options are recognized in the statement of comprehensive loss as a compensation expense based on the fair value of the award at the date of grant. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model. The Group has expensed compensation costs, net of forfeitures as they occur, applying the accelerated vesting method, over the requisite service period or over the implicit service period when a performance condition affects the vesting, and it is considered probable that the performance condition will be achieved.
| F-14 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue)
| P. | Fair Value Measurements |
Fair value of certain of the Group’s financial instruments including cash, accounts receivable, account payable, accrued expenses, and other accrued liabilities approximate cost because of their short maturities. The Group measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of non-performance, which includes, among other things, the Company’s credit risk.
Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.
The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative liabilities over the life of the convertible notes.
The following table presents the changes in fair value of the level 3 liabilities for the Year ended December 31, 2021:
| Fair value of Convertible component | ||||
| Outstanding at January 1, 2021 | ||||
| Fair value of issued level 3 liability | ||||
| Fair value of repaid level 3 liability | ( | ) | ||
| Changes in fair value | ( | ) | ||
| Outstanding at December 31, 2021 | ||||
NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue)
| Q. | Concentrations of credit risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents as well as certain other current assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily held in Dollars and New Israeli Shekels, are deposited with major banks in Israel and United States. The Group considers that its cash and cash equivalents have low credit risk based on the credit ratings of the counterparties. The Company does not have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
| F-15 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue)
| R. | Commitments and Contingencies |
The Group records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
| S. | Leases
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Group determines if an arrangement is or contains a lease at contract inception. |
The Group is a lessee in certain operating leases primarily for office space and vehicles. 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 Group’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.
The Group monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in statement of comprehensive loss.
| T. | New Accounting Pronouncements |
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the effect the adoption of ASU 2019-12 will have on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 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 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and(2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures.
Other new pronouncements issued but not effective as of December 31, 2021 are not expected to have a material impact on the Company’s consolidated financial statements.
| U. | Change in classification |
During the current year the Group changed the cash flows classification of proceeds from secured promissory notes to proceeds from convertible loans to reflect more appropriately the financing activities as it related to certain convertible loans.
These reclassifications did not have any effect on total current assets, total assets, total current liabilities, total liabilities, total shareholders’ equity, net loss, or loss per share.
| F-16 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – OTHER CURRENT ASSETS
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Prepaid expenses and advances to vendors | ||||||||
| Receivables from sale of investment (*) | - | |||||||
| Government Institutions | ||||||||
| (*) |
NOTE 4 – PROPERTY AND EQUIPMENT, NET
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Computers | ||||||||
| Furniture and office equipment | ||||||||
| Machines | ||||||||
| Vehicles | ||||||||
| Less - accumulated depreciation | ( | ) | ( | ) | ||||
| Less – impairment of long lived assets | ( | ) | ||||||
| Total property and equipment, net | ||||||||
For
the years ended December 31, 2021 and 2020, depreciation expenses were $
NOTE 5 – OTHER LIABILITIES
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Employees and related institutions | ||||||||
| Accrued expenses | ||||||||
| Operating lease liabilities | ||||||||
| F-17 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – CONVERTIBLE LOANS
| A. | In
December 2019, the Company entered into a series of Convertible Loan Agreements (each a “CLA”) with third parties and
certain existing shareholders (the “Lenders”), pursuant to which the Lenders agreed to provide the Company loans in the
aggregate amount of $ | |
| According
to the terms of the CLA, the Notes bore interest at a rate of | ||
| In
addition, according to the terms of the CLA, the outstanding loan amount matures on the earlier of (i) the third anniversary of each
CLA or (ii) a deemed liquidation event (as defined therein), and the Lenders may convert all or any portion of the Notes at any time
prior to the one-year anniversary of each issuance into shares of the Company’s Common Stock at a conversion price of $ | ||
| In accordance with ASC 815-15-25, the conversion feature was considered an embedded derivative instrument, and was to be recorded at its fair value as its fair value could be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion liability was then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. | ||
| On
June 24, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with the Lenders in connection with
the sale and issuance of units (“Units”), at a purchase
price of $per Unit. | ||
| Simultaneous with and conditioned upon the execution of the SPA, the Company and each of the Lenders agreed to effectively cancel the CLA and the equity securities issued thereunder. In connection therewith, each of the Lenders voluntarily waived any right to receive interest that accrued thereupon pursuant to the CLA. | ||
| The
Company evaluated the transaction as an exchange of instruments and as a result of the above conversion, recorded a compensation
expenses in a total amount of $,
as of May 11 and 12, 2021 (“The exchange date”), and as a credit to stockholders’ equity (additional paid in capital).
