Save Foods, Inc. - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2020

For the transition period from             to               

Commission File No. 000-56100

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

As of June 30, 2020, the registrant had 10,209,487 shares of common stock, par value $0.0001, of the registrant issued and outstanding.

As used in this Quarterly 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.

Save Foods, Inc.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2019 (filed on March 30, 2020) entitled “Risk Factors” as well as in our other public filings.

In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

SAVE FOODS, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2020

IN U.S. DOLLARS

TABLE OF CONTENTS

SAVE FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars except share and per share data)

The accompanying notes are an integral part of the condensed consolidated financial statements.

SAVE FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(U.S. dollars except share and per share data)

The accompanying notes are an integral part of the condensed consolidated financial statements.

SAVE FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars, except share and per share data)

The accompanying notes are an integral part of the condensed consolidated financial statements.

SAVE FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars except)

The accompanying notes are an integral part of the condensed consolidated financial statement

SAVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 - GENERAL

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 all of the issued and outstanding shares of Save Foods Ltd. (formerly Pimi Agro Cleantech Ltd). ("Save Foods Israel"), including preferred and ordinary shares.  

Save Foods Israel was incorporated in 2004 and commenced its operations in 2005. Save Foods Israel develops, produces, and focuses on delivering innovative solutions for the food industry aimed at improving food safety and prolonging shelf life of fresh produce.

In February 2010, the Company’s shares of common stock were initially quoted on the OTC Bulletin Board under the symbol “PIMZ.OB”. As of the date of these financial statements, the Company’s shares of common stock are quoted on the OTC Pink under the symbol “SAFO”.

Going Concern

Since its incorporation (April 1, 2009), the Company has not had any operations other than those carried out by Save Foods Israel. The development and commercialization of Save Foods Israel’s products will require substantial expenditures. Save Foods Israel and the Company have not yet generated sufficient revenues from their operations to fund the Group activities and are therefore dependent upon external sources for financing their operations. There can be no assurance that Save Foods Israel and the Company will succeed in obtaining the necessary financing to continue their operations. As of June 30, 2020, the Company had $35,251 in cash, a negative working capital of $471,589 and an accumulated deficit of $11,505,524.

The Company will need to secure additional capital in the future in order to meet its anticipated liquidity needs primarily through the sale of additional Common Stock or other equity securities and/or debt financing. Funds from these sources may not be available to the Company on acceptable terms, if at all, and the Company cannot give assurance that it will be successful in securing such additional capital.

The Company focuses its solutions towards vegetables and fruits which are considered the largest in terms of worldwide consumption. Among other things, the Company tries to cooperate with major fruit packing houses in Israel and abroad. As of balance sheet date, the Company had not signed any significant agreements.

These factors raise substantial doubt about Save Foods Israel and the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (SARS-CoV-2) to be a global pandemic (COVID-19), which continues to spread throughout the United States and around the world. The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. Specific to the Company, COVID-19 may impact various parts of its 2020 operations and financial results including but not limited to reduction is sales, difficulties in obtaining additional financing, or potential shortages of personnel. The Company believes it is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as these events occurred subsequent to year end and are still developing.

SAVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q. In the opinion of management, the financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the for six-months ended June 30, 2020. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2020. The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on published on the OTCIQ Alternative Reporting System, for the year ended December 31, 2019.

Principles of Consolidation

The consolidated financial statements are prepared in accordance with US GAAP. The consolidated financial statements of the Company include the Company and its wholly-owned and majority-owned subsidiaries. All inter-company balances and transactions have been eliminated.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the going concern assumptions and convertible loans.

SAVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.)

Recent Accounting Pronouncements

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will originally become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. As a smaller reporting company, the effective date for the Company has been delayed until fiscal years beginning after December 15, 2022, in accordance with ASU 2019-10, although early adoption is still permitted. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which replaced existing lease guidance in GAAP and requires lessees to recognize right-of-use (ROU) assets and lease liabilities on the balance sheet for leases greater than twelve months and disclose key information about leasing arrangements. The Company adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. Financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients for transition. The Company elected the package of practical expedients under the transition guidance which permits the Company not to reassess under the new standards our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under ASC 842. The Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting policy elections. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. The Company also elected the practical expedient not to separate lease and non-lease components for all of our leases.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting. The standard expands the scope of Topic 718 to include share-based payments issued to nonemployees for goods or services, simplifying the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. The Company adopted this ASU on January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.

SAVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.)

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. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation.

NOTE 3 – CONVERTIBLE LOANS

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 $379,000 and in exchange the Company issued to the Lenders (i) convertible promissory notes (the “Notes”) and (ii) warrants with an exercise price of $1.20. In January and March 2020, the Company entered into two additional CLAs for an aggregate amount of $135,000, pursuant to the same terms.

According to the terms of the CLA, the Notes bore interest at a rate of 5% per annum and the loan amount represented by the Notes was to be repaid to the Lenders according to the following schedule: (i) the principal amount represented by the Notes to be repaid in twenty four equal monthly installments, commencing on the twenty fifth month following the closing of each CLA and (ii) the interest accrued on the loan amount to be paid in two bi-annual installments, commencing on the first anniversary of the first payment of the principal amount.

According to the terms of the CLA, the outstanding loan amount was to mature 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 Common Stock at a conversion price of US$1.20 per share.

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.

As a result of the above issuances, the Company recorded in the periods ended March 31, 2020 and December 31, 2019, total amounts of US$34,696 and US$97,406, respectively, in respect of the detachable warrants, as a credit to stockholders' equity (additional paid in capital). The fair value of the warrants was determined using the Black-Scholes pricing model, assuming a risk free rate of 1.6%, a volatility factor of 54.00%, dividend yields of 0% and an expected life of 3 years.

SAVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 3 – CONVERTIBLE LOANS (continue)

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 485,318 units (“Units”), at a purchase price of US$1.09 per Unit. Each Unit consists of: (i) one share of the Company’s common stock par value US$0.0001 per share (the “Common Stock”) and (ii) one warrant to purchase one share of Common Stock with an exercise price of US$1.20 (the “Warrant”). In connection with the SPA, the Company issued to the Lenders an aggregate of 485,318 shares of Common Stock and Warrants to purchase an aggregate of 485,318 shares of Common Stock. The shares of Common Stock were issued on July 2, 2020.

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 US$57,793, in the six months ended June 30, 2020, 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 0.21%, a volatility factor of 51.96%, dividend yields of 0% and an expected life of 2.45-2.71 years.

During the periods ended June 30, 2020 and December 31, 2019, the Company recorded net interest and amortization expenses in the amounts of $141,917 and $4,323, respectively, in respect of the discounts recorded on the CLAs.

NOTE 4 – COMMON STOCK

On May 9, 2019, the Company entered into a Securities Purchase Agreement with an existing shareholder (the “Investor”), pursuant to which the Company sold to the Investor for an aggregated amount of $100,000, 91,743 units at a price per unit of $1.09 (the "Units"), each Unit consists of (i) one share of common stock of the Company and (ii) one warrants to purchase one share of Company's common stock with an exercise price of $1.20 for a period of 36 months following the issuance date. The shares of common stock were issued after balance sheet date.

SAVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 5 – STOCK OPTIONS

On June 23, 2020, the Company granted 148,000 options under the 2018 Equity Incentive Plan. The options shall vest quarterly over two years commencing June 23, 2020, whereby 12.50% 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 at the end of each subsequent three month period thereafter over the course of the subsequent twenty-one months.

The following table presents the Company’s stock option activity for employees and directors of the Company for the six months ended June 30, 2020:

The aggregate intrinsic value of the awards outstanding as of June 30, 2020 is US$516,602. These amounts represent the total intrinsic value, based on the Company’s stock price of US$ 0.9 as of June 30, 2020, 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.

Costs incurred in respect of stock-based compensation for employees and directors, for the six and three months ended June 30, 2020 were $85,864 and $54,256, respectively.

SAVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 6 – RELATED PARTIES

A. Transactions and balances with related parties

B. Balances with related parties and officers:

NOTE 7 – INVESTMENT IN SAVECANN SOLUTIONS INC

On April 2, 2019, the Company invested 10,000 Canadian Dollars for 20% of the outstanding shares of Savecann Solutions Inc. (“Savescann”) a newly formed company registered in Canada. Savecann intended to market the Company's solutions to the Cannabis market.

On April 21, 2020, the Company sold its entire holdings in Savecann for total consideration of 10,000 Canadian Dollars.

NOTE 8 – SUBSEQUENT EVENTS

On July 1, 2020, the Company granted 500,000 options to purchase its common stock under the 2018 Equity Incentive Plan. These options shall vest quarterly over two years commencing June 1, 2020, whereby 12.50% 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 at the end of each subsequent three month period thereafter over the course of the subsequent twenty-one months.

On July 2, 2020, the Company issued 485,318 shares of common stock in respect of the conversion of convertible loans as detailed in note 3 above. In addition, on the same date, the Company issued 91,743 shares of common stock in respect of Security Purchase Agreement detailed in note 4 above. 

During July 2020, the Company entered into Securities Purchase Agreements with existing shareholders (the “Investors”), pursuant to which the Company sold to the Investors for an aggregate amount of $75,000, 68,808 units at a price per unit of $1.09 (the "Units"), each Unit consists of (i) one share of common stock of the Company and (ii) one warrant to purchase one share of Company's common stock with an exercise price of $1.20 for a period of 36 months following the issuance date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2019 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a small and innovative company that develops, produces, and focuses on delivering “green” solutions within the food industry, aimed at improving food safety and prolonging shelf life of fresh produce. We have developed a set of eco-friendly and “green” sanitizing solutions for fresh produce with high efficiency against human pathogens like Salmonella, E. coli, and Listeria as well as against plant pathogens. This also allows us to ensure food safety, extend shelf life and reduce food waste.

Our technology is based on proprietary blend of food acids combined with an oxidizer like hydrogen peroxide or per-acetic acid, and is capable of cleaning, sanitizing and controlling pathogens that render produce unsafe for human consumption or which lead to certain forms of decay in fruit and vegetable.

When used with hydrogen peroxide, our formulation creates an optimal environment for hydrogen peroxide and significantly extends the contact time of the hydrogen peroxide with the target pathogens, which in due course ensures high levels of product safety. This formulation ultimately allows us to use a very low concentration of hydrogen peroxide, and generates a hostile environment for the pathogens by forming a temporary protective shield around the sanitized produce.

In addition, unlike conventional bactericides and fungicides, the active ingredients in our products do not leave any residues of toxicological concern on the treated produce; hydrogen peroxide rapidly decomposes to water and oxygen and the ingredients of our acids blend are recognized by the United States Food and Drug Administration, or FDA, as GRAS, or Generally Recognized As Safe. More importantly, it significantly reduces the need for additional post-harvest applications such as conventional chemical bactericides and fungicides, which have regulatory limitations on maximum residue levels (MRL) allowed.

Further, our innovative solution provides packing house workers and other users of our products a safe and environmentally friendly, clean sanitizing process, which emissions do not irritate the eyes, skin or airways.

Our first application is in post-harvest treatment, and mainly targets fruit and vegetable packing houses that treat, clean and package citrus, avocado, papaya, mango, potatoes, onion and sweet potatoes. We are currently exploring additional applications for pre-harvest treatments and for the food industry, including fresh cut, fresh salads and processed foods. Our latest application is in greenhouses. We already conducted a proof of concept with a proven product safety and efficacy as applied towards a range of micro-greens and cannabis. While we have not completed a thorough study or examination of our technology vis-à-vis cannabis products, we believe our technology presents a unique solution for a variety of cannabis providers since it might help them significantly reduce yield losses that are caused by microbial infection. In addition, we believe that we may play a significant role in ensuring cannabis (both medicinal and recreational) is made safe for consumers, specifically with respect to reducing levels of pesticide residues and toxins produced by specific microbial infections and also eliminating the presence of human pathogens.

