N2OFF, Inc(NITO) - 2023 Q4 - Annual Report

Part I Business N2OFF, Inc. is an agri-food tech company focused on eco-friendly post-harvest treatments via Save Foods Ltd. and mitigating agricultural N₂O emissions through NTWO OFF Ltd., also holding a stake in Plantify Foods Inc - The company changed its name from "Save Foods, Inc." to "N2OFF, Inc." and its Nasdaq trading symbol from "SVFD" to "NITO", effective March 19, 2024[9] - N2OFF operates through two majority-owned Israeli subsidiaries: Save Foods Ltd. (98.48% owned) for post-harvest treatments and NTWO OFF Ltd. (60% owned) for mitigating nitrous oxide emissions[8][12] - The company also owns approximately 23% of Plantify Foods Inc., a Canadian-based food tech company focused on plant-based food products[13][365] Company Overview The company specializes in eco-friendly crop protection and N₂O emission mitigation through Save Foods Ltd. and NTWO OFF Ltd., utilizing proprietary food acid blends to extend shelf life and reduce chemical use - The company's core technology is a proprietary blend of food acids that works synergistically with oxidizing sanitizers and fungicides to clean, sanitize, and control pathogens on fresh produce, extending shelf life without leaving toxic residues[13] - NTWO OFF Ltd. was formed in August 2023 to offer a solution for mitigating N₂O emissions, a greenhouse gas 265 times more potent than carbon dioxide[12] NTWO OFF Ltd. NTWO OFF Ltd. addresses agricultural nitrous oxide emissions through controlled trials using N₂O-reducing bacteria to inoculate wheat roots, showing promising results for sustainable agriculture - Nitrous oxide (N₂O) is a potent greenhouse gas with 265 times the global warming impact of carbon dioxide, with the vast majority of man-made emissions coming from agricultural soil[12][17][18] - NTWO OFF commenced a controlled trial in December 2023 to test its solution for reducing N₂O emissions in wheat growth by using native root-associated N₂O-reducing bacteria[21][22][23] - Initial study results showed that inoculating wheat roots with specific isolated bacteria, which carry the N₂O reductase-encoding gene, successfully reduces N₂O emissions[24][26] Save Foods Ltd. Save Foods Ltd. combats food loss and spoilage in fresh produce with SavePROTECT and PeroStar, proprietary processing aids that enhance sanitizers, reduce fungicide use, and extend shelf life, with commercial applications across various produce and markets - The company's main products, SavePROTECT and PeroStar, are processing aids based on a proprietary blend of food acids that enhance the efficiency of sanitizers and fungicides, helping to reduce pesticide residues and extend shelf life[53] - The solutions can reduce the need for conventional fungicides by at least 50% and food waste from spoilage by up to 50% at the retail level[52] - As of December 31, 2023, the company has fully commercialized its solution for easy peelers, lime, bell peppers, dates, pears, and avocado in Israel, Mexico, and the US[54][78] - The company holds two EPA-registered products: SpuDefender for controlling potato sprouts and FreshProtect for controlling spoilage on post-harvest citrus, with plans to expand FreshProtect to pre-harvest applications[89][91] Intellectual Property The company protects its innovations through patents and trade secrets, with Save Foods Ltd. holding twelve issued patents and ten pending applications as of March 29, 2024, covering various treatment and sterilization methods - As of March 29, 2024, Save Foods Ltd. owned twelve issued patents and had ten pending patent applications[135] - The patent portfolio covers compositions and methods for treating edible matter, improving appearance of plant matter, maintaining fresh produce in transport, and sterilization compositions and devices[137][139][140][141] Competition N2OFF competes in the green post-harvest solutions market against direct providers of sanitization solutions like Evonik and Solvay, and indirect competitors such as Decco and Pace International, with whom partnerships are also sought - Direct competitors are providers of PAA, chlorine, and other sanitization solutions, including large chemical conglomerates like Evonik and Solvay[146] - Indirect competitors are large post-harvest solution companies such as Decco and Pace International, which the company also seeks to partner with, though this is challenging as N2OFF's solutions can reduce demand for their traditional fungicide products[147] Government Regulation and Product Approval The company's products are subject to diverse regulations, with SavePROTECT being GRAS and OMRI Listed® in the U.S., PeroStar regulated nationally in Europe, and its sanitizers requiring EPA registration, while also holding approvals in Peru and Brazil - In the U.S., SavePROTECT is considered GRAS, registered as an adjuvant in California, and is OMRI Listed® for organic production[151][155][157] - The company's sanitizer products, SF3H and SF3HS, are regulated as pesticides by the EPA under FIFRA and will require full registration before they can be marketed[167][173] - The company has received regulatory approval to sell its products in Peru (January 2022) and has been cleared for commercialization in Brazil (February 2024)[164][165] Risk Factors The company faces significant risks including ongoing operating losses, a lengthy sales cycle, intense competition, supply chain reliance, geopolitical instability in Israel, regulatory hurdles, intellectual property challenges, and stock volatility, raising going concern doubts - The company has a history of operating losses, with an accumulated deficit of $29,360,235 as of December 31, 2023, and expects to incur additional losses, raising substantial doubt about its ability to continue as a going concern[183] - A significant business risk is the lengthy sales cycle, as customers require product testing for at least two seasons before potential adoption, with no guarantee of sales[190] - Operations are heavily concentrated in Israel, making the business vulnerable to political, economic, and military instability, including the recent war with Hamas which has already caused delays in pilots and packaging activities[277][278][283] - The company relies on a limited number of contract manufacturers in Israel, the U.S., and South Africa for key product components, posing a supply chain risk[204] - To regain compliance with Nasdaq's minimum bid price rule, the company executed a 1-for-7 reverse stock split on October 5, 2023[296] Unresolved Staff Comments The company reports no unresolved staff comments - None Cybersecurity The company manages cybersecurity through a third-party provider with Board oversight, and has not experienced any material incidents to date - The company engages a third-party provider to manage its cybersecurity systems, with oversight from the Board and management[337][338] - As of the report date, the company has not experienced any material cybersecurity incidents[338] Properties The company leases its primary operational facility of approximately 230 square meters in Neve Yarak, Israel, and a smaller office space in Miami, Florida - The company's main operational facility is a leased space of approximately 230 square meters in Neve Yarak, Israel[339] - A small office space is also leased in Miami, Florida[340] Legal Proceedings The company reports no pending legal proceedings involving itself, its directors, officers, or major shareholders - There are no pending legal proceedings involving the company[341] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "NITO", with 186 holders as of March 29, 2024, no history of cash dividends, and details provided on its two equity compensation plans - The company's common stock symbol changed from "SVFD" to "NITO" on March 19, 2024, in connection with its name change[343] - The company has never paid cash dividends and does not plan to in the foreseeable future[344] Equity Compensation Plan Information as of December 31, 2023 | Plan Category | Number of Securities to be Issued upon Exercise | Weighted-average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | 2018 Plan | 27,518 | $23.69 | 12,995 | | 2022 Plan | - | - | 641,787 | | Total | 27,518 | $23.69 | 654,782 | Management's Discussion and Analysis of Financial Condition and Results of Operations For 2023, revenues decreased 33% to $263,445, net loss widened to $7.3 million due to IPR&D and share-based compensation, cash declined to $4.4 million, and management expressed going concern doubts despite sufficient capital through Q2 2025 Results of Operations (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $263,445 | $394,004 | | Gross Profit | $208,267 | $235,691 | | Operating Loss | ($7,577,776) | ($5,819,642) | | Net Loss | ($7,259,918) | ($5,779,841) | | Net Loss Attributable to Stockholders | ($6,522,408) | ($5,739,600) | | Loss Per Share (basic and diluted) | ($5.43) | ($1.64) | - Revenues decreased 33% in 2023 due to a decline in sales in Mexico and Israel[374] - Research and Development expenses increased 151% to $1.9 million, primarily due to a one-time IPR&D expense of $1.66 million from the NTWO OFF acquisition[377] - The company had cash of $4.4 million as of Dec 31, 2023, down from $5.7 million at year-end 2022 The decrease is mainly due to cash used in operations[388] - Management has raised substantial doubt about the company's ability to continue as a going concern due to recurring losses, though they believe current capital is sufficient to fund operations through the end of Q2 2025[401][402] Financial Statements and Supplementary Data This section refers to the company's consolidated financial statements and related notes, included from page F-1 of the annual report - The company's audited consolidated financial statements for the years ended December 31, 2023 and 2022, are included in the report[412] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no external attestation required as a smaller reporting company - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[413] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[418] Part III Directors, Executive Officers and Corporate Governance This section details the company's nine directors and two executive officers, board structure with staggered terms, and the composition and responsibilities of its Audit, Nominating, and Compensation committees, noting all seven non-executive directors are independent - The company's board consists of seven directors, and there are two executive officers: David Palach (CEO) and Lital Barda (CFO)[421] - The board has determined that all seven non-executive directors (Ronen Rosenbloom, Israel Berenstein, Amitay Weiss, Eliahou Arbib, Udi Kalifi, Asaf Itzhaik, and