N2OFF, Inc(NITO) - 2021 Q4 - Annual Report

PART I Business Save Foods, Inc. commercializes eco-friendly crop protection treatments to reduce food waste and enhance food safety for high-value produce in key global markets - The company develops eco-friendly 'green' treatments to enhance food safety and extend fresh produce shelf life by controlling pathogens, reducing spoilage and food loss[17] - Treatments utilize a proprietary blend of food acids combined with oxidizing agents or low-concentration fungicides, offering synergistic effects without toxicological residues[18] - The company targets major pre- and post-harvest markets, offering treatments as alternatives or adjuncts to conventional pesticides to mitigate health, environmental, and resistance concerns[21] Recent Developments Early 2022 brought significant commercial milestones, including major Israeli exporter adoption, key SavePROTECT regulatory approvals, and Turkish citrus market expansion - Mehadrin, Israel's largest citrus grower and exporter, adopted the company's green treatment in February 2022[22] - Galilee Export, Israel's second-largest fruit and vegetable exporter, mandated the company's treatments for bell peppers and avocados after successful trials[24] - SavePROTECT was registered by the California Department of Pesticide Regulation (CDPR) in November 2021, and products were registered by NSF International in February 2022[25][26] - Commercial expansion into Turkey was successful, with citrus packer Kalyoncu becoming the first commercial customer in March 2022[28] Industry Overview and Market Opportunity The global fresh food market faces food loss and safety challenges, driving a shift to biorational solutions, with the market projected to reach $5.02 billion by 2022 - Globally, approximately one-third of food produced (1.3 billion tons) is lost or wasted, with fruits and vegetables contributing 644 million tons annually[30][36] - Foodborne diseases cause approximately 48 million illnesses in the U.S. annually, with the FDA's FSMA driving demand for preventative sanitizers[19][33] - Consumer and regulatory pressure, especially in Europe, is shifting demand from conventional fungicides to greener alternatives due to health concerns and stricter MRLs[20][42] - The biorational pesticides market is projected to grow from $2.78 billion in 2017 to $5.02 billion by 2022, at a CAGR of 12.5%, driven by demand for organic and eco-friendly products[44] Our Core Products and Treatments Core products SavePROTECT and PeroStar, proprietary food acid blends, enhance sanitation, reduce pathogen growth, and extend produce shelf life by up to 50%, with successful trials and other products under development - Core products SavePROTECT and PeroStar are processing aids that enhance sanitizer and fungicide efficacy, enabling reduced chemical usage and extended shelf life[54][55] Trial Results on Various Produce | Produce | Key Result | | :--- | :--- | | Berries | Reclaimed 80% of raspberries that would have been wasted; reduced strawberry waste by 85% after 15 days | | Avocado | Showed two times more avocado available for consumption after 16 days at room temperature | | Bell Peppers | Sustained 70% less decay after 28 days, translating into 20% more produce to sell | | Easy Peelers | Reduced the need for imazalil fungicide by at least 50%, and in some cases entirely | | Mangos | Reduced post-harvest decay to zero when combined with a low concentration of fludioxonil | | Limes | Reduced fruit decay to zero after 21 days in a pilot, potentially adding $126 per ton in income for retailers | - The company is developing sanitizers SF3HS and SF3H, demonstrating over 99.99999% reduction of Listeria in lab tests, with regulatory submission planned for H2 2023[82][84][85] - Other portfolio products include SpuDefender, an EPA-registered potato sprout control, and FreshProtect, an EPA-registered post-harvest citrus spoilage control with pre-harvest potential[93][96] Our Strategy Following a 2018 strategic shift, the company commercializes next-generation food acid blend products to extend shelf life, ensure food safety, and reduce loss, focusing on market expansion and strategic collaborations - In 2021, the company strategically shifted focus from R&D to marketing, sales, and commercialization of its next-generation products[101] - The strategy includes expanding into key markets such as Mexico, Spain, Italy, Israel, Turkey, Peru, and US states like California, Florida, and Texas[103] - A key strategic element involves establishing collaborations with large food retailers and post-harvest service vendors to influence the supply chain and accelerate market penetration[103] Selling and Marketing Selling and marketing efforts target high-value crops in key markets, with successful customer acquisitions in Turkey, Mexico (SiCar), and Israel (Mehadrin, Galilee Export), and a focus on the California citrus industry - The company collaborates with local agents and experts to penetrate target markets including Turkey, Mexico, Israel, the US, and Spain[104] - In Mexico, SiCar, a major Persian lime packer, applies the company's treatment across all its packing houses[113] - In Israel, Mehadrin and Galilee Export utilize the company's treatments, with an exclusive citrus distribution agreement with Safe-Pack Products Ltd[114][115] - The primary US target market is California's post-harvest citrus industry, representing approximately 80% of all fruits and vegetables in the country[116] Intellectual Property As of March 2022, the company protects its technology with nine issued patents and six pending applications in key jurisdictions, covering edible matter treatment methods and extending to 2041 - As of March 13, 2022, the IP portfolio includes nine issued patents and six pending applications, with protection in the U.S., Israel, and Europe[123] - Key patent families cover methods for protecting edible matter from decay, improving produce appearance, and apparatus for maintaining fresh produce in transportation[124][126][128] Government Regulation and Product Approval Products are subject to complex, country-specific regulations; US sanitizers are EPA-regulated, SavePROTECT is FDA-regulated and GRAS, registered by CDPR in October 2021, and PeroStar dossiers are in Europe with Peru approval - In the U.S., sanitizers are EPA-regulated under FIFRA, while processing aids like SavePROTECT are FDA-regulated under FFDCA, with ingredients considered GRAS[156][159][163] - SavePROTECT was registered as an adjuvant with the California Department of Pesticide Regulation (CDPR) on October 27, 2021[166] - Regulatory dossiers for PeroStar were submitted in Spain and Italy in Q3 2020, and product sales approval was received in Peru in January 2022[170][173] Risk Factors The company faces significant risks including operating losses, capital needs, limited operating history, market acceptance, intense competition, supplier reliance, complex regulations, IP challenges, international operations, and stock volatility - The company has a history of operating losses, with an accumulated deficit of $17.1 million as of December 31, 2021, and anticipates future losses[185] - Commercial success relies heavily on market acceptance from packing houses, retailers, and service providers, which remains uncertain[194][195] - The company faces significant competition from large, established players and new entrants in the environmentally friendly post-harvest solutions market[199] - Operations are subject to complex, varying country-specific regulatory requirements; failure to obtain or maintain approvals could adversely impact product marketing and sales[210][211] - A majority of operations and management are in Israel, exposing the business to regional economic, political, and military conditions[246] Properties The company leases 230 square meters for R&D in Neve Yarak, Israel, with an August 2022 lease expiration and extension options, and a small office in Miami, Florida - The company leases 230 square meters for R&D in Neve Yarak, Israel, at approximately $2,000 monthly rent[279] - An office space is leased in Miami, Florida, at a monthly rent of $600[280] Legal Proceedings The company is not aware of any pending legal proceedings involving itself or its directors and officers - There are no pending legal proceedings involving the company or its directors and officers[281] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases The company's common stock trades on Nasdaq under SVFD, has never paid dividends, and the 2018 Equity Incentive Plan has 192,576 options outstanding as of December 31, 2021, with details on unregistered securities sales - The company's Common Stock trades on the Nasdaq Capital Market under the symbol SVFD[285] - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future[286] Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Securities to be Issued upon Exercise | Weighted-average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 192,576 | $3.38 | 91,016 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, revenues increased by 89% to $438,141, but net loss widened to $4.82 million due to a 299% increase in G&A expenses, with $6.75 million in cash expected to fund operations until at least August 2023 Results of Operations (Year Ended December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $438,141 | $232,274 | | Gross Profit | $302,198 | $188,869 | | Operating Loss | ($4,703,639) | ($1,349,345) | | Net Loss Attributable to Company | ($4,820,580) | ($1,593,139) | | Loss per Share | ($2.06) | ($1.05) | - Revenues increased by 89% in 2021 compared to 2020, primarily due to new product sales commencing in late 2020[330] - General and administrative expenses increased by 299% to $4.27 million in 2021, mainly due to higher professional services, insurance, and director compensation post-Nasdaq listing[337] - As of December 31, 2021, the company held $6.75 million in cash and $6.3 million in working capital, projected to fund operations until at least August 2023[347][361] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On July 25, 2021, the company dismissed Halperin Ilanit CPA and appointed Somekh Chaikin (KPMG) as its new auditor, with no disagreements on accounting principles despite prior going concern and material weakness notations - On July 25, 2021, the company changed its independent registered accounting firm from Halperin Ilanit CPA to Somekh Chaikin (KPMG International)[363] - Previous auditor reports for 2019 and 2020 included a going concern paragraph and noted material weaknesses, but no disagreements on accounting principles occurred[364] Controls and Procedures As of December 31, 2021, management concluded disclosure controls were effective, having remediated a material weakness in internal control over financial reporting through personnel hires, an independent audit committee, and revised controls - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[365] - A material