Critical Accounting Policies

Please see Note 2 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2019 (filed on March 30, 2020) with respect to our Critical Accounting Policies and Estimates. There have been no other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2019.

Going Concern Uncertainty

The development and commercialization of our product will require substantial expenditures. We have not yet generated any material revenues and have incurred substantial accumulated deficit and negative operating cash flows. We currently have no sources of recurring revenue and are therefore dependent upon external sources for financing our operations. There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. As a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Results of Operations

Comparison of the three months ended June 30, 2020 and 2019

Revenues.

We had no revenues for the three months ended June 30, 2020 or for the three months ended June 30, 2019.

We do not have backlogs or firm commitments from our clients for our products. Our sales might deteriorate if we fail to achieve clinical success or obtain regulatory approval of any of our products.

Cost of Revenues

Cost of revenues consists primarily of salaries, materials, transportation and overhead costs of manufacturing our products. Cost of revenues for the three months ended June 30, 2020 was $4,911, a decrease of $60,083, or 92%, compared to total cost of revenues of $64,994 for the three months ended June 30, 2019. The decrease is mainly a result of the decrease in sales.

Research and Development

Research and development expenses consist of salaries and related expenses, consulting fees, service providers’ costs, related materials and overhead expenses. Research and development expenses for the three months ended June 30, 2020 were $95,707, an increase of $8,530, or 10%, compared to total research and development expenses of $87,177 for the three months ended June 30, 2019. The increase is mainly attributable to the increase in lab tests and materials purchased for purposes of our research and development activities, professional fees and share based compensation offset partially by a decrease in payroll and related expenses associated to research and development expenses due to COVID 19.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries and related costs for sales and marketing personnel, travel related expenses and services providers. Selling and marketing expenses for the three months ended June 30, 2020 were $7,811, a decrease of $103,788, or 93%, compared to total selling and marketing expenses of $111,599 for the three months ended June 30, 2019. The decrease is mainly attributable to the decrease in payroll expenses and service providers used in relation to selling and marketing activities.

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 three months ended June 30, 2020 were $295,297, an increase of $30,694, or 12%, compared to total general and administrative expenses of $264,603 for the three months ended June 30, 2019. The increase is mainly a result of the increase in share based compensation to our service providers and directors offset partially by a decrease in professional fees.

Financing Expenses, Net

Financing expenses, net for the three months ended June 30, 2020 was $193,149, an increase of $185,333, or 2371%, compared to total financing expenses of $7,816 for the three months ended June 30, 2019. The increase is mainly a result of compensation expenses related to the exchange of our Convertible Loans as described in note 3 to the financial statements as well as interest and amortization expenses related to the Convertible Loans.

Comparison of the six months ended June 30, 2020 and 2019

Revenues

Revenues for the six months ended June 30, 2020 were $63,566, a decrease of $66,167, or 51%, compared to total revenues of $129,733 for the six months ended June 30, 2019. The decrease is mainly a result of the Company’s efforts towards obtaining regulatory approval for its new products resulting in a temporary freeze of its sales in Israel and reductions in sales in the U.S.

We do not have backlogs or firm commitments from our clients for our products. Our sales might deteriorate if we fail to achieve clinical success or obtain regulatory approval of any of our products.

Cost of Revenues

Cost of revenues consists primarily of salaries, materials, transportation and overhead costs of manufacturing our products. Cost of revenues for the six months ended June 30, 2020 was $25,686, a decrease of $73,349, or 74%, compared to total cost of revenues of $99,035 for the six months ended June 30, 2019. The decrease is mainly a result of the decrease in salaries and related expenses.

Research and Development

Research and development expenses consist of salaries and related expenses, consulting fees, service providers’ costs, related materials and overhead expenses. Research and development expenses for the six months ended June 30, 2020 were $253,343, an increase of $34,340, or 16%, compared to total research and development expenses of $219,003 for the six months ended June 30, 2019. The increase is mainly attributable to an increase in lab tests and materials purchased for our research and development activities, professional fees and share based compensation offset partially by decrease in payroll and related expenses associated to research and development expenses due to COVID 19.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries and related costs for sales and marketing personnel, travel related expenses and services providers. Selling and marketing expenses for the six months ended June 30, 2020 were $36,748, a decrease of $221,413, or 86%, compared to total selling and marketing expenses of $258,161 for the six months ended June 30, 2019. The decrease is mainly attributable to the decrease in payroll expenses and service providers used in relation to selling and marketing activities.

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 six months ended June 30, 2020 were $513,376, an increase of $85,625, or 20%, compared to total general and administrative expenses of $427,751 for the six months ended June 30, 2019. The increase is mainly a result of the increase in share based compensation to our service providers and directors offset partially by decrease in professional fees.

Financing Expenses, Net

Financing expenses, net for the six months ended June 30, 2020 was $200,351, a decrease of $179,033, or 840%, compared to total financing expenses of $21,318 for the six months ended June 30, 2019. The increase is mainly a result of compensation expenses related to the exchange of our Convertible Loans as described in note 3 to the financial statements as well as interest and amortization expenses related to the Convertible Loans.

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.

As of June 30, 2020, we had cash of $35,251, as compared to $290,815 as of December 31, 2019. As of June 30, 2020, we had a negative working capital of $471,589, as compared to negative working capital of $199,212 as of December 31, 2019. The decrease in our cash balance is mainly attributable to our net loss described above and payments to account payables, somewhat offset by share based compensation expenses and equity financing.

Net cash used in operating activities was $468,999 for the six months ended June 30, 2020, as compared to $594,678 for the six months ended June 30, 2019.

Net cash used in investing activities was $574 for the six months ended June 30, 2020, as compared to $50,249 for the six months ended June 30, 2019.

Net cash provided by financing activities was $214,009 for the six months ended June 30, 2020, as compared to $702,181 for the six months ended June 30, 2019. The decrease is mainly the result of a decrease in equity financing and proceeds from convertible loans.

The spread of COVID-19 throughout the world may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations especially regarding its ability to obtain the necessary finance to continue the Company’s operations. The extent to which COVID-19 impacts the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

Off-Balance Sheet Arrangements

As of June 30, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3. 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 4. Controls and Procedures.

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 principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of June 30, 2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, and due to certain material weaknesses identified by management, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of June 30, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 1A. RISK FACTORS.

Our business faces many risks, a number of which are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Annual Report”). Other than as set forth below, there have been no material changes from the risk factors previously disclosed in our 2019 Annual Report. The risks described in the 2019 Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in the 2019 Annual Report or described below occurs, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in the 2019 Annual Report and below, and the information contained under the caption “Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

The COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease, may materially and adversely affect our business and operations.

The outbreak of COVID-19, which originated in Wuhan, China, in late 2019, has since spread across the globe, including the United States, Israel and many European countries in which we operate. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. While COVID-19 is still spreading and the final implications of the pandemic are difficult to estimate at this stage, it is clear that it has affected the lives of a large portion of the global population. At this time, the pandemic has caused states of emergency to be declared in various countries, travel restrictions imposed globally, quarantines established in certain jurisdictions and various institutions and companies being closed. We are actively monitoring the pandemic and we are taking any necessary measures to respond to the situation in cooperation with the various stakeholders.

Based on guidelines provided by the Israeli Government, employers (including us) are also 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 remained closed since the middle of March 2020, and all of our employees currently work remotely. In addition, COVID-19 infection of our workforce could result in a temporary disruption in our business activities, including manufacturing, and other functions.

The spread of an infectious disease, including COVID-19, may also result in the inability of our manufacturers to deliver components or finished products on a timely basis and may also result in the inability of our suppliers to deliver the parts required by our manufacturers to complete manufacturing of components or finished products. In addition, governments may divert spending from other budgeted resources as they seek to reduce and/or stop the spread of an infectious disease, such as COVID-19. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS.

(a) The following documents are filed as exhibits to this Quarterly Report or incorporated by reference herein.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.