| Significant Accounting Policies | NOTE 2–
SIGNIFICANT ACCOUNTING POLICIES The financial statements were prepared
in accordance with accounting principles generally accepted in the United States of America (US GAAP).
A. Use of estimates in the preparation of financial statements The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported
amounts of expenses during the reporting periods. 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, share based compensation and
convertible loans.
B. Functional currency A majority of the Group’s
revenues is generated in U.S. dollars. In addition, most of the Group’s costs are denominated and determined in U.S. dollars
and in new Israeli shekels. Management believes that the dollar is the currency in the primary economic environment in which the
Group operates. Thus, the functional and reporting currency of the Group is the U.S. dollar. Accordingly, monetary accounts maintained
in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification (ASC) 830,
“Foreign Currency Matters”. All transaction gains and losses of the remeasured monetary balance sheet items are reflected
in the statements of operations as financial income or expenses, as appropriate.
C. Principles of consolidation The consolidated financial statements
include the accounts of the Company and its subsidiary, Save Foods Ltd. All significant intercompany balances and transactions
have been eliminated on consolidation.
D. Cash and cash equivalents, and Restricted cash Cash equivalents are short-term
highly liquid investments which include short term bank deposits (up to three months from date of deposit), that are not restricted
as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired. Restricted cash as of December 31,
2020 and 2019 included a NIS 72,000 ($22,395) and NIS 132,000 ($38,194), respectively collateral account for the Company’s
corporate credit cards and a loan and is classified in current assets.
E. Accounts receivables Accounts receivables are stated
at their net realizable value. The allowance against gross accounts receivables reflects the best estimate of losses inherent in
the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and
other currently available information. As of December 31, 2020, and 2019, an allowance for doubtful debts in the amount of $26,553
and $24,702, respectively, is reflected in net accounts receivables. Accounts receivables are written off after all reasonable
means to collect the full amount have been exhausted.
F. Property, plant and equipment, net
1. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the Statements of Operations and Comprehensive Loss.
2. Rates of depreciation:
%
Furniture and office equipment 7-15
Machines 10-15
Computers 33
Vehicle 15
G. Impairment of long-lived assets The Group’s long-lived assets
are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”) Topic 360, “Property,
Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. No impairment expenses
were recorded during the years ended December 31, 2020 or 2019.
H. Deferred income taxes The Group accounts for income taxes
in accordance with ASC Topic 740, “Income Taxes”. Accordingly, deferred income taxes are determined utilizing the asset
and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases
of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected
to be in effect when these differences reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary,
to reduce deferred tax assets to amounts more likely than not to be realized. The Group accounts for uncertain
tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC
Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to
classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such
items in its fiscal 2020 and 2019 financial statements and did not recognize any liability with respect to an unrecognized tax
position in its balance sheets.
I. Liability for employee rights upon retirement Save Foods Ltd’s liability
for employee rights upon retirement with respect to its Israeli employees is calculated, pursuant to Israeli Severance Pay Law,
based on the most recent salary of each employee multiplied by the number of years of employment, as of the balance sheet date.
Employees are entitled to one month’s salary for each year of employment, or a portion thereof. Save Foods Ltd. makes monthly
deposits to insurance policies and severance pay funds. The liability of the Company is fully provided for. The deposited funds include profits
accumulated up to the balance sheet date. The deposited funds may be withdrawn upon the fulfillment of the obligation pursuant
to Israeli severance pay laws or labor agreements. The value of the deposited funds is based on the cash surrender value of these
policies, and includes immaterial profits/losses. Severance expenses for the years
ended December 31, 2020 and 2019, amounted to $7,419 and $24,000, respectively.
J. Revenue recognition Revenues are recognized when delivery
has occurred and there is persuasive evidence of an agreement, the fee is fixed or determinable and collection of the related receivables
is reasonably assured and no further obligations exist. Revenues from sales of products
are recognized when title and risk and rewards for the products are transferred to the customer.
K. Research and development expenses Research and development expenses
are charged to operations as incurred.
