Nexentis Technologies Inc.: Form 10-Q for the period ended Mar 31, 2024

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this Quarterly Report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements” for a discussion of the uncertainties and assumptions associated with these statements. Our actual results may differ materially from those discussed below.

Overview

We are an agri-food tech company specializing in eco crop protection that helps reduce food waste and ensure food safety while reducing the use of pesticides. We develop eco-friendly “green” solutions for the food industry. Our solutions are developed to improve the food safety and shelf life of fresh produce. We do this by controlling human and plant pathogens, thereby reducing spoilage, and in turn, reducing food loss.

We operate through our two majority-owned Israeli subsidiaries, Save Foods Ltd., which focuses on post-harvest treatments in fruit and vegetables to control and prevent pathogen contamination, significantly reduce the use of hazardous chemicals and prolong fresh produce’s shelf life, and NTWO OFF Ltd., formerly known as Nitrousink Ltd. (“NTWO OFF”), which offers a pioneering solution to mitigate N₂O (nitrous oxide) emissions, a potent greenhouse gas with 265 times the global warming impact of carbon dioxide. Through NTWO OFF we aim to promote agricultural practices that are both environmentally friendly and economically viable and to become a global leader in this field by collaborating with or acquiring other companies that create innovative solutions and tools to solve other aspects of global warming’s impact of carbon dioxide. In addition, we currently own approximately 23% of Plantify Foods Inc. (“Plantify”), a Canadian-based food tech company focused on the development and production of clean-label, plant-based food products.

Our solutions are based on our proprietary blend of food acids combined with certain types of oxidizing agent-based sanitizers and in some cases with fungicides at low concentrations. Our products have a synergistic effect when combined with these oxidizing agent-based sanitizers and fungicides. Our “green” solutions are capable of cleaning, sanitizing and controlling pathogens on fresh produce with the goal of making them safer for human consumption and extending their shelf life by reducing their decay. One of the main advantages of our products is that our ingredients do not leave any toxicological residues on the fresh produce we treat. By forming a temporary protective shield around the fresh produce we treat, our solutions make it difficult for pathogens to develop and potentially provide protection which also reduces cross-contamination.

Recent Developments

Stockholders’ Meeting

At a special meeting of our stockholders held on February 8, 2024, our stockholders approved (i) a name change of our company to N2OFF, Inc., which our board of directors believes may better reflect future business expansion, including solutions to mitigate N₂0 emissions; and (ii) the issuance of 20% or more of our shares of common stock pursuant to the terms of the Purchase Agreement with the Investor as required by Nasdaq Marketplace Rule 5635(d). Our name change to N2OFF, Inc. and our symbol change to NITO, became effective as of March 19, 2024.

Subsidiary Name Change

On February 21, 2024, we received approval from The Registrar of Companies in Israel to change the name of our subsidiary, Nitrousink Ltd., to NTWO OFF Ltd.

Plantify Credit Facility

On April 2, 2024, the Company entered into a binding term sheet with Plantify for a credit facility pursuant to which Plantify may borrow from the Company up to $250,000 at an interest rate of 8% per annum (the “Credit Facility”) for one year.

Amounts borrowed from time to time must be repaid within twelve months and any amounts outstanding as of the end of the term must be repaid within ninety days.

During April 2024, Plantify borrowed $106,000 under the Credit Facility.

Note Issuance

On April 4, 2024, the Company, sold a $1,500,000 promissory note (the “Note”) to YA II PN, Ltd. (the “Investor”) in exchange for proceeds of $1,455,000, reflecting an original issue discount of 3% to face value. The Note was issued pursuant to the terms of the Standby Equity Purchase Agreement, dated as of December 22, 2023, between the Company and the Investor (the “Purchase Agreement”). The terms of the Purchase Agreement were previously reported by the Company in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 26, 2023.

The Note bears interest at a rate of 8% per annum and matures April 4, 2025. Commencing June 3, 2024 and every 30 days thereafter, the Company is required to pay $150,000, together with accrued and unpaid interest on the then outstanding principal. Said payment can be made either (i) in cash or (ii) by submitting notice of an advance of shares to be issued and sold to the Investor pursuant to the Purchase Agreement, or any combination of (i) or (ii) as determined by the Company. The entire remaining principal balance and unpaid interest amount of the Note becomes due and payable in full at maturity.

The Note sets forth certain events of default, including a breach by the Company of another agreement with the Investor, the failure of the securities of the Company to remain listed on the Nasdaq and the failure of the Company to timely file periodic reports with the SEC. Upon the occurrence of an event of default, interest will accrue at a default rate of 18% per annum and the Note will become immediately due and payable, together with all costs, legal fees, and expenses of collection through the date of full repayment.