weakness in internal control over financial reporting, identified in the 2020 audit, was remediated as of December 31, 2021[375][378] - Remediation included recruiting qualified personnel (CEO, CFO), establishing an independent audit committee, and improving control processes[376][377] PART III Directors, Executive Officers and Corporate Governance The company's executive officers and five directors are listed, with a majority independent under Nasdaq rules, and the board operates with Audit, Nominating and Corporate Governance, and Compensation committees - The board of directors comprises five members: Amitay Weiss (Chairman), Ronen Rosenbloom, Israel Berenshtein, Eliahou Arbib, and Udi Kalifi[382][394] - The board has determined that all five directors are independent under Nasdaq rules[397] - The board established an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation Committee, with detailed charters and independent member compositions[398][399][400] Executive Compensation This section details named executive officer compensation for 2021 and 2020, including salary, bonus, and option awards, with a summary of key employment agreements and recent compensation adjustments 2021 Summary Compensation for Key Executives | Name and Principal Position | Total Compensation 2021 ($) | | :--- | :--- | | David Palach, CEO | 164,017 | | Dan Sztybel, CEO of Save Foods Ltd. | 428,061 | | Neta Matis, COO of Save Foods Ltd. | 350,532 | - In June 2021, CEO David Palach's compensation was updated to a monthly fee of $14,000 and a one-time option grant representing 4.5% of outstanding stock[415] - In June 2021, Dan Sztybel and Neta Matis received one-time bonuses of $65,000 and $55,000, respectively, for their contributions to the Nasdaq uplisting[420][423] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 31, 2022, 2,833,036 shares of common stock were outstanding, with two beneficial owners holding over 5% and all directors and named executive officers collectively owning approximately 3.5% - As of March 31, 2022, 2,833,036 shares of common stock were outstanding[429] Beneficial Ownership as of March 31, 2022 | Owner | Percentage Beneficially Owned | | :--- | :--- | | Amir Uziel / Amir Uziel Economic Consultant Ltd. | 5.5% | | L.I.A. Pure Capital Ltd. | 5.1% | | All directors and named executive officers as a group (9 persons) | 3.5% | Certain Relationships and Related Transactions, and Director Independence The company has indemnification agreements with directors and officers, disclosing related party transactions since 2019, including a consulting agreement with a >5% shareholder and participation in convertible loans and private placements - The company entered a consulting agreement with Amir Uziel, a >5% common stock holder, for services at $100 per hour, effective January 1, 2021[436] - Several >5% common stock holders, including entities related to Amir Uziel, L.I.A Pure Capital Ltd., and YAAD Consulting, participated in 2019 convertible loan agreements and 2020 private placements[438][440][441] - The company adopted a formal written policy for reviewing and approving related person transactions exceeding $120,000[444] Principal Accounting Fees and Services Somekh Chaikin (KPMG) was appointed independent public accounting firm on July 25, 2021, replacing Halperin Ilanit CPA, with total professional service fees of $190,569 in 2021 and $26,638 in 2020 Accounting Fees | Service | 2021 | 2020 | | :--- | :--- | :--- | | Audit fees | $172,500 | $24,150 | | Tax fees | $18,069 | $2,488 | | Total fees | $190,569 | $26,638 | PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Annual Report on Form 10-K, including corporate governance documents, material agreements, and required certifications - Lists all exhibits filed with the 10-K, including corporate governance documents, material agreements, and required certifications[452] Financial Statements Consolidated Balance Sheets As of December 31, 2021, total assets increased to $7.60 million, total liabilities were $1.18 million, and stockholders' equity shifted from a $0.47 million deficit to $6.41 million positive equity, driven by financing Consolidated Balance Sheet Data (as of December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $6,750,938 | $242,900 | | Total Current Assets | $7,229,097 | $495,171 | | Total Assets | $7,597,279 | $687,649 | | Total Current Liabilities | $931,304 | $785,233 | | Total Liabilities | $1,184,668 | $1,153,102 | | Total Stockholders' Equity (Deficit) | $6,412,611 | ($465,453) | Consolidated Statements of Comprehensive Loss For 2021, revenues were $438,141 and gross profit $302,198, but significant operating expenses, including $4.27 million in G&A, led to a $4.82 million net loss attributable to shareholders Consolidated Statements of Comprehensive Loss (Year Ended December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $438,141 | $232,274 | | Gross Profit | $302,198 | $188,869 | | Operating Loss | ($4,703,639) | ($1,349,345) | | Net Loss Attributable to Shareholders | ($4,820,580) | ($1,593,139) | | Loss per Share (basic and diluted) | ($2.06) | ($1.05) | Consolidated Statements of Cash Flows For 2021, net cash used in operating activities was $4.10 million, while financing activities provided $10.73 million, resulting in a net increase in cash and cash equivalents of $6.54 million Consolidated Cash Flow Data (Year Ended December 31) | Metric | 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 | $6,542,317 | ($63,714) |