L. Royalty-bearing grants Royalty-bearing grants from the
Israeli Innovation Authority (the “IIA”) for funding approved research and development projects are recognized at the
time Save Foods Ltd. is entitled to such grants (i.e. at the time that there is reasonable assurance that the Company will comply
with the conditions attached to the grant and that there is reasonable assurance that the grant will be received), on the basis
of the costs incurred and reduce research and development costs. The cumulative research and development grants received by the
Company from inception through December 2020 amounted to NIS 484,429 (US$150,678). As of December 31, 2020, and 2019,
the Company did not accrue for or pay any royalties to the IIA since no revenues were recognized in respect of the funded projects.
M. Inventories Inventories are valued at the lower
of cost or net realizable value. Cost of raw and packaging materials, purchased products, manufactured finished products and products
in process are determined on the average costs basis. The Company regularly reviews its
inventories for impairment and reserves are established when necessary.
N. Basic and diluted loss per common stock Basic loss per common stock is computed
by dividing the loss for the period applicable to shareholders, by the weighted average number of shares of common stock outstanding
during the period. Securities that may participate in dividends with the shares of common stock (such as the convertible preferred)
are considered in the computation of basic loss per share under the two-class method. However, in periods of net loss, only the
convertible preferred shares are considered, since such shares have a contractual obligation to share in the losses of the Company. In computing diluted loss per share,
basic loss per share is adjusted to reflect the potential dilution that could occur upon the exercise of potential shares. Accordingly,
in periods of net loss, no potential shares are considered.
O. Stock-based compensation The Company measures and recognizes
the compensation expense for all equity-based payments to employees based on their estimated fair values in accordance with ASC
718, “Compensation-Stock Compensation”. Share-based payments including grants of stock options are recognized in the
statement of comprehensive loss as an operating expense based on the fair value of the award at the date of grant. The fair value
of stock options granted is estimated using the Black-Scholes option-pricing model. The Company has expensed compensation costs,
net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period or over the implicit service
period when a performance condition affects the vesting, and it is considered probable that the performance condition will be achieved. Share-based payments awarded to
consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, “Equity-Based Payments to Non-Employees”.
P. Fair Value Measurements Fair value of certain of the Company’s
financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued
liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with
ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles and expands disclosures about fair value investments. Fair value, as defined in ASC 820,
is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or
most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the
risk of non-performance, which includes, among other things, the Company’s credit risk. Valuation techniques are generally
classified into three categories: the market approach; the income approach; and the cost approach. The selection and application
of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset
or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize
the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs
and resulting measurement as follows: Level 1: Quoted prices (unadjusted)
in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2: Quoted prices for similar
assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active;
inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Unobservable inputs for
the asset or liability that are supported by little or no market activity, and that are significant to the fair values. Fair value measurements are required
to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair
value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements
including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to
the following: total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings,
and a description of where those gains or losses included in earning are reported in the statement of income. The Company records a debt discount
related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible
instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and
as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features. The debt
discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative
liabilities over the life of the convertible notes. The Company’s financial assets
and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows:
Balance as of December 31, 2020
Level 1 Level 2 Level 3 Total
Liabilities:
Fair Value of convertible component in convertible loan - - 54,970 54,970
Total liabilities - - 54,970 54,970 The following table presents the
changes in fair value of the level 3 liabilities for the Year ended December 31, 2020:
Fair value of Convertible component
Outstanding at January 1, 2020 -
Fair value of issued level 3 liability 27,762
Changes in fair value 27,208
Outstanding at December 31, 2020 54,970
Q. Concentrations of credit risk Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents as well as certain other current
assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily held in Dollars and New Israeli
Shekels, are deposited with major banks in Israel and United States. Management believes that such financial institutions are financially
sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does not have any significant
off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
R. Contingencies The Company records accruals for
loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and
the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information
becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
S. New Accounting Pronouncements In June
2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 did not have a material impact to the Company’s
consolidated financial statements after evaluation. 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. In August
2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period
recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance
sheet date and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for the Company for annual and
interim periods beginning after December 31, 2020. Early adoption of this standard is permitted. This standard did not have a material
impact to the Company’s consolidated financial statements. In August
2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity s Own Equity.
ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible
debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features
being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject
to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract,
that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible
debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends
the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based
accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after
December 15, 2020, including interim periods within those fiscal years. Management has not yet evaluated the impact that the adoption
of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures. Other new pronouncements issued
but not effective as of December 31, 2020 are not expected to have a material impact on the Company’s consolidated financial
statements. |
