| 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 consolidated 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 consolidated
financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates.
As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to share based compensation.
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. 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. Transactions and monetary balances in other currencies
are translated into the functional currency using the current exchange rate. 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. SAVE
FOODS, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
C. Principles
of consolidation The
accompanying 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 31,2021 and 2020 included a $ 56,674
and $ 22,395 ,
respectively collateral account for the Company’s corporate credit cards and a loan and is classified in current assets.
E. Accounts
receivables The
Group maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing
the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’
financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. As of December
31, 2021, and 2020, an allowance for doubtful debts in the amount of $ 27,450
and $ 26,553 ,
respectively, is reflected in net accounts receivables. The Group does not have any off-balance-sheet credit exposure related to its
customers.
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 Comprehensive Loss.
2. Rates
of depreciation: SCHEDULE
OF PROPERTY, PLANT AND EQUIPMENT DEPRECIATION RATES
%
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, 2021 or 2020. SAVE
FOODS, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
H. 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 a Company’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 years 2021 and 2020 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 Under
Israeli law and labor agreements, Save Foods Ltd. is required to make severance payments to retired or dismissed employees and to employees
leaving employment in certain other circumstances. In respect of the liability to the employees, individual insurance policies are purchased,
and deposits are made with recognized severance pay funds. The liability for severance pay is calculated on the basis of the latest salary
paid to each employee multiplied by the number of years of employment. Employees are entitled to one month’s salary for each year
of employment, or a portion thereof. The liability is covered by the amounts deposited including accumulated income thereon as well as
by the unfunded provision. Such liability is removed, either upon termination of employment or retirement. According
to Section 14 to the Severance Pay Law (“Section 14”) the payment of monthly deposits by a company into recognized severance
and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into
agreements with the company pursuant to such Section 14. Save Foods, Ltd. has entered into agreements with a majority of its employees
in order to implement Section 14. Therefore, the payment of monthly deposits by Save Foods, Ltd. into recognized severance and pension
funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements
and therefore Save Foods, Ltd. incurs no additional liability since that date with respect to such employees. Amounts accumulated in
the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by Save Foods, Ltd. and therefore
neither such amounts nor the corresponding accrual are reflected in the balance sheet. Severance
income for the year ended December 31, 2021 amounted to $ 6,819 ,
and severance expense for the year ended December 31, 2020 amounted to $ 7,419 .
J. Revenue
recognition The
Group has revenue from customers. The Group recognizes revenue when it satisfies performance obligations under the terms of its contracts,
and control of its products is transferred to its customers in an amount that reflects the consideration the Company expects to receive
from its customers in exchange for those products. This process involves identifying the customer contract, determining the performance
obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations
in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered
distinct from other obligations in a contract when it (a) provides a benefit to the customer either on its own or together with other
resources that are readily available to the customer and (b) is separately identified in the contract. The Company considers a performance
obligation satisfied once it has transferred control of a good or product to a customer, meaning the customer has the ability to direct
the use and obtain the benefit of the product. The
Company’s primary source of revenues is from sales of eco-friendly “green” products for the food industry. The Company
does not act as an agent in any of its revenue arrangements. Contracts with customers generally state the terms of the sale, including
the quantity and price of each product purchased. Payment terms and conditions may vary by contract, although terms generally include
a requirement of payment within a range of 30 to 60 days after the performance obligation has been satisfied. As a result, the contracts
do not include a significant financing component. In addition, contracts typically do not contain variable consideration as the contracts
include stated prices. SAVE
FOODS, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
K. Research
and development expenses Research
and development expenses are charged to comprehensive loss 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 Save Foods Ltd 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 Save Foods
Ltd from inception through December 2021 and 2020, amounted to $ 155,765 . As
of December 31, 2021, and 2020, the Group 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 cost basis. The
Group 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.
O. Stock-based
compensation The
Group measures and recognizes the compensation expense for all equity-based payments to employees and nonemployees 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 a compensation 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 Group has expensed compensation
costs, net of forfeitures as they occur, 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. SAVE
FOODS, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
P. Fair
Value Measurements Fair
value of certain of the Group’s financial instruments including cash, accounts receivable, account payable, accrued expenses, and
other accrued liabilities approximate cost because of their short maturities. The Group 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. 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
following table presents the changes in fair value of the level 3 liabilities for the Year ended December 31, 2021: SCHEDULE
OF CHANGES IN FAIR VALUE OF LIABILITIES
Fair value of Convertible component
Outstanding at January 1, 2021 54,970
Fair value of issued level 3 liability 218,169
Fair value of repaid level 3 liability (359,087 )
Changes in fair value (85,948 )
Outstanding at December 31, 2021 - NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
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. The Group considers that its cash and cash equivalents
have low credit risk based on the credit ratings of the counterparties. 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. SAVE
FOODS, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
R. Commitments
and Contingencies The
Group 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. Leases In
February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes
a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet
for all leases with a term longer than 12 months. The Group determines if an arrangement is or contains a lease at contract inception. The
Group is a lessee in certain operating leases primarily for office space and vehicles. Operating leases are included in operating lease
right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. ROU
assets represent Company’s right to use an underlying asset for the lease term and lease liabilities represent Group’s obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on
the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, the Company generally
uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease
payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Company’s
lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease
expense for lease payments is recognized on a straight-line basis over the lease term. The
Group monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in
the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless
doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that
would result in a negative ROU asset balance is recorded in statement of comprehensive loss.
T. New
Accounting Pronouncements Accounting
Pronouncements Not Yet Adopted 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. The Company is currently
evaluating the effect the adoption of ASU 2019-12 will have on its 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. The Company is currently evaluating 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, 2021 are not expected to have a material impact on the Company’s
consolidated financial statements.
U. Change in classification During
the current year the Group changed the cash flows classification of proceeds from secured promissory notes to proceeds from convertible
loans to reflect more appropriately the financing activities as it related to certain convertible loans. These
reclassifications did not have any effect on total current assets, total assets, total current liabilities, total liabilities, total
shareholders’ equity, net loss, or loss per share. SAVE
FOODS, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS |
