Company Quick10K Filing
GRCR Partners
Price-0.00 EPS-1
Shares20 P/E0
MCap-0 P/FCF0
Net Debt-0 EBIT-10
TEV-0 TEV/EBIT0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-09-30 Filed 2019-01-15
10-Q 2018-06-30 Filed 2018-08-20
10-Q 2018-03-31 Filed 2018-05-21
10-Q 2017-12-31 Filed 2018-02-14
10-K 2017-09-30 Filed 2018-01-10
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-22
10-Q 2016-12-31 Filed 2017-02-21
10-K 2016-09-30 Filed 2017-01-13
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-16
8-K 2020-06-25
8-K 2020-01-05
8-K 2019-12-17
8-K 2019-12-09
8-K 2019-12-04
8-K 2019-11-22
8-K 2019-11-04
8-K 2019-10-15
8-K 2019-10-14
8-K 2019-09-24
8-K 2019-04-02
8-K 2019-03-19
8-K 2019-03-12
8-K 2019-03-05
8-K 2019-03-04
8-K 2019-02-05
8-K 2019-01-31
8-K 2018-12-31
8-K 2018-12-17
8-K 2018-12-10
8-K 2018-11-05
8-K 2018-09-14

GRCR 10Q Quarterly Report

Part I. Financial Information
Note 1: - General
Note 2: - Unaudited Interim Condensed Consolidated Financial Statements
Note 3: - Significant Accounting Policies
Note 4: - Commitments and Contingent Liabilities
Note 5: - Short Term Loans
Note 6: - Related Parties
Note 7: - Convertible Loans
Note 8: - Shareholders' Deficiency
Note 9: - Financial Expenses
Note 10: - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 f10q0919ex31-1_seedo.htm
EX-31.2 f10q0919ex31-2_seedo.htm
EX-32.1 f10q0919ex32-1_seedo.htm
EX-32.2 f10q0919ex32-2_seedo.htm

GRCR Partners Earnings 2019-09-30

Balance SheetIncome StatementCash Flow
10.07.34.62.0-0.7-3.42015201620182020
Assets, Equity
0.4-0.4-1.2-2.0-2.8-3.62015201620182020
Rev, G Profit, Net Income
3.32.00.7-0.5-1.8-3.12015201620182020
Ops, Inv, Fin

10-Q 1 f10q0919_seedocorp.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 333-208814

 

SEEDO CORP.

(Exact name of registrant as specified in its charter)

 

Delaware   47-2847446

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

HaCarmel 2

Yokneam, Israel 20692

(Address of principal executive offices)

 

+972 546 642 228
(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class:   Trading Symbol(s)   Name of each exchange on which registered:
N/A   N/A   N/A

 

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 day.

 

☒ Yes ☐ 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 ☐ No ☒

 

(Does not currently apply to the Registrant)

 

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 if the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

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 ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Shares Outstanding as of November 14, 2019
Common Stock, $0.0001 par value per share   20,440,477 shares

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

i

 

 

PART I. Financial Information

 

 

 

 

 

 

 

 

 

 

 

SEEDO CORP.

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

1

 

 

SEEDO CORP.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

As of September 30, 2019

 

IN THOUSANDS OF U.S. DOLLARS

 

INDEX

 

  Page
   
Unaudited Condensed Consolidated Balance Sheets F-2
   
Unaudited Condensed Consolidated Statements of Operations F-3
   
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Deficiency F-4 - F-5
   
Unaudited Condensed Consolidated Statements of Cash Flows F-6
   
Notes to Unaudited Consolidated Financial Statements F-7 - F-27

 

- - - - - - - - - - - -

 

F-1

 

 

SEEDO CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

U.S. dollars in thousands, except share and per share data

 

      September 30   December 31 
   Note  2019   2018 
            
ASSETS           
            
CURRENT ASSETS:           
Cash and cash equivalents     $94   $921 
Restricted bank deposit      151    87 
Financial institute      328    830 
Other accounts receivable      220    81 
Advances to suppliers      

1,350

    328 
Inventory      543    157 
              
Total current assets      2,686    2,404 
              
Property and equipment, net      1,165    1,234 
              
Total assets     $3,851   $3,638 
              
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY             
              
CURRENT LIABILITIES             
Short-term loan  5  $463   $411 
Trade payables      1,766    521 
Convertible loans  7   -    771 
Loan from related party  6   850    908 
Advances from customers      2,442    3,016 
Other accounts payable      1,466    1,121 
              
Total current liabilities      6,987    6,748 
              
LONG-TERM LIABILITIES             
Convertible loan  7   234    - 
              
COMMITMENTS AND CONTINGENT LIABILITIES  4          
              
SHAREHOLDER’S DEFICIENCY  8          
Shares of common stock $0.0001 par value each             
Authorized: 500,000,000 shares at September 30, 2019 and December 31, 2018; Issued and Outstanding: 20,440,477 and 16,198,578 shares at September 30, 2019 and December 31, 2018, respectively      2    2 
Additional Paid in capital      15,465    5,410 
Accumulated deficit      (18,837)   (8,522)
              
Total shareholders’ deficiency      (3,370)   (3,110)
              
Total liabilities and shareholders’ deficiency     $3,851   $3,638 

 

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

  

F-2

 

 

SEEDO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

U.S. dollars in thousands, except share and per share data

  

      Three months ended
September 30
   Nine months ended
September 30
 
   Note  2019   2018   2019   2018 
                    
Revenues     $310   $-   $703   $- 
Cost of revenues      562    -    1,142    - 
                        
Gross Loss      252    -    439    - 
                        
Operating expenses:                       
                        
Research and development     $1,221   $489   $3,160   $1,633 
                        
Selling and marketing      253    264    715    704 
                        
General and administrative      1,299    1,286    3,422    1,841 
Operating loss      3,025    2,039    7,736    4,178 
                        
Financial expenses  9   100    235    2,579    251 
                        
Net Loss     $3,125   $2,274   $10,315   $4,429 
                        
Basic and diluted net loss per share     $(0.16)  $(0.22)  $(0.54)  $(0.42)
Weighted average number of shares of common stock used in computing basic and diluted loss per share      20,001,386    10,572,078    19,019,390    10,572,078 

 

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

  

F-3

 

 

SEEDO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

U.S. dollars in thousands, except share and per share data

  

       Additional       Total 
   shares of common stock   Paid in   Accumulated   Shareholders’ 
   Number   Amount   capital   deficit   Deficiency 
                     
Balance as of July 1, 2018 (Unaudited)   10,525,587   $    1   $1,534   $(4,540)  $(3,005)
                          
Issuance of shares with respect to the Reverse Merger   369,000    -    (349)   -    (349)
                          
Conversion of convertible loans   1,546,491    -    1,244    -    1,244 
                          
Share Based Compensation to non-employees   2,558,922    -    948    -    948 
                          
Issuance of warrants             42         42 
                          
Net Loss   -    -    -    (2,274)   (2,274)
Balance as of September 30, 2018 (Audited)   15,000,000   $1   $3,419   $(6,814)  $(3,394)
                          
Balance as of July 1, 2019 (Unaudited)   20,007,144   $2   $14,555   $(15,712)  $(1,155)
                          
Share Based Compensation to employees and non-employees   -    -    910    -    910 
                          
Exercise of warrants   433,333    -    -    -    - 
                          
Net Loss   -    -    -    (3,125)   (3,125)
Balance as of September 30, 2019 (Unaudited)   20,440,477   $2   $15,465   $(18,837)  $(3,370)

 

F-4

 

 

SEEDO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

U.S. dollars in thousands, except share and per share data

 

       Additional       Total 
   shares of common stock   Paid in   Accumulated   Shareholders’ 
   Number   Amount   capital   deficit   Deficiency 
                    
Balance as of January 1, 2018 (Unaudited)   10,525,587   $    1   $1,534   $(2,385)  $(850)
                          
Issuance of shares with respect to the Reverse Merger   369,000    -    (349)   -    (349)
                          
Conversion of convertible loans   1,546,491    -    1,244    -    1,244 
                          
Share Based Compensation to non-employees   2,558,922    -    948    -    948 
                          
Issuance of warrants             42         42 
                          
Net Loss   -    -    -    (4,429)   (4,429)
Balance as of September 30, 2018 (Audited)   15,000,000   $1   $3,419   $(6,814)  $(3,394)
                          
Balance as of January 1, 2019 (Unaudited)   16,198,578   $2   $5,410   $(8,522)  $(3,110)
                          
Issuance of shares of common stock   1,820,575    *    4,404    -    4,404 
                          
Conversion of convertible loans   1,893,422    *    2,318    -    2,318 
                          
Share Based Compensation to employees and non-employees   -    -    1,889    -    1,889 
                          
Shares Based Compensation to non-employees   94,569    *    134    -    134 
                          
Beneficial conversion feature related to convertible loan   -    -    96    -    96 
                          
Issuance of Warrants   -    -    514         514 
                          
Exercise of warrants   433,333    -    700    -    700 
                          
Net Loss   -    -    -    (10,315)   (10,315)
Balance as of September 30, 2019 (Unaudited)   20,440,477   $2   $15,465   $(18,837)  $(3,370)

 

*)Represents an amount less than $1.

 

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

  

F-5

 

 

SEEDO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

U.S. dollars in thousands

  

   Nine months ended 
   September 30, 
   2019   2018 
Cash flows from operating activities:        
Net Loss  $(10,315)  $(4,429)
Adjustments to reconcile loss to net cash used in operating activities:          
Depreciation and amortization   131    19 
Financial expenses related to convertible loans   640    178 
Financial expenses related to short-term loans   657    - 
Financial expenses related to loans from related party   942    - 
Share based compensation expenses to employees and non-employees   1,921    948 
Other   1    (10)
Changes in assets and liabilities:          
Increase in other accounts receivable   (660)   (688)
Increase in inventory   (386)   (122)
Increase (Decrease) in advances from customers   (574)   1,684 
Increase in trade payables   1,245    406 
Increase in other accounts payable   358    223 
Net cash used in operating activities   (6,040)   (1,791)
           
Cash flows from investing activities          
Purchase of property and equipment   (62)   (454)
Net cash used in investing activities   (62)   (454)
           
Cash flows from financing activities:          
Proceeds from convertible loans   258    - 
Proceeds from short-term loans   463    1,669 
Repayment of short-term loan   (300)   - 
Proceeds from issuances of shares of common stock   4,404    500 
Issuance of warrants   514    - 
Net cash provided by financing activities   5,339    2,169 
           
Increase (Decrease) in cash and cash equivalents and restricted cash   (763)   (76)
Cash and cash equivalents and restricted cash at the beginning of the year   1,008    607 
           
Cash and cash equivalents at the end of the year and restricted cash  $245   $531 
           
Supplemental disclosures of cash flow information:          
           
Cash and cash equivalents  $94   $472 
Restricted bank deposits included in short term assets   151    59 
   $245   $531 
           
Cash paid for interest  $210    48 
           
Supplemental disclosures of non- cash flow information:          
Conversion of convertible loans  $2,300   $- 
Exercise of warrants  $700   $- 

 

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

  

F-6

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

  

NOTE 1:-GENERAL

 

a.Seedo Corp. (the “Company,” “Our” or “We”), was incorporated on January 16, 2015, as GRCR Partners Inc., under the laws of Delaware. Prior to September 14, 2018, we were solely a provider of risk management and asset protection (“RAP”) services for businesses, individuals and families. On September 14, 2018, we acquired Eroll Grow Tech Ltd. (“Eroll”), an Israeli company and now the wholly owned subsidiary of the Company. On September 17, 2018, the Company’s name was changed to Seedo Corp. Since the acquisition of Eroll, we produce the world’s first fully-automated plant growing device managed and controlled by an artificial intelligent algorithm, allowing consumers to grow their own herbs and vegetables effortlessly from seed to plant, while providing optimal conditions to assure premium quality produce year-round.