Results of Operations

Components of Results of Operations

Revenues and Cost of Revenues

Our total revenue consists of the sale of products and our cost of revenues consists of cost of products.

The following table sets forth our revenues and costs of revenues:

U.S. dollars in thousands

23

Operating Expenses

Our operating expenses consist of three components — research and development expenses, selling and marketing expenses and general and administrative expenses.

Research and Development Expenses

Our research and development expenses consist primarily of professional fees and other related research and development expenses.

U.S. dollars in thousands

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries and related expenses, professional fees, transport and storage and other expenses.

U.S. dollars in thousands

24

General and Administrative Expenses

General and administrative expenses consist primarily of professional services, share based compensation, salaries, insurance and other non-personnel related expenses.

U.S. dollars in thousands

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Revenues

Revenues for the three months ended March 31, 2024 were $43,831, a decrease of $77,179 or 64%, compared to $121,010 during the three months ended March 31, 2023. The decrease is mainly a result of a decrease in our sales in Mexico.

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

Cost of Sales

Cost of sales consists primarily of salaries, materials, and overhead costs of manufacturing our products. Cost of sales for the three months ended March 31, 2024 was $27,980, a decrease of $14,766, or 35%, compared to cost of revenues of $42,746 for the three months ended March 31, 2023. The decrease is mainly a result of a decrease in our revenues.

Gross Profit

Gross profit for the three months ended March 31, 2024 was $15,851, a decrease of $62,413, or 80%, compared to a gross profit of $78,264 for the three months ended March 31, 2023. The decrease is mainly a result of the decrease in revenues.

Research and Development Expenses

Research and development expenses consist of consulting fees, service providers’ costs, related materials and overhead expenses. Research and development expenses for the three months ended March 31, 2024 were $115,866, a decrease of $3,042, or 3%, compared to research and development expenses of $118,908 for the three months ended March 31, 2023. The decrease is mainly attributable to a decrease in salaries and related expenses as a result of the implementation of certain cost reduction measures in light of prevailing macroeconomic conditions and certain results of our operations relating to Save Foods Ltd., which were offset by an increase in professional fees associated with NTWO OFF Ltd.’s activities. Cost reduction measures included the reduction of Save Foods Ltd.’s research and development budget, and the shift of our focus to the commercialization of its solutions with an emphasis on converting recently completed pilots into paying customers.

Selling and Marketing Expenses

Selling and marketing expenses consisted primarily of salaries and related costs for selling and marketing personnel, travel related expenses and services providers. Selling and marketing expenses for the three months ended March 31, 2024 were $57,248, a decrease of $11,898, or 17%, compared to total selling and marketing expenses of $69,146 for the three months ended March 31, 2023. The decrease is mainly attributable to the decrease in salaries, commissions and related costs and other professional fees associated with our sales, resulting from a reduction in personnel following our cost reduction measures.

General and Administrative Expenses

General and administrative expenses consisted primarily of salaries and related expenses, including share based compensation and other professional services as well as other non-personnel related expenses such as legal expenses, directors fees and insurance costs. General and administrative expenses for the three months ended March 31, 2024 were $741,803, a decrease of $892,060, or 55%, compared to general and administrative expenses of $1,633,863 for the three months ended March 31, 2023. The decrease is mainly a result of the decrease in share-based compensation, professional services, insurance costs and in franchise tax related to the Company’s reincorporation in Nevada from Delaware.

Financing Income, Net

Financing income, net for the three months ended March 31, 2024 was $4,936, a decrease of $17,168, or 78%, compared to financing income, net of $22,104 for the three months ended March 31, 2023. The decrease is mainly a result of a decrease in interest income on our cash balances.

Total Comprehensive Loss

As a result of the foregoing, our total comprehensive loss for the three months ended March 31, 2024 was $822,358, compared to $1,721,549 for the three months ended March 31, 2023, a decrease of $899,191, or 52%.

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. Since our inception through March 31, 2024, we have funded our operations, principally with the issuance of equity and debt.

As of March 31, 2024, we had cash and cash equivalents of $3,490,095, as compared to $4,595,838 as of March 31, 2023. As of March 31, 2024, we had a working capital of $3,861,561, as compared to $4,608,254 as of March 31, 2023. The decrease in our cash balance is mainly attributable to cash used in operations.