The fair value of the additional shares granted in the conversion was calculated based on the Company’s share price as of the
date of the conversion. The fair value of the additional warrants granted in the conversion was determined using the Black-Scholes
pricing model, assuming a risk-free rate of | ||
| During
the year ended December 31, 2020, the Company recorded net interest and amortization expenses in the amount of $ | ||
| B. | 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 $ |
| F-18 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – CONVERTIBLE LOANS (continue)
| 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 $ | ||
| 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 $ | ||
| 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. |
The loans are convertible into common Stock upon (i) a completion of underwritten public offering (“Mandatory Conversion”) convert the outstanding loan amount at a share price as shall be determined in the offering, or (ii) at the lender’s discretion (“Optional Conversion”) convert the outstanding loan amount at a share price per share of $.
In accordance with ASC 815-15-25, the conversion feature was considered embedded derivative instruments, and is to be recorded at their fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations.
The
fair value of the convertible component was estimated with the assistance of a third party appraiser as weighted average of the two possible
scenarios of the total loan amount conversion: as of September 21, 2020 and October 23, 2020,
The Mandatory Conversion (scenario 1) was estimated by the appraiser using the Black-Scholes option pricing model, to compute the fair value of the derivative and to market the fair value of the derivative at each balance sheet date. The following are the data and assumptions used as of issuance dates and as of the balance sheet date:
September 21, 2020 | October 23, 2020 | December 31, 2020 | January 19, 2021 | |||||||||||||
| Dividend yield | ||||||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Expected term (years) | ||||||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Share price | ||||||||||||||||
| Exercise price | ||||||||||||||||
| Fair value | ||||||||||||||||
The Optional Conversion (scenario 2) was estimated by the appraiser using binomial option pricing model and simulating and waiver of the lender as an exercise price, to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The following are the data and assumptions used as of the issuance dates and as of balance sheet date:
September 21, 2020 | October 23, 2020 | December 31, 2020 | January 19, 2021 | |||||||||||||
| Dividend yield | ||||||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Share price | ||||||||||||||||
| Fair value | ||||||||||||||||
The
fair value of the convertible component was estimated by the third-party appraiser after giving effect to the weighted average of the
two possible scenarios as of issuance dates was $
The
fair value allocated to the convertible loan was estimated with the assistance of a third party appraiser as the residual value of the
proceeds net of the convertible component and was estimated at a value of $
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 $
| F-19 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars)
NOTE 7 - LOANS FROM BANKING INSTITUTIONS
| A. | Composition |
| Interest rate at December 31 2021 |
December 31, | |||||||||||
| % | 2021 | 2020 | ||||||||||
| Long-term loans | ||||||||||||
| Less current maturities | ( | ) | ( | ) | ||||||||
NOTE 8 – COMMITMENT AND CONTINGENT LIABILITIES
| A. | ||
| B. | On
September 22, 2020, the Company entered into a non-exclusive Commission Agreement with Earthbound Technologies, LLC (“EBT”)
for a period of 12 months, according to which EBT ‘will introduce the Company to potential clients, pre-approved by the Company
(“Introduced Parties”) and will assist the Company in finalizing commercial agreements with the Introduced Parties. In
consideration for its services, the Company agreed to pay EBT | |
| C. | On
September 22, 2020, the Company entered into a Distribution Agreement (the “Distribution Agreement”), with Safe-Pack
Products Ltd (“Safe-Pack”) according to which the Company granted Safe-Pack an exclusive right to resell, distribute,
advertise, and market Company’s products related to the citrus industry in Israel and other territories, as well as additional
products as shall be mutually agreed upon in the future. In addition, the Company agreed to grant Safe-Pack a right of first refusal
to be designated as an exclusive distributor of the Company in certain agreed upon territory for additional products of the Company
as they relate to the field of post-harvest. In consideration for the above rights granted to Safe-Pack, Safe-Pack will submit to
the Company purchase orders of its products at a price specified in the Distribution Agreement. Commencing upon the second calendar
year of the agreement, Safe-Pack is required to meet a minimum purchase quota, as shall be mutually agreed upon between the parties.