Liat Sidi) are independent under Nasdaq rules[437] - The board has three standing committees: Audit, Nominating and Corporate Governance, and Compensation[439] Executive Compensation This section details the 2023 and 2022 compensation for the two Named Executive Officers, including CEO David Palach's $393,200 and CFO Lital Barda's $187,561 total remuneration, primarily through stock awards, along with non-executive director compensation 2023 Named Executive Officer Compensation | Name and Position | Salary ($) | Bonus ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | David Palach, CEO | 72,230 | 15,000 | 305,970 | 393,200 | | Lital Barda, CFO | 60,976 | 7,500 | 119,085 | 187,561 | - There were no unexercised options, unvested stock, or equity incentive plan awards outstanding for the Named Executive Officers as of December 31, 2023[457] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 29, 2024, the company had 2,988,617 shares outstanding, with Yaaran Investments Ltd. (7.46%) and Plantify Foods, Inc. (5.57%) as major beneficial owners, and all directors and executive officers collectively owning 10.20% Security Ownership of 5% or More Stockholders (as of March 29, 2024) | Owner | Number of Shares Beneficially Owned | Percentage Beneficially Owned | | :--- | :--- | :--- | | Yaaran Investments Ltd. | 223,008 | 7.46% | | Plantify Foods, Inc. | 166,340 | 5.57% | - All directors and executive officers as a group (9 persons) beneficially own 304,903 shares, representing 10.20% of the company[467] Certain Relationships and Related Transactions, and Director Independence This section discloses related party transactions since January 1, 2022, including a securities exchange with Plantify Foods, Inc. and a Standby Equity Purchase Agreement with YA II PN, Ltd., both significant stockholders, and confirms seven directors are independent - Key related party transactions include a securities exchange with Plantify Foods, Inc. on April 5, 2023, and a Standby Equity Purchase Agreement with YA II PN, Ltd. on December 22, 2023[472][473] Principal Accountant Fees and Services The company paid its independent auditor, Somekh Chaikin (KPMG), $259,200 in 2023 and $233,600 in 2022 for audit and tax services, all pre-approved by the board or audit committee Principal Accountant Fees | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $224,000 | $197,000 | | Audit related fees | - | $600 | | Tax fees | $35,200 | $36,000 | | All other fees | - | - | | Total fees | $259,200 | $233,600 | Exhibits, Financial Statement Schedules Financial Statements Consolidated Balance Sheets As of December 31, 2023, total assets increased to $7.24 million from $6.49 million, total liabilities remained stable at $0.79 million, and total stockholders' equity rose to $6.46 million, primarily due to capital raising Consolidated Balance Sheet Data (as of Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $5,465,621 | $6,272,444 | | Cash and cash equivalents | $4,447,003 | $5,700,709 | | Total Assets | $7,244,231 | $6,492,213 | | Total Current Liabilities | $778,472 | $714,849 | | Total Liabilities | $785,653 | $754,872 | | Total Stockholders' Equity | $6,458,578 | $5,737,341 | Consolidated Statements of Comprehensive Loss For 2023, revenues decreased to $263,445, net loss attributable to stockholders widened to $6.52 million, and loss per share was $5.43, adjusted for a 1-for-7 reverse stock split Statement of Comprehensive Loss Highlights (Year Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $263,445 | $394,004 | | Gross Profit | $208,267 | $235,691 | | Operating Loss | ($7,577,776) | ($5,819,642) | | Net Loss Attributable to Stockholders | ($6,522,408) | ($5,739,600) | | Loss Per Share (basic and diluted) | ($5.43) | ($10.85) | Consolidated Statements of Cash Flows For 2023, net cash used in operations decreased to $3.23 million, investing activities used $1.52 million, financing provided $3.47 million, resulting in a $1.27 million overall decrease in cash and equivalents Cash Flow Summary (Year Ended Dec 31) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,232,759) | ($5,097,126) | | Net cash used in investing activities | ($1,519,560) | ($51,689) | | Net cash provided by financing activities | $3,472,712 | $4,094,940 | | Decrease in cash and cash equivalents | ($1,272,597) | ($1,056,841) | Notes to Consolidated Financial Statements The notes detail company operations, the recent name change and 1-for-7 reverse stock split, a significant Going Concern uncertainty, the asset acquisition of NTWO OFF Ltd. resulting in a $1,661,707 IPR&D expense, new reportable segments, and subsequent events - A 1-for-7 reverse stock split was effected on October 5, 2023 All share and per-share data have been retroactively adjusted[511][513] - The financial statements were prepared with a Going Concern uncertainty, as the company has incurred significant losses and negative cash flows, raising substantial doubt about its ability to continue operations without securing additional financing[516][517] - The acquisition of NTWO OFF Ltd. was treated as an asset acquisition, not a business combination, resulting in the immediate expensing of $1,661,707 in IPR&D[582] - The company now has two reportable segments: (i) Pathogen prevention and prolong shelf life (Save Foods Ltd.) and (ii) N2O emissions Global warming solutions (NTWO OFF Ltd.)[688]