 

Reverse merger

 

On September 14, 2018, the Company and Eroll completed a merger transaction. Eroll survived the merger as a wholly-owned subsidiary of the Company.

 

Immediately following the merger, Eroll shareholders held approximately 87.4% of the outstanding shares of common stock of the Company in exchange of 1,137 shares of common stock of Eroll on a fully diluted basis while the pre-merger Company shareholders retained the remaining approximate 12.6%.

 

Pursuant to the terms and conditions of the agreement governing the Reverse Merger, at the time of the Reverse Merger, the Company issued 12,073,500 nonassessable shares of its shares of common stock. Each of the holders of the pre-Reverse Merger issued and outstanding shares of common stock of Eroll received their pro-rata allotment of these shares in the Company according to their then current shareholding in Eroll. At the closing of this Reverse Merger, there were 15,000,000 shares of common stock of the Company.

 

The reverse merger was accounted for as a reverse recapitalization which is outside the scope of ASC Topic 805, “Business Combinations” (“ASC 805”). Under reverse capitalization accounting, Eroll is considered the acquirer for accounting and financial reporting purposes and acquired the assets and assumed the liabilities of the Company. The assets acquired and liabilities assumed are reported at their historical amounts. The annual consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. The annual consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of Eroll since inception.

 

F-7

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 1:-GENERAL (Cont.)

 

Eroll was incorporated pursuant to the laws of the state of Israel on May 18, 2015.

 

Eroll has seven subsidiaries as followings:

 

Seedo U.S. Inc.   (Seedo Inc.) incorporated pursuant to the laws of the state of Colorado, U.S in November 2016. To date, the subsidiary has no activities.

 

Seedo USA LLC (Seedo USA) incorporated pursuant to the laws of the state of Nevada U.S on March 2017. To this date the subsidiary has no activities.

 

Urban Auto Grow Inc. (UAG) incorporated pursuant to the laws of the state of Nevada U.S on January 2017. To this date the subsidiary has no activities.

 

E.L Urban Auto Grow Ltd. (Urban) incorporated pursuant to the laws of the state of Cyprus on December 2017. To this date the subsidiary has no activities.

 

Seedo FarmTech Ltd. incorporated pursuant to the laws of the state of Israel on April 10, 2019. To this date the subsidiary has no activities.

 

Dan SeedoFarm Ltd Ltd incorporated pursuant to the laws of the state of Israel on June 27, 2019. To this date the subsidiary has no activities.

 

Tech Farm Agricola S.R.L incorporated pursuant to the laws of the state of Messina, Italy on May 20, 2019. To this date the subsidiary has no activities. The Company holds 33% of Tech Farm Agricola S.R.L.

 

b.The Company operates mainly in the fields of development and distribution of home growing automated machines and commercial containers for variety of herbs and vegetables worldwide. The Company also plans, establishes and will operate container farms.

 

c.Basis of presentation:

 

Effective December 31, 2018, the Company changed its fiscal year end from September 30 to December 31. This change is being made in order to align the Company’s fiscal year end with its subsidiaries following the reverse merger. The Company refers to the period beginning October 1, 2017 and ending September 30, 2018 as “fiscal 2018.” 

 

d.The Company has an accumulated deficit in the total amount of $18,837 as of September 30, 2019, the Company has negative operating cash flow in the total amount of $6,040 for the period of nine months ended September 30, 2019, further losses are anticipated in the development of its business. Those factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.  

 

F-8

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 1:-GENERAL (Cont.)

 

The Company intends to finance operating costs over the next twelve months with existing cash on hand, reducing operating spend, and future issuances of equity and debt securities, or through a combination of the foregoing. However, the Company will need to seek additional sources of financing if the Company requires more funds than anticipated during the next 12 months or in later periods.

 

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business.

 

As of September 30, 2019, the condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

 

NOTE 2:-UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and standards of the Public Company Accounting Oversight Board for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s (i) consolidated financial position as of September 30, 2019, (ii) consolidated results of operations for the three and nine months ended September 30, 2019 and (iii) consolidated cash flows for the nine months ended September 30, 2019. The results for the three and nine months periods ended September 30, 2019, as applicable, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

 

NOTE 3:-SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statements have been prepared in accordance with U.S Generally Accepted Accounting Principles in the United States of America.

 

a.The significant accounting policies applied in the audited consolidated financial statements of the Company as disclosed in the Company’s annual report on Form 10-K for the year ended September 30, 2018 filed with the SEC on January 15, 2019, are applied consistently in these unaudited interim condensed consolidated financial statements, except as discussed below.

 

b.Revenue Recognition: 

 

The Company generates revenues from sales of products. The Company sells its products directly to end customers.

 

F-9

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 3:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

b.Revenue Recognition (Cont.): 

 

In accordance with Topic 606, revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration to which we expect to be entitled

 

In exchange for transferring products or providing services. To achieve this core principle, the Company applies the following five steps:

 

1.Identify the contract with a customer

 

A contract with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

 

2.Identify the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.

 

3.Determine the transaction price

 

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. To the extent the transaction price is variable, revenue is recognized at an amount equal the consideration to which the Company expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and estimated using either the expected value method or the most likely amount method, depending on the nature of the program.

 

4.Allocate the transaction price to performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately.

 

F-10

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 3:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

b.Revenue Recognition (Cont.): 

 

5.Recognize revenue when or as the Company satisfies a performance obligation.

 

The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased. Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

 

Typical timing of payment

 

The Company offers several payment methods that includes but not limited to full advance payment and partial amount in advanced while collecting the remaining amount before delivery.

 

Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less.

 

The Company’s unfilled performance obligations as of September 30, 2019 is $2.4 million.