In the event that the parties fail to agree on a quota, the quota shall be equal to last year quota plus | |
| D. | 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 $ |
| F-20 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars)
NOTE 8 – COMMITMENT AND CONTINGENT LIABILITIES (continue)
| E. | 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 $ |
| F. | On
August 18, 2021 and on October 5, 2021, the Company signed consulting agreements with two of its consultants according to which the
consultants will serve as members of the scientific advisory board of the Company and shall provide the Company with ongoing business
consulting services. Based on the agreements, the Company will pay the consultants an hourly fee of NIS |
| G. | On
October 1, 2021, the Company signed a consulting agreement with a consultant for a period of 18 months, 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 shares of common stock of the Company upon
execution of the agreement and |
NOTE 9 – LEASES
| A. | The components of operating lease cost for the year ended December 31, 2021 and 2020 were as follows: |
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease costs | ||||||||
| Short-term lease cost | - | |||||||
| Total operating lease cost | ||||||||
| F-21 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars)
NOTE 9 – LEASES (continue)
| B. | Supplemental cash flow information related to operating leases was as follows: |
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | ||||||||
| Right-of-use assets obtained in exchange for lease obligations (non-cash): | ||||||||
| Operating leases | - | |||||||
| C. | Supplemental balance sheet information related to operating leases was as follows: |
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating leases: | ||||||||
| Operating leases right-of-use asset | ||||||||
| Current operating lease liabilities | ||||||||
| Non-current operating lease liabilities | - | |||||||
| Total operating lease liabilities | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
| D. | Future minimum lease payments under non-cancellable leases as of December 31, 2021 were as follows: |
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total operating lease payments | ||||
| Less: imputed interest | ||||
| Present value of lease liabilities | ||||
| F-22 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars)
NOTE 9 – LEASES (continue)
The
Company and its subsidiary did not extend its office space at Kibbutz Alonim under an operating lease agreement that ended on December
31, 2021. During the years 2021 and 2020, the Company paid an annual rent of $
A
right-of-use assets in the amount of $
NOTE 10 – SHAREHOLDERS’ EQUITY
Description of the rights attached to the Shares in the Company:
Common stock:
Each share of common stock entitles the holder to one vote, either in person or by proxy, at meetings of stockholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the stockholders of the Company’s common stock who hold, in the aggregate, more than fifty percent of the total voting rights can elect all of the directors and, in such event, the holders of the remaining minority shares will not be able to elect any of such directors. The vote of the holders of a majority of the issued and outstanding shares of common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law.
Transactions:
During
August 2020, the Company entered into a Securities
Purchase Agreement (the “August 2020 SPAs”) with an existing shareholder (the “Investor”), pursuant to
which the Company sold to the Investor for an aggregated amount of $
On July 2, 2020, the Company issued shares of Common Stock in respect of the conversion of convertible loans as detailed in Note 6A above.
During
July and August 2020, the Company entered into additional Securities Purchase Agreements with existing shareholders (the “Additional
Investors”), pursuant to which the Company sold to the Additional Investors for an aggregate amount of $
On
September 23, 2020, the Company entered into a Securities Purchase Agreement (the “Medigus SPA”) with Medigus Ltd. (“Medigus”)
in connection with the sale and issuance of units for total consideration of $
| F-23 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars)
NOTE 10 – SHAREHOLDERS’ EQUITY (continue)
The
Medigus SPA contemplates an additional investment by Medigus not to exceed $
On
September 22, 2020 and September 24, 2020, the Chairman of the Board of Directors of the Company (the “Board”), exercised
a warrant to purchase an aggregate of
During
December 2020, two directors of Save Food Ltd exercised options under the 2018 Equity Incentive Plan
into shares of common stock of the Company total consideration
of $
On May 13, 2021, the Company completed an underwritten public offering of shares of Common Stock of the Company at a price to the public of $ per 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 $
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 $
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 $
On
November 3, 2021 the Company issued to consultants shares of the Company’s common stock based
on their June 15, 2021 consulting agreement. see note 8E above for additional information. The Company determined the value of the shares
issued at $
On
November 3, 2021 the Company issued to consultant shares of the Company’s common stock based
on their October 24, 2021 consulting agreement. see note 8I above for additional information. The Company determined the value of the
shares issued at $
| F-24 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars)
On October 18, 2018, the Company adopted the 2018 Share Incentive Plan (the “2018 Equity Incentive Plan”), pursuant to which the Company’s Board of Directors is authorized to grant up to options, exercisable into shares of Common Stock of the Company. The purpose of the 2018 Equity Incentive Plan is to offer attract and retain the best available personnel, provide incentive to individuals who perform services for the Company and promote the success of the Company’s business.
On June 23, 2020, the Company granted options to purchase its Common Stock under the 2018 Equity Incentive Plan (the “Plan”). % of the shares covered by the options will vest on the three month anniversary of June 23, 2020, and 12.50% of the shares covered by the options will vest at the end of each subsequent three month period thereafter over the course of the subsequent 21 months.
On July 1, 2020, the Company granted options to purchase its Common Stock under the 2018 Equity Incentive Plan. % of the shares covered by the options will vest on the three month anniversary of June 1, 2020, and 12.50% of the shares covered by the options will vest at the end of each subsequent three month period thereafter over the course of the subsequent 21 months. The fair value of the options was estimated at a value of $at the date of issuance using the Black-Scholes option pricing model.
In addition, on July 1, 2020, the Board approved an increase to the share option pool under the Plan by shares of Common Stock, such that after the increase the total number of shares of Common Stock issuable under the Plan is shares of Common Stock.
On September 22, 2020, the Board approved an amendment of the terms of the outstanding options granted to certain employees and directors of the Company. According to the new terms, subject to the consummation of equity financing in excess of $and the completion of listing of the Company’s Common Stock for trade on the Nasdaq, and in the event that the employment or engagement of such grantee is either terminated (not for cause) or otherwise changed thereby resulting in the conclusion of such engagement (including voluntary resignation), all outstanding options of such grantee shall vest immediately and shall be exercisable for a period of following the termination date.
| F-25 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, except share and per share data)
NOTE 11 – STOCK OPTIONS (continue)
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2020 | ||||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding at January 1, 2021 | ||||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding at December 31, 2021 | ||||||||
| Number of options exercisable at December 31, 2021 | ||||||||
The aggregate intrinsic value of the awards outstanding as of December 31, 2021 and 2020 is $and $, respectively. These amounts represent the total intrinsic value, based on the Company’s stock price of $ and $as of December 31, 2021 and 2020, respectively, 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.
| 2020 | ||||
| Dividend yield | ||||
| Expected volatility (%) (*) | % | |||
| Risk-free interest rate (%) (**) | % | |||
| Expected term of options (years) (***) | ||||
| Exercise price (US dollars) | - | |||
| Share price (US dollars) | ||||
| Fair value (US dollars) | - | |||
| (*) | ||
| (**) | ||
| (***) |
The total fair value estimation of the non-cash compensation of the grant at 2020 was approximately $. Expenses incurred in respect of stock-based compensation for employees and directors, for the year ended December 31, 2021 and 2020 were $and $, respectively.
As of December 31, 2021, there are options available for future grants under the 2018 Equity Incentive Plan.
| F-26 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, except share and per share data)
NOTE 12 – COST OF SALES
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Salaries and related expenses | ||||||||
| Share based compensation | ||||||||
| Materials | ||||||||
| Vehicle maintenance | ||||||||
| Travel expenses | ||||||||
| Transportation and storage | ||||||||
| Other expenses | ||||||||
NOTE 13 – RESEARCH AND DEVELOPMENT EXPENSES
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Salaries and related expenses | ||||||||
| Share based compensation | ||||||||
| Subcontractors | ||||||||
| Depreciation | ||||||||
| Travel expenses | ||||||||
| Vehicle maintenance | ||||||||
| Rent and asset management | - | |||||||
| Laboratory and field tests | ||||||||
| Other expenses | ||||||||
| F-27 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, except share and per share data)
NOTE 14 – GENERAL AND ADMINISTRATIVE EXPENSES
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Professional services | ||||||||
| Salaries and related expenses | - | |||||||
| Share based compensation | ||||||||
| Legal expenses | ||||||||
| Insurance | ||||||||
| Rent and office maintenance | ||||||||
| Registration fees | ||||||||
| Communications | ||||||||
| Depreciation | ||||||||
| Travel expenses | - | |||||||
| Other expenses | ||||||||
NOTE 15 – FINANCING EXPENSES, NET
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Interest and amortization expenses | ||||||||
| Currency exchange differences | ||||||||
| Changes in fair value of convertible loans | ||||||||
| Bank charges and other finance expenses, net | ||||||||
NOTE 16 – INCOME TAX
| A. | The
Company is subject to the federal tax rate of | |
| ||
The Company and Save Foods Ltd. have not received final tax assessments since their inception.