On August 18, 2022, we issued an aggregate of 228,572 shares of common stock at a public offering price of $21.00 per share in an underwritten offering for gross proceeds of approximately $4,800,000. In connection therewith, we granted the underwriter a 45-day option to purchase up to 34,286 additional shares of common stock at the public offering price of $21.00 per share, less underwriting discounts and commissions solely to cover over-allotments and issued ThinkEquity LLC a five-year warrant to purchase up to 11,429 shares of common stock, at a per share exercise price equal to 125% of the offering price per share of common stock.

On July 23, 2023, we entered into a standby equity purchase agreement with YA II PN, Ltd. (the “Investor”), pursuant to which the Investor agreed to purchase up to $3,500,000 shares of our common stock for 40 months from the date of the purchase agreement at a price per share equal to 94% of the lowest volume-weighted average price (“VWAP”) of the common stock for the three days prior to the delivery of each advance notice from us, subject to certain limitations, including that (i) the Investor cannot purchase a number of shares that would result in it beneficially owning more than 4.99% of our outstanding shares of common stock. In December 2023, we raised an aggregate of $3,500,000 under the standby equity purchase agreement.

On December 22, 2023, we entered into an additional standby equity purchase agreement with the Investor, pursuant to which the Investor has agreed to purchase up to $20 million shares of our common stock for 36 months from the date of the purchase agreement at a price per share equal to 94% of the lowest VWAP of our common stock for the three trading days immediately following the delivery of each advance notice from us. The agreement will terminate automatically on the earlier of January 1, 2027, or when the Investor has purchased an aggregate of $20 million of our shares of common stock. We have the right to terminate the purchase agreement upon five trading days’ prior written notice to the Investor. As of May 15, 2024, we have sold 426,039 shares of common stock at an average purchase price of $1.35 to the Investor.

In connection with and subject to the satisfaction of certain conditions set forth in the purchase agreement, upon our request, the Investor pre-advanced to us up to $3,000,000 of the $20,000,000 commitment amount (a “Pre-Advance”), with each Pre-Advance to be evidenced by a promissory note (each, a “Note”). The Pre-Advance made to us will be subject to a 3% discount to the principal amount equal to each Note. Each Note accrues interest on the outstanding principal balance at the rate of 8% per annum. The Company is required to pay, on a monthly basis, one tenth of the outstanding principal amount of each Note, together with accrued and unpaid interest, either (i) in cash or (ii) by submitting an Advance notice pursuant to the purchase agreement and selling the Investor shares, or any combination of (i) or (ii) as determined by us. The initial repayment is due 60 days after the issuance of a Note, followed by subsequent payments due every 30 days after the previous payment. Unless otherwise agreed to by the Investor, any funds received by us pursuant to the purchase agreement for the sale of shares will first be used to satisfy any payments due under an outstanding Note.

The table below presents our cash flows for the periods indicated:

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Going Concern

Since our incorporation, we incurred losses from operations and net cash outflows from operating activities as disclosed in the consolidated statements of operations and cash flows, respectively. As of March 31, 2024, we had an accumulated deficit of approximately $30 million, and we expect to incur losses for the foreseeable future. We have financed our operations mainly through fundraising from various investors and have limited revenue from our products and therefore are dependent upon external sources to finance our operations. There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern through at least twelve months from the date of this Quarterly Report.

We believe that our existing capital resources will be sufficient to support our operating plan through the second quarter of 2025; however, there can be no assurance of this. We will need to raise additional capital to support our growth through the issuance of debt, equity, or a combination thereof. There can be no assurance that we will be successful in raising additional capital on favorable terms, or at all.

As a result, there is substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or we may issue securities with rights, preferences or privileges senior to our common stock. If we issue debt securities, there may be negative covenants which may restrict the Company’s activities. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy. The financial statements included in this Quarterly Report do not include adjustments for measurement or presentation of assets and liabilities, which may be required should the Company fail to operate as a going concern.

Operating Activities

Net cash used in operating activities was $1,007,516 for the three months ended March 31, 2024, as compared to $1,105,789 for the three months ended March 31, 2023. The decrease is mainly attributable to a decrease in our net loss of $899,191, and an increase in accounts payable and prepaid expenses and other current assets offset by a decrease in other liabilities.

Financing Activities

Net cash provided by financing activities was $39,950 for the three months ended March 31, 2024, as compared to net cash provided by financing activities of $0 for the three months ended March 31, 2023. The increase is the result of proceeds from the standby equity purchase agreement with YA II PN, Ltd. (the “Investor”) entered into on December 22, 2023.

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information required by this Item.

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 Principal Executive Officer and our Principal Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our management, including each of our Principal Executive Officer and our Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2024. Based on such evaluation, each of our Principal Executive Officer and Principal Financial Officer has concluded that, as of March 31, 2024, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the period covered by this Quarterly Report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this item.