 

The Company recognized revenues of $703 for the nine month ended September 30, 2019, as part of advances recognized in prior periods.

 

Warranties are classified as assurance type. A warranty is considered an assurance type warranty if it provides the consumer with assurance that the product will function as intended for a limited period of time. As of September 30, 2019, the Company recorded a provision for warranty in a total amount of $35.

 

c.Accounting for share-based Compensation:

 

The Company accounts for share-based compensation in accordance with ASC No. 718, “Compensation-Stock Compensation” (“ASC No. 718”). ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations. The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.

 

The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its share-option awards. The option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated based upon certain peer companies that the Company considered to be comparable. The expected option term represents the period of time that options granted are expected to be outstanding. The expected option term is determined based on the simplified method in accordance with Staff Accounting Bulletin No. 110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.

 

F-11

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 3:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

c.Accounting for share-based Compensation (Cont):

 

The fair value of Restricted Stock Units (“RSUs”) granted is determined based on the price of the Company’s shares of common stock on the date of grant.

 

The fair value for options granted in April 2019, is estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following assumptions:

 

Expected volatility   131.93%
Risk-free rate   2.29%
Expected term (in years)   4.66-4.75 
Share price  $4.01 

 

The Company accounts for options granted to consultants and other service providers under ASC No. 718 and ASC No. 505, “Equity-based payments to non-employees.” The fair value of these options was estimated using a Black-Scholes-Merton option-pricing model.

 

In the nine months ended September 30, 2019, the non-cash compensation expenses related to nonemployees were $766. As of September 30, 2019, there were $3,971 of total unrecognized compensation cost related to non-vested share-based compensation to non-employees.

 

d.New Accounting Pronouncements

 

Recently Implemented Accounting Pronouncements

 

1.Revenues - In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle is that an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The standard provides a five-step model to be applied to all contracts with customers, which steps are to (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is satisfied.

 

F-12

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 3:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

d.New Accounting Pronouncements (Cont.):

 

The Company early adopted ASU 2014-09 as of the January 1, 2019. The adoption did not have a significant impact on the Company’s net income.

 

Recently Implemented Accounting Pronouncements :

 

2.Cash Flow - On November 17, 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” This ASU requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are to be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement of cash flows. The Company adopted ASU 2016-18 on October 1, 2018, and it did not have a material impact on its accounting and disclosures.

 

In July 2017, the FASB issued ASU 2017-11, “Earnings per share: I. Accounting for Certain Financial Instruments with Down Round Features,” which allows companies to exclude a down round feature when determining whether a financial instrument is considered indexed to the entity’s own stock. As a result, financial instruments with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company early adopted this guidance in connection with the down round feature within the embedded optional conversion feature of the warrants, as discussed in Note 7d.

 

3.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be ubstantially aligned.

 

This ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The Company early adopted this standard, the adoption of this standard had an immaterial impact on the Company’s consolidated financial statements.

 

F-13

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 4:-COMMITMENTS AND CONTINGENT LIABILITIES

 

In October 2017, Eroll entered into rental agreements for its office premises in Israel which will end on June 30, 2022. The agreement is secured by bank guarantees and monthly debentures equivalent with the lease payments.

 

On June 20, 2019 the Company signed an amendment to its rental agreement, accordingly the Company signed an extension to its original agreement until June 30, 2022, and rented two additional office premises until June 30, 2024.

 

The future minimum lease fees payable for the lease agreement as of September 30, 2019, are as following:

 

2019  $50 
2020   244 
2021   262 
2022   202 
And thereafter   213 
   $971 

 

The Company enters into a vehicle operating lease agreement for a period of 32 months. The future minimum lease fees payable for both above agreements as of September 30, 2019, are as following:

 

2019  $27 
2020   94 
2021   31 
   $152 

 

NOTE 5:-SHORT TERM LOANS

 

a.On December 11, 2018, the Company received a loan from a lender in the principal amount of $1,000 (out of which $50 was directly transferred as finder fee). The loan is to be repaid in full at the end of 180 days, the principal amount shall bear interest at the rate of 17.5% calculated per the commencing of the date of the actual provision of the principal amount and ending on the maturity date, on a linear daily basis, up to a maximum amount of approximately $175. The interest shall be accrued but not compounded.

 

The Company also granted the foregoing lender warrants to purchase 333,333 and 100,000 shares of common stock of the Company at an exercise price of $1.5 and $2 per share, respectively. The warrants were classified as shareholders’ equity.

 

F-14

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 5:-SHORT TERM LOANS (Cont.)

 

The Company estimated the fair value of warrants using the Black-Scholes-Merton option pricing model using the following weighted average assumptions:

 

   2018 
Dividend yield   0%
Risk-free interest rate   2.78%
Expected term (in years)   2 
Volatility   126.23%

 

The Company also granted the broker 33,333 shares of common stock of the Company which were issued on April 12, 2019.

 

The Company accounted for the loan in accordance with ASC 470, Debt. The Company allocated the consideration of the loan, the related warrants and the shares of common stock based on their relative fair value at the date of issuance, which is also the commitment date.

 

On June 19, 2019 the Company executed an amendment to the loan agreement. Total debt was $1,175 according to the amendment the lender will exercise its 433,333 warrants pursuant to the original agreement for a total amount of $700. The remaining debt of $475 will be paid in three separate monthly payments of $158.333 each for the next three months.

 

On August 15, 2019 the company issued 433,333 shares in respect of exercise of 433,333 warrants granted as part of the loan agreement signed on December 11, 2018.

 

During the nine months period ended September 30, 2019 the Company recorded interest and financial expenses related to the loan in the amount of $800.

 

b.On August 18, 2019, the Eroll received a loan from a lender in the principal amount of $311 (NIS1,100) (out of which $9 was deducted as fee), the loan has a one-month term and shall be repaid on September 19, 2019 (The “Maturity Date”).