| ||
As
of December 31, 2021, the Company and Save Foods Ltd. has estimated carry forward losses
for tax purposes of approximately $ |
| F-28 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, except share and per share data)
NOTE 16 – INCOME TAX (continue)
| B. | The following is reconciliation between the theoretical tax on pre-tax income, at the tax rate applicable to the Company (federal tax rate) and the tax expense reported in the financial statements: |
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Pretax loss | ||||||||
| Federal tax rate | % | % | ||||||
| Income tax computed at the ordinary tax rate | ||||||||
| Non-deductible expenses | ( | ) | ( | ) | ||||
| Stock-based compensation | ( | ) | ( | ) | ||||
| Tax in respect of differences in corporate tax rates | ||||||||
| Losses and timing differences in respect of which no deferred taxes were generated | ( | ) | ( | ) | ||||
| - | - | |||||||
| C. | Deferred taxes result primarily from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant components of the Company’s future tax assets are as follows: |
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Composition of deferred taxes: | ||||||||
| Provision for employee related obligation | ||||||||
| Non-capital loss carry-forwards | ||||||||
| Operating lease right-of-use | ( | ) | - | |||||
| Operating lease liabilities | - | |||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| - | - | |||||||
| F-29 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, except share and per share data)
Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during the year. The weighted average number of shares of Common Stock used in computing basic and diluted loss per common stock for the years ended December 31, 2021 and 2020, are as follows:
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Number of shares | ||||||||
| Weighted average number of shares of Common Stock outstanding attributable to shareholders | ||||||||
| Total weighted average number of shares of Common Stock related to outstanding options, excluded from the calculations of diluted loss per share (*) | ||||||||
| (*) |
NOTE 18 – RELATED PARTIES
| A. | Transactions and balances with related parties |
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| General and administrative expenses: | ||||||||
| Directors compensation | ||||||||
| Salaries and fees to officers | ||||||||
| Consultants and other fees | - | |||||||
| (*)
| (*)
| |||||||
| (*) of which share based compensation | ||||||||
| Research and development expenses: | ||||||||
| Salaries and fees to officers | (*)
| |||||||
| (*) of which share based compensation | ||||||||
| Cost of sales: | ||||||||
| Salaries and fees to officers | (*)
| - | ||||||
| (*) of which share based compensation | ||||||||
| Selling and marketing expenses: | ||||||||
| Salaries and fees to officers | (*)
| - | ||||||
| (*) of which share based compensation | ||||||||
| B. | Balances with related parties and officers: |
| Other accounts payables |
| F-30 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, except share and per share data)
| 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 $ | |
| 2. | On
June 23, 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 $ | |
| 3. | On
June 23, 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 $ | |
| 4. | On
June 23, 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 | |
| 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. Such options were not exercised as of balance sheet date. |
NOTE 19 – GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
| A. | Information on sales by geographic distribution: |
The Company has one operating segment. Sales are attributed to geographic distribution based on the location of the customer.
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Israel | - | |||||||
| United States | ||||||||
| Central-South America | ||||||||
| F-31 |
SAVE FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars, except share and per share data)
| B. | Sales
to single customers exceeding |
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Customer A | ||||||||
| Customer B | - | |||||||
| C. | Information on Long-Lived Assets - Property, Plant and Equipment and ROU assets by geographic areas: |
The following table presents the locations of the Company’s long-lived assets as of December 31, 2021 and 2020:
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Israel | ||||||||
| United States | - | |||||||
NOTE 20 – SUBSEQUENT EVENTS
| 1. | On January 16, 2022, the outgoing Chief Financial Officer of the Company, Ms. Vered Raz-Avayo, tendered her resignation to the Board of Directors of the Company (the “Board”) in connection with her role as the Company’s Chief Financial Officer, which resignation will enter into effect on January 31, 2022. Ms. Raz-Avayo’s resignation was due to personal reasons and there were no disagreements between her and the Company or the Board. | |
| On
January 18, 2022, the Board resolved to appoint Mr. Omri Kanterovich, the Company’s current financial controller, as the Company’s
interim Chief Financial Officer, VP of Finance, Treasurer and Secretary, which appointments shall enter into effect on January 31,
2022. In connection with Mr. Kanterovich’s new positions with the Company, the Board resolved to increase his monthly base
salary from NIS | ||
| 2. | On
January 31, 2022, following the Board of Directors of Save Foods Ltd.’s appointment of Mr. Joachim Fuchs as the Chairman of
the Board of Directors of Save Foods Ltd, the Board of Directors of the Company approved the nomination and his consulting agreement.
Based on the consulting agreement Mr. Joachim Fuchs is entitled to a monthly fee of NIS | |
| 3. | On
February 1, 2022, the Company entered into an Letter Agreement with a Consultant according to which the Consultant will provide the
Company with public relations, branding, PR strategies and other services as detailed in the Letter Agreement. As consideration for
the services, the Company will issue the Consultant, | |
| 4. | On
March 10, 2022, the Company entered into an Investor Relations Agreement (the “Agreement”) with a Consultant for a period
of 12 months. According to the Agreement, the Company will pay the Consultant for his services a monthly fee of $ |
| F-32 |