Save Foods, Inc. — Form 10-Q for the quarter ended June 30, 2023
Company identification: The filing identifies the registrant as Save Foods, Inc. (Nasdaq: SVFD), not Nexentis Technologies Inc., as stated in the request metadata. The unaudited statements cover Save Foods, Inc. and its majority-owned subsidiary; dollar amounts are U.S. dollars.
Business context and reporting period
Save Foods develops produce treatments intended to improve food safety and shelf life. This report covers the three and six months ended June 30, 2023, compared with the same periods in 2022. Management says it is shifting emphasis from research and development toward commercializing its solutions and converting pilots into paying customers.
Financial performance and position
- Q2 revenue: $36,608, up 18% from $31,080. Six-month revenue was $157,618, up 33% from $118,710; growth was principally attributed to Mexico.
- Gross profit and margin: Q2 gross profit was $9,601, down 47%; gross margin was approximately 26%, versus 58% in Q2 2022. Six-month gross profit was $87,865, up 38%, with margin approximately 56%, versus 54%.
- Operating loss: $840,318 in Q2, compared with $1,276,932 in Q2 2022. Six-month operating loss was $2,583,972, compared with $2,622,606.
- Net loss: $714,935 in Q2, versus $1,264,004; six-month net loss was $2,436,484, versus $2,603,774. The six-month loss attributable to company stockholders was $2,423,183. Q2 loss per share was $0.10, versus $0.44; six-month loss per share was $0.42, versus $0.91.
- Expenses: Six-month R&D declined 58% to $135,765 and selling and marketing declined 51% to $157,921. General and administrative expense rose 17% to $2,378,151, mainly reflecting higher share-based compensation.
- Cash flows: Six-month operating cash use was $1,634,418, versus $2,355,007 in 2022. Investing cash use was $1,101,669, principally related to Plantify; financing cash flow was zero. Cash, cash equivalents and restricted cash decreased by $2,733,368 to $3,017,403.
- Liquidity and liabilities: At June 30, cash and cash equivalents were $2,969,707; current assets were $3,956,060 and current liabilities $590,162. Management reported working capital of $3,365,898. Total liabilities were $600,507, including $10,345 of operating lease liabilities; the filing reports no current bank or other borrowing balance.
- Equity and dilution: Shares outstanding increased from 4,614,726 at year-end 2022 to 7,774,545 at June 30, 2023, including shares issued in the Plantify exchange and for services and compensation. The cover reports 9,689,211 shares outstanding as of August 11, 2023.
Material changes and notable transactions
- Q2 cost of sales rose 108% to $27,007, which management attributed mainly to hiring an additional employee; gross margin consequently contracted sharply.
- In April, Save Foods exchanged shares with Plantify Foods and held approximately 16.6% of Plantify after closing. It also advanced Plantify C$1.5 million (approximately $1.124 million) under an 8% debenture due October 4, 2024, with conversion rights and security provisions. The Plantify equity and loan-related investment was carried at $2,053,271 at quarter-end; a $102,107 unrealized gain was recognized for the period.
- Share-based compensation and shares issued for services were significant: the filing records $868,825 of shares issued to employees and service providers in the six-month cash flow reconciliation, in addition to $14,247 of option compensation. These are noncash items and contributed to expense and dilution.
Outlook, risks and subsequent events
- Going concern: The company has an accumulated deficit of approximately $25 million, expects continued losses and negative operating cash flows, and states that substantial doubt exists about its ability to continue as a going concern. Management estimated existing cash would fund operations until the middle of Q3 2024, but says additional financing may be needed and may not be available on acceptable terms or at all.
- Commercial risks: Sales are limited, there are no customer backlogs or firm purchase commitments, and pilots may be lengthy without assurance of sales. Regulatory approvals, market acceptance, competition, supplier reliance and the ability to establish distribution are among the disclosed risks.
- YA equity facility: After quarter-end, the company signed a standby equity purchase agreement for up to $3.5 million over 40 months. Shares would be sold at 94% of the lowest VWAP over the specified three-day period, subject to trading, ownership and exchange-cap limits. Up to $700,000 may be requested as notes only after stockholder approval and subject to conditions; the notes carry 8% interest and monthly repayments. The facility is not unconditional committed cash.
- Yaaran/NewCo transaction: After quarter-end, the company issued 1,561,051 shares to Yaaran, representing 16.66% of post-issuance shares. In exchange, Save Foods Ltd. is to receive 60% of NewCo once formed. Save Foods also committed up to $1.2 million in conditional installments to support commercialization efforts.
- Management said disclosure controls were effective as of June 30, 2023. No material legal proceedings were reported.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Save Foods, Inc., not Nexentis Technologies Inc.
- Track cash consumption, actual financing raised, and whether the stated mid-Q3 2024 runway remains achievable given the going-concern uncertainty.
- Review customer conversion from pilots, repeat sales, geographic and customer concentration, and regulatory progress; Mexico accounted for most reported sales growth.
- Assess the terms, availability and potential dilution of the YA facility, including stockholder approval and the discount to VWAP.
- Verify completion and capitalization of NewCo, the conditions on the $1.2 million commitment, and the value and collectability of the Plantify investment and debenture.