 

The principal amount shall bear interest at a monthly rate of 2%. In case the Company doesn’t repay the loan on Maturity Date the Company is obligated give the lender a 7 days notice then the loan and the outstanding interest amount shall bear a monthly interest rate of 5%, if the company fails to notify the lender the loan and the outstanding interest amount shall bear an annual interest rate of 32.92%

 

As of September 30, 2019 the Company did not repay the loan amount but gave the lender a 7 days notice therefore entered the 5% interest, accordingly the Company recorded interest for the nine months ended September 30, 2019 in the amount of $13.

 

F-15

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 6:-RELATED PARTIES

 

a.As of September 30, 2019, and December 31, 2018, the Company recorded a provision in the amount of $547 and $520, respectively, that classified in other accounts payable to a related party for management services.

 

b.On August 10, 2018, Eroll entered into a Convertible Loan Agreement (the “August Loan Agreement”) with Cannabics Pharmaceuticals Inc. (“Cannabics”), a U.S. public company and one of the Company’s shareholders. Pursuant to the terms of the August Loan Agreement, Cannabics was obligated to invest up to $2,000 in Eroll Grow Tech. According to the agreement Cannabics is obligated to invest $500 upon execution of the August Loan Agreement, to be followed by second $500 tranche within 90 days and third tranche in the amount of $1,000 (the “Second loan”), 90 days following that. On August 13, 2018, Cannabics invested the initial $500 pursuant to its obligations under the August Loan Agreement.

 

According to the August Loan Agreement, the Company shall issue Cannabics shares of common stock of the Company representing 7.5% of the outstanding shares on a fully-diluted basis of the Company at the time of conversion. Following the Second Loan, Cannabics shall hold 15% of the outstanding shares on a fully-diluted basis of the Company. In addition, according to the agreement Cannabics shall issue to the Company 1,000,000 warrants with an exercise price of $2 per share, of the Cannabics shares, for a period of 12 months. The warrants were issued on August 14, 2018. The warrants were classified as an asset and are evaluated every report date. During the nine months period ended September 30, 2019 the Company recorded expenses due to the warrant in the amount of $1. As of September 30, 2019, and December 31, 2018 the warrants fair value amount was $0 and $1, respectively.

 

On September 12, 2018, Eroll and Cannabics executed an amendment to the August Loan Agreement, solely amending the mechanics of the percentage of the Company shares Cannabics may convert for its investment, though the finite amount remains unchanged. The amendment to the August Loan was as follows: Cannabics is to receive 10% of the shares of common stock, for the initial $1,000 financing (as opposed to 15%); and for the Second Loan, Cannabics shall receive 10% (5% issued on the date of the money transfer and an additional 5% issued on the date of conversion) of the shares of common stock on a fully diluted basis.

 

On September 26, 2018, pursuant to the August Loan Agreement with Cannabics, the Company received its second installment of $500.

 

F-16

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 6:-RELATED PARTIES (Cont.)

 

In addition, under the agreement the Company shall pay to Cannabics royalties in an amount equal to a percentage of the Company’s revenues starting of January 2019 sales as follows:

 

(a)Until the conversion or repayment of the third tranche (which is the Second Loan) in the amount of an additional $1,000, an amount equal to 2.5% of revenues.

 

(b)Following the conversion or repayment of the Second Loan, an amount equal to 5% of revenues.

 

Notwithstanding the above, for the first year following the Second Loan closing date, The Company shall pay Cannabics minimum royalties of not less than $500. In the event the Second Loan is converted into shares, the aggregate royalties to be paid hereunder will be capped at max $8,000.

 

On November 6, 2018, pursuant to the August Loan Agreement with Cannabics the Company received $300 towards the Second Loan, and on December 10, 2018, pursuant to the August Loan Agreement the Company received the remaining $700 out of the Second Loan.

 

As part of the completion of the August Loan Agreement the Company recorded a provision for royalties in a total amount of $500.

 

The Company allocated the remaining consideration ($500) of the second convertible loan and issuance of shares based on their relative fair value at the date of issuance. As such the Company recorded issuance of the shares in a total amount of $250.

 

The Company accounted for the convertible loan in accordance with ASC 470-20, Debt with conversion and other Options. According to ASC 470-20-30-8, since the intrinsic value of the beneficial conversion feature (“BCF”) exceeds the entire proceeds of the loan, the Company allocated the entire proceeds of $250 related to the convertible loan to the BCF as additional paid in capital.

 

On January 15, 2019 according to the original agreement and the amendment stated above the Company converted the Second Loan, in the amount of $1,000 and issued Cannabics 770,397 shares of common stock with $0.0001 par value each. As a result, the Company recorded financial expenses related to the loan in the amount of $942. The total holding as of September 30, 2019, for Cannabics is 17.52% of the Company’s shares of common stock.

 

c.During September 7, 2018, Eroll has entered into a loan agreement with Cannabics in the amount of $350 that shall have a one-year defined term and bears no interest. As part of the agreement Cannabics were also entitled to 3.6% of the Company’s shares of common stock, in return to services provided as part Reverse Merger.

 

F-17

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 6:-RELATED PARTIES (Cont.)

 

As a result on September 27, 2018, the Company issued 540,000 shares of common stock with 0.0001 par value each with respect to share based compensation. As defined in an amendment as of November 6, 2018, the loan shall have a due date certain of November 4, 2019.

 

d.On September 19, 2019, the Eroll received a loan from a lender in the principal amount of $100. The principal amount shall bear interest at an annual rate of 1%.

 

The Company shall repay the loan as soon as practicable following the date of Seedo Corp’s receipt of a loan from a third party.

 

The Company repaid the loan on October 23, 2019.

