Save Foods, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for Save Foods, Inc., not Nexentis Technologies Inc. It covers the quarter and six months ended June 30, 2020; financial statements are unaudited and reported in U.S. dollars.
Business context
Save Foods develops food-safety and shelf-life solutions for fresh produce. It describes itself as an early-stage company that has not generated material revenue and depends on external financing. Its products target produce packing and other food-industry uses; the company also discussed potential greenhouse and cannabis applications.
Key financial results
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Revenue | $0 | $63,566, down 51% year over year |
| Gross profit (loss) | $(4,911) | $37,880 |
| Operating loss | $(403,726) | $(765,587) |
| Net loss | $(581,185) | $(950,248) |
| Net loss attributable to Save Foods | $(577,045) | $(942,692) |
| Loss per share, basic and diluted | $(0.06) | $(0.09) |
For the six-month period, gross margin was approximately 60% of revenue. The quarter had no sales but incurred $4,911 in cost of sales, resulting in a gross loss. Six-month research and development expense was $253,343, selling and marketing expense $36,748, general and administrative expense $513,376, and net financing expense $200,351.
- Cash and liquidity: Cash and cash equivalents were $35,251 at June 30, versus $290,815 at December 31, 2019. Restricted cash was $38,084. Working capital was negative $471,589, compared with negative $199,212 at year-end.
- Cash flow: Six-month operating cash use was $468,999; investing cash use was $574; financing cash provided was $214,009. Cash declined by $255,564 during the period.
- Debt and liabilities: Convertible loans were reported as zero at June 30, after conversion activity. Bank loans totaled $18,528, comprising $7,291 current and $11,237 long-term. Total liabilities were $764,754. Current liabilities were $607,094.
- Equity: Stockholders’ deficit was $412,073. The company reported 10,209,487 common shares outstanding at June 30.
Changes versus the prior comparable period
- Six-month revenue fell 51% from $129,733 in 2019. Management attributed the decline to a temporary sales freeze in Israel while pursuing regulatory approval for new products, and lower U.S. sales. No revenue was reported in either second quarter.
- Six-month operating loss narrowed to $765,587 from $874,217, while net loss widened to $950,248 from $901,917, primarily reflecting higher financing expense.
- Research and development expense rose 16% to $253,343; general and administrative expense rose 20% to $513,376. Selling and marketing expense declined 86% to $36,748.
- Cash and cash equivalents decreased by $255,564 from year-end, and negative working capital worsened by $272,377.
Outlook, risks and unusual items
- Going concern: Management and the filing state that substantial doubt exists about the company’s ability to continue as a going concern. The company needs additional capital, and the filing gives no assurance that financing will be available on acceptable terms. The statements include no adjustments for the outcome of this uncertainty.
- Financing and subsequent events: In June, the company agreed to exchange convertible loans for units priced at $1.09 each, consisting of a common share and a warrant exercisable at $1.20. The 485,318 shares were issued July 2. The filing recorded $57,793 of compensation expense related to the exchange. It also reported $141,917 of net interest and amortization expense on the convertible loans for the six months. In July, the company reported additional share sales totaling $75,000.
- COVID-19: The company warned of possible sales declines, financing difficulty, personnel and manufacturing disruption, and supply-chain impacts. Offices had been closed since mid-March, with employees working remotely; the overall impact was described as uncertain and not reasonably estimable.
- Commercial and regulatory risks: The company reported no significant agreements, customer backlog, or firm commitments. Sales may be affected by clinical success and regulatory approvals. Management provided no quantified revenue or earnings guidance.
- Controls: Management concluded disclosure controls and procedures were not effective at a reasonable assurance level as of June 30 due to identified material weaknesses. No material changes in internal control over financial reporting were reported during the quarter.
- Other: The company sold its 20% interest in Savecann in April for C$10,000 and recorded a $15,690 gain on disposal. It granted 148,000 stock options in June and 500,000 more on July 1.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Save Foods, Inc., despite the request metadata naming Nexentis Technologies Inc.
- Review the going-concern disclosures, near-term cash needs, and the company’s ability to secure additional financing.
- Check regulatory-approval progress, commercial agreements, customer commitments, and the basis for any expected return to revenue.
- Review the convertible-loan exchange, warrants, and post-quarter share issuances for their effects on dilution and financing obligations.
- Examine the identified material weaknesses and any subsequent remediation disclosures.
- Note that the filing’s MD&A describes six-month financing expense as having decreased, while the financial statements show it increased to $200,351 from $21,318; confirm the intended comparison and explanation.