Seach Medical: Counterparty Risk Across the Production and Distribution Chain

The main article already made the broader point: Seach finished 2025 with cash that held up, but with growth that still needs proof. This follow-up isolates the place where that proof can still get stuck. The issue is not the top-line demand story by itself. It is the quality of the counterparties Seach relies on to manufacture, distribute, and sell. This is the real friction point. Parts of the chain do not just provide services to Seach. Parts of the chain also consume Seach's own balance sheet.

Three points make that clear immediately:

• The producer exposure is bilateral, not just a stranded advance. A producer manufacturing the group's products was placed under a temporary stay order in December 2025, and the group's total exposure to it was about NIS 4.8m. That amount reflects both manufacturing advances and raw-material sales that were not fully collected.
• The customer credit did not close on the original timetable. A NIS 3.0m customer loan granted in April 2024 carries 15% annual interest, but only NIS 1.0m was repaid in 2025. The remaining NIS 2.0m was extended to June 30, 2026, while the related commercial agreement is explicitly described as non-material in volume.
• Telcan shows that chain risk can survive even after a signed settlement. A NIS 1.25m settlement failed after checks bounced, the grower entered liquidation, and the company still ended both 2024 and 2025 with a roughly NIS 425k provision linked to the case.

The Credit Did Not Disappear. It Moved Across The Chain

From a distance, 2025 can look like a year in which Seach tightened control over cash. Net cash from operating activities reached NIS 17.5m, and the company explicitly attributes that mainly to an NIS 8.344m decline in receivables, driven mostly by improved payment terms. Net receivables also fell to NIS 17.0m from NIS 25.4m a year earlier.

But that is exactly where the deeper read begins. Lower receivables do not mean credit risk disappeared from the model. They mean some of it changed address. In the same balance sheet where receivables came down, net advances to suppliers rose to NIS 6.848m from NIS 4.606m, and loans granted still stood at NIS 2.0m. The report also states explicitly that net supplier advances already include the Telcan provision.

The direction matters more than the headline. Seach extracted more cash from ordinary customers, but it still carried working-capital exposure tied directly to production and distribution counterparties. That is a different kind of credit quality. A normal customer buys product and pays. Here, one producer received advances and still owed money for raw materials, one customer carried a loan, and Telcan turned into a collection and liquidation problem.

Three Counterparty Pressure Points

The Producer: The Collateral Sounds Comforting, But It Is Not Cash

The producer note matters not just because of the amount, but because of the structure. Seach says it provided the producer, from time to time, with advances relating to manufacturing services, and at the same time sold raw materials whose consideration had not been fully collected. This is not a narrow case of prepaid manufacturing. It is exposure that runs in two directions inside the same relationship: Seach financed part of the production interface and also remained exposed on collection.

The company adds that, in its view, the full debt is backed by a personal guarantee from the producer's controlling shareholder and an additional security whose value, in the group's assessment, exceeds the debt. That matters, but it does not erase the problem. The same stay order also covers the shareholder who provided that additional security. In other words, the protections may exist on paper, but the quality of recovery will be tested inside a legal process rather than through ordinary course collection.

The Customer: Credit Stays Open While The Commercial Scale Is Not Framed As Material

The customer-loan note is smaller than the producer case, but analytically it may be sharper. On April 17, 2024, the group signed a NIS 3.0m loan agreement with a customer at 15% annual interest, due on January 31, 2025. During 2025, the customer repaid NIS 1.0m, and the remaining NIS 2.0m was pushed out to June 30, 2026. The report says the other terms remained materially unchanged.

The key issue is not only the extension. It is the context. Alongside the loan, Seach signed a commercial agreement to sell medical-cannabis products at market prices, but the disclosed volumes are explicitly described as non-material to the group. That is the non-obvious point. The report does not frame this as financing tied to a clearly material anchor channel. It frames it as credit that stayed open even after the first due date, while the visible commercial contribution is not presented as a material driver.

The balance-sheet bridge is also clean. The line item for loans granted stood at NIS 2.0m at year-end 2025, the same amount as the remaining balance disclosed in the amended customer-loan note. This exposure did not fade out during the year. It was pushed into 2026.

Telcan: What Failed In Collection Comes Back Through The Provision

The Telcan file is the reminder that counterparty risk here is not only about new trouble. In 2023, Seach sued Telcan for about NIS 1.5m and sought declaratory relief over amounts paid without receiving product, while Telcan filed a counterclaim for roughly NIS 3.0m. In August 2024, the parties signed a settlement that received the force of judgment and required Telcan to pay Seach NIS 1.25m.

That did not end the story. During 2025, Telcan breached the settlement, the checks given to Seach were dishonored, Seach opened enforcement proceedings, and the grower later entered liquidation. The trustee then demanded that Seach pay about NIS 2.535m into the liquidation estate, or alternatively pay the purchase-agreement amount plus roughly NIS 397k that had been set off in the sale transaction. Seach says it cannot assess the chances of the claim at this stage.

The important continuation point is not just the litigation. It is the accounting. The company states that as of December 31, 2024 and December 31, 2025 it recognized a provision of roughly NIS 425k in relation to Telcan. And the receivables-and-other-debits note explicitly says that net advances to suppliers include that provision. Telcan therefore no longer sits only in the disputes note. It is already deducted from one of the working-capital lines.

What Management Is Already Trying To Fix

This is where the investor presentation matters, because it connects the detailed footnotes to management's reading of the year. The CEO describes 2025 as a year of difficult market conditions, collapsing players, rising competition, and operational difficulties at a significant distributor that also affected the company. Against that backdrop, he says Seach is reducing dependence on third parties in two ways: increasing production at its own plant and working with an additional distributor.

Note 22 shows that those words were backed by a concrete move. The legacy distribution agreement was renewed during 2024, and on March 12, 2025 the group signed an additional distribution agreement with a distributor holding a trade-house license and IMC-GDP approval. This is not a short bridge contract. It runs for four years, with automatic two-year renewals.

That is the right response to the problem, but it is not costless. More in-house production and more than one distributor reduce dependence on a single weak node, but they also raise the execution burden on Seach itself. So even if diversification improves, the 2026 test will not be only whether there is another distributor in place. It will be whether this redesign actually reduces the need for Seach to finance the chain from its own balance sheet.

Why This Matters Now

This does not currently read like an immediate liquidity event. Seach ended the year with about NIS 28.3m of cash and marketable securities, NIS 17.5m of operating cash flow, and roughly NIS 22m of unused bank credit lines. It also states that it is in compliance with its banking covenants.

That is precisely why this continuation is not a claim about existential funding pressure. It is a quality test. The question is whether Seach is generating strong cash despite isolated chain problems, or generating it while continuously shifting credit between different nodes in the chain and carrying the system on its own balance sheet. The distinction matters. In the short term, the market can live with one problematic file. What it will struggle to accept is a repeated pattern in which producers, distributors, and customers keep requiring financial or working-capital support.

That is what sets up the 2026 checkpoints. First, the producer exposure has to come down in real terms, not just remain theoretically covered by collateral. Second, the NIS 2.0m customer loan has to be repaid on the revised June 30, 2026 deadline without another extension. Third, the move toward more in-house production and the added distributor has to show up as operating stability, not as another round of advances, credit extensions, or provisions.

The bottom line of this follow-up is straightforward: Seach currently has enough buffer to carry the pressure points that were disclosed. But those same points show that the chain is still not fully running on someone else's capital. In parts of the system, Seach is the one financing the transition between production, distribution, and sale. As long as that stays exceptional and contained, it is a quality issue. If it starts recurring across more nodes, it becomes an operating constraint on the pace of growth itself.