 

NOTE 7:-CONVERTIBLE LOANS

 

a.On June 6, 2018, Eroll entered into a loan agreement (the “June Loan Agreement”) with a third party (the “June Lender”), in a total amount of $500 (the “June Loan”). The June Loan bears interest at a monthly rate of 2%, for a year. Eroll shall pay the June Lan and interest within one year from the closing date. In future event when Eroll will merge with public company the June Lender has the right to convert the June Loan and interest into equity securities of the public company, at a price per share equal to the lower of (i) a valuation of the Company of $15,000, or (ii) the fair market value of the Company as shall be evaluated as of the Company’s first raising via equity issuance. According ASC 470 the Company did not record a BCF.

 

With respect to convertible loan since the contingent BCF shall not be recognized in earnings until the contingency is resolved.

 

On March 5, 2019, the June Loan was converted into 500,000 shares of common stock with $0.0001 par value each.

 

During the nine months period ended September 30, 2019, the Company recorded an interest expenses in the total amount of $10.

 

b.During July 2018, Eroll entered into a convertible loan agreement (the “July Agreement”) with a third party (the “July Lender”), in a total amount of $250 (the “July Loan”). The July Loan bears interest at a monthly rate of 2%, for a year. Pursuant to the terms of the July Agreement, if Eroll will merge with a public company the July lender has the right to convert the July Loan and interest into equity securities of the public Company, at a price per share equals to the lower of (i) a valuation of the Company of $25,000, or (ii) the fair market value of the Company as shall be evaluated as of the Company’s first raising via equity issuance. If the future event will not occur Eroll shall pay the loan and interest within one year from the closing date.

 

During the nine months period ended September 30, 2019, the Company recorded an interest expenses in the total amount of $10. According to ASC 470 the Company did not record a BCF with respect to July Loan since the contingent BCF shall not be recognized in earnings until the contingency is resolved.

 

On April 11, 2019 the July Loan was converted into 150,000 shares of common stock with $0.0001 par value each.

 

F-18

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except share and per share data

 

NOTE 7:-CONVERTIBLE LOANS (Cont.)

 

c.On December 3, 2018, the Company received a convertible loan from third party (the “December Lender”) the loan has two year term, in the principal amount of $550 which bears 10% annual interest rate (out of which $50 was directly transferred as finder fee).

 

The Company at its option shall have the right to redeem, in part or in whole, outstanding principal and interest under the December Loan agreement prior to the maturity date. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the outstanding principal amount being redeemed plus outstanding and accrued interest.

 

The December Lender shall be entitled to convert at its option any portion of the outstanding and unpaid conversion amount into fully paid and nonassessable shares of common stock, at the lower of the fixed conversion price then in effect or the market conversion price. The number shares of common stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such conversion amount by (y) the fixed conversion price of $1.2 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.

 

The Company accounted for the convertible loan in accordance with ASC 470-20, Debt with conversion and other Options. According to ASC 470-20-30-8, since the intrinsic value of the BCF exceeds the entire proceeds of the loan, The Company allocated the entire proceeds to the BCF as additional paid in capital.

 

On April 3, 2019, the loan and the accrued interest in the amount of $568 were converted to 473,025 shares of common stock with $0.0001 par value each.

 

During the nine months period ended September 30, 2019, the Company recorded interest and financial expenses related to the convertible loan in the amount of $543.

 

F-19

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except exercise price per warrant

 

NOTE 7:-CONVERTIBLE LOANS (Cont.)

 

d.On February 21, 2019, the Company received a convertible loan from third party (the “February Lender”), the loan has two year term, in the principal amount of $550 which bears 10% annual interest rate (out of which $50 was directly transferred as finder fee).

 

The Company at its option shall have the right to redeem, in part or in whole, outstanding principal amount and interest under this loan agreement prior to the maturity date. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the outstanding principal amount being redeemed plus outstanding and accrued interest.

 

The February Lender shall be entitled to convert at its option any portion of the outstanding and unpaid principal or accrued interest into fully paid and nonassessable of shares of common stock, at the lower of the fixed conversion price then in effect or the market conversion price. The number of shares of common stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such conversion amount by (y) the fixed conversion price of $2 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.

 

The Company also granted the February Lender a warrant to purchase 137,500 shares of common stock of the Company at an exercise price of $2 per share, such exercise price is subject to any future price-based anti-dilution adjustments. As the Company early adopted ASU 2017-11 the warrants were classified in shareholders equity.

 

The Company estimated the fair value of warrants using the Black-Scholes-Merton option pricing model using the following weighted average assumptions:

 

   2019 
     
Dividend yield   0%
Risk-free interest rate   2.49%
Expected term (in years)   3 
Volatility   123.90%

 

The fair value of the warrants granted was $242.

 

F-20

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except share and per share data

 

NOTE 7:-CONVERTIBLE LOANS (Cont.)

 

The Company accounted for the convertible loan in accordance with ASC 470-20, Debt with conversion and other Options. The intrinsic value of the BCF was calculated and the Company allocated $96 to the BCF as additional paid in capital. The remaining consideration of $162 was allocated to convertible loan.

 

During the nine months period ended September 30, 2019, the Company recorded interest and financial expenses related to convertible loan in the amount of $105.

 

NOTE 8:-SHAREHOLDERS’ DEFICIENCY

 

a.As of September 30, 2019, and December 31, 2018, the Company’s share capital is composed as follows:

 

   September 30, 2019  

 

December 31, 2018

 
   Authorized   Issued and outstanding  

 

Authorized

   Issued and outstanding 
   Number of shares 
Shares of common stock of $0.0001 par value each   500,000,000    20,440,477    500,000,000    16,198,578 

 

Each Ordinary share is entitled to receive dividend, participate in the distribution of the Company’s net assets upon liquidation and to receive notices of participate and vote (at one vote per share) at the general meetings of the Company on any matter upon which the general meeting is authorized.

 

b.Issuance of shares:

 

1.On January 15, 2019 the Company converted a loan in the amount of $1,000 to 770,397 shares of common stock with a par value each of $0.0001. (See note 6-b).

 

2.On January 28, 2019 the Company issued 50,000 shares of common stock with $0.0001 par value each to one of its consultants, in exchange for services rendered whose fair value was $47.

 

3.On March 5, 2019 the Company converted a loan in the amount of $500 to 500,000 shares of common stock with a par value each of $0.0001. (See note 7-a).

 

4.On April 3, 2019 the Company converted a loan received on December 3, 2018, to 473,025 shares of common stock with a par value of $0.0001 each. (See note 7-c).

 

5.On April 10, 2019, the Company converted a loan received on July 18, 2018, to 150,000 shares of common stock with $0.0001 par value each. (See note 7-b).

 

F-21

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except share and per share data

 

NOTE 8:-SHAREHOLDERS’ DEFICIENCY (Cont.)

 

b.Issuance of shares (Cont.):

 

6.On April 11, 2019 the Company issued 1,493,908 shares of common stock with a par value of $0.0001 each to 26 investors as part of investment round in a private placement in a total amount of $4,107. The Company also issued 11,236 shares of common stock with a par value of $0.0001 each to broker involved in the investment round, and the Company recorded an expenses in a total amount $32.

 

7.On March 11, 2019, the company signed agreement with new investor for a total consideration of $216, accordingly, on April 11, 2019, the Company issued 120,000 shares of common stock with $0.0001 par value each. (See note 8-c-3).

 

8.On March 11, 2019, the company signed agreement with new investor for a total consideration of $100, accordingly, on April 11, 2019, the Company issued 66,667 shares of common stock with $0.0001 par. (See note 8-c-4).

 

9.On March 12, 2019, the company signed agreement with new investor for a total consideration of $252, accordingly, on April 11, 2019, the Company issued 140,000 shares of common stock with $0.0001 par value each. (See note 8-c-5).

 

10.On April 12, 2019, the Company issued 33,333 shares of common stock with $0.0001 par value each, which were granted as part of a loan agreement received on December 11, 2018. (See note 5).

 

11.On August 15, 2019 the company issued 433,333 shares in respect of exercise of 433,333 warrants granted as part of the loan agreement signed on December 11, 2018. (see note 5-a).

 

c.Issuance of warrants:

 

Issuance date  Warrants outstanding    Exercise
price
per warrant
    Warrants outstanding and
exercisable
    Contractual term
September 2, 2018 (1)   100,000   $2    100,000   September 2, 2020 (1)
February 21, 2019 (2)   137,500   $2    137,500   February 21, 2022 (2)
March 11, 2019 (3)   70,000   $3    70,000   March 11, 2021(3)
March 11, 2019 (4)   333,333   $1.5    333,333   March 11, 2021(4)
March 12, 2019 (5)   70,000   $3    70,000   March 12, 2021(5)
    710,833         710,833    

 

1.On September 2, 2018, Eroll received a convertible loan from a private investor in the amount of $250 that bears 2% monthly interest, which on October 23, 2018, was converted to 250,000 shares of common stock with 0.0001 par value each. Eroll also granted the lender a warrant to purchase 100,000 shares of common stock of the Company at an exercise price of $2 per share. The warrants were classified as shareholders’ equity.

 

F-22

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except share and per share data

 

NOTE 8:-SHAREHOLDERS’ DEFICIENCY (Cont.)

 

c.Issuance of warrants (Cont.):

 

2.On February 21, 2019, the Company received a convertible loan from the February Lender in the amount of $550 (See Note 7-d). The Company granted the February Lender a warrant to purchase 137,500 shares of common stock of the Company at an exercise price of $2 per share. The warrants were classified as shareholders’ equity.

 

3.On March 11, 2019, the Company signed agreements with a new investor, accordingly, the Company issued 120,000 shares of common stock with a par value of $0.0001 each, for a total consideration of $216. The Company also granted the investor warrants to purchase 70,000 shares of common stock at a price of $3 per share for a period of 24 months.

 

4.On March 11, 2019, the Company signed an agreement with a new investor, accordingly, the Company issued 66,667 shares of common stock with a par value of $0.0001 each, for a total consideration of $100.

 

Also as part of the agreement the investor may, in its sole determination, from the closing date until the 24-month anniversary of the closing date, elect to purchase in one or more purchases, additional shares of common stock of the Company with an aggregate

 

Subscription amount thereof equal to up to $500, at the price per share of $1.5 (such securities, the “Greenshoe Securities” and such right to receive the Greenshoe Securities).

 

5.On March 12, 2019, the Company signed agreement with a new investor, accordingly, the Company is obligated to issue 140,000 shares of common stock with a par value of $0.0001 each, for a total consideration of $252. The Company also granted the investor warrants to purchase 70,000 shares of common stock at a price of $3 per share for a period of 24 months.

 

d.Restricted Share Units and Share option plans:

 

On April 1, 2019, the Company’s board of directors adopted the Seedo Corp. 2018 Share Options Plan (the “2018 Plan”). As of September 30, 2019, the Company had reserved 3,019,330 shares of common stock under the 2018 Plan, for issuance to the Company’s and its affiliates’ respective employees, directors, officers, consultants and contractors.

 

Awards granted under the 2018 Plan are subject to vesting schedules and unless determined otherwise by the administrator of the 2018 Plan, generally vest following a period of four years from the applicable vesting commencement date, such that the awards vest in four annual equal installments and/or generally vest following a period of one year from the applicable vesting commencement date, such that the awards vest in four quarterly equal installments.

 

F-23

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except share and per share data

 

NOTE 8:-SHAREHOLDERS’ DEFICIENCY (Cont.)

 

d.Restricted Share Units and Share option plans (Cont.):

 

Subject to the discretion of the 2018 Plan administrator, if an award has not been exercised within seven years after the date of the grant, the award expires. 

 

RSUs under the 2018 Plan may be granted upon such terms and conditions, no monetary payment (other than payments made for applicable taxes) shall be required as a condition of receiving the Company’s shares pursuant to a grant of RSUs, and unless determined otherwise by the Company, the aggregate nominal value of such RSUs shall not be paid and the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable laws regarding issuance of shares for consideration that is lower than the nominal value of such shares. If, however, the Company’s board of directors determines that the nominal value of the shares shall not be waived and shall be paid by the grantees, then it shall determine procedures for payment of such nominal value by the grantees or for collection of such amount from the grantees by the Company.

 

Shares issued pursuant to any RSUs units may (but need not) be made subject to exercise conditions, as shall be established by the Company and set forth in the applicable notice of grant evidencing such award. During any restriction period in which shares acquired pursuant to an award of RSUs remain subject to exercise conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of unless otherwise provided in the 2018 Plan. Upon request by the Company, each grantee shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares hereunder and the Company may place appropriate legends evidencing any such transfer restrictions on the relevant share certificates.

 

F-24

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except share and per share data

 

NOTE 8:-SHAREHOLDERS’ DEFICIENCY (Cont.)

 

d.Restricted Share Units and Share option plans (Cont.):

 

A summary of employee share options activity during the nine months ended September 30, 2019 is as follows:

 

Nine months ended September 30, 2019
   Number  

 

Average
exercise
price 

  

Average 
remaining
contractual
life (in years) 

  

Aggregate
intrinsic
value (in
thousands

 
Options outstanding at the beginning of the period   -   $    -    -   $- 
Options granted   1,635,880    1    -    - 
Options exercised   -    -    -    - 
Forfeited   

(30,000

)   -    -    - 
                     
Options outstanding at the end of the period   1,605,880   $1    6.4    161 
                     
Options exercisable at the end of the period   -   $-    -   $- 

 

A summary of RSUs activity during the nine months ended September 30, 2019 is as follows:

 

   Nine Months ended
September 30, 2019
 
         
   Number of shares underlying outstanding RSUs   Weighted average grant date fair value 
Unvested RSUs at the beginning of the period   -    - 
RSUs granted   150,000    4.01 
RSUs vested   (75,000)   4.01 
    75,000    4.01 

  

F-25

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands, except share and per share data

 

NOTE 8:-SHAREHOLDERS’ DEFICIENCY (Cont.)

 

e.Share-based awards to non-employee:

 

The Company granted 360,000 options and 873,450 RSU’s units during the nine months ended September 30, 2019 to a non-employee consultant and directors.

 

f.Share-based compensation expense for employees and non-employees:

 

The Company recognized non-cash share-based compensation expense for both employees and non-employees for the nine months period ended September 30, 2019 in the condensed consolidated statements of operations as follows:

 

   Nine Months
Ended
September 30,
2019
 
     
Cost of revenues  $34 
Research and development, net   303 
Sales and marketing   18 
General and administrative   1,534 
Total   1,889 

  

F-26

 

 

SEEDO CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands

 

NOTE 9:-FINANCIAL EXPENSES

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2019   2018   2019   2018 
                 
Bank commissions  $16   $11   $43   $23 
Financial expenses related to revaluation of investment in
warrants
   -    10    1    10 
Financial expenses related to loans   60    213    2,424    227 
Foreign currency transactions and other   24    1    111    (9)
                     
   $100   $235   $2,579   $251 

 

NOTE 10:-SUBSEQUENT EVENTS

 

a.On October 15, 2019, the Company received a convertible loan from a third party (the “Lender”). The loan has two years term, in the principal amount of $1,100 that bears an annual 10% interest rate. Prior to the maturity date of the convertible loan, the Company, at its option, has the right to redeem, in cash, in part or in whole, the amounts outstanding provided that as of the date of the redemption notice (i) the volume-weighted average price of the Company’s ordinary shares is less than $1.25 and (ii) there is no equity condition failures as defined therein. In the event that the Company wishes to redeem any amount under the convertible loan, the Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the outstanding amount being redeemed in addition to outstanding and accrued interest.

 

The Lender shall be entitled to convert the principal loan and the outstanding interest (the “Conversion Amount”) into such number of ordinary shares determined by dividing (x) such Conversion Amount by (y) the fixed conversion price of $1.25 or (z) 80% of the lowest the volume-weighted average price of the Company’s ordinary shares during the 10 trading days immediately preceding the conversion date.

 

b.On October 14, 2019, the “Company entered into a binding Memorandum of Understanding (the “MOU”) with Spanky’s Clothing Inc. (“Spanky’s Clothing”), a company affiliated with Mr. Calvin Cordozar Broadus Jr., professionally known as “Snoop Dogg” (“Snoop Dogg”), with respect to services that Snoop Dogg will provide to the Company as its brand ambassador. Pursuant to the MOU, Snoop Dogg will, among other things, promote the Company’s products on his various social media channels, host a Company sponsored VIP event and provide other brand ambassador services. In return, the Company will pay to Snoop Dogg and/or his affiliates aggregate cash payments of $1,000 over the term of the MOU. The Company will also pay expenses related to the Company sponsored VIP event and the marketing and personal services provided by Snoop Dogg and a marketing budget for the Company’s product. In addition, the Company will issue to Snoop Dogg and/or his affiliates convertible debentures (the “Debentures”) with an aggregate original principal amount of $1,400. Half of the Debentures were issued upon signing of the MOU (of which a portion of the principal amount was issued under the name of Stampede Management, the facilitator of the transactions contemplated under the MoU), and the remainder shall be issued on or before the date that is six (6) months following the signing of the MOU.

 

The Debentures are unsecured, have a maturity date six months from the month following the signing of the respective Debenture, bear no interest and may be converted, at the election of the holder, into common stock par value $0.0001 each of the Company at a conversion price of the lesser of (x) $1.40 per share, or (y) the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the applicable notice of conversion. The Debentures contain anti-dilution protection during the period which the Debentures are outstanding, for decrease in share price and additional issuances, to maintain the aggregate percentage of equity holdings of the holders of all Debentures at 4.99%.

 

  c.

On November 11, 2019, Eroll received a loan from a a related party in the principal amount of  approximately $286 (NIS 1,000) The principal amount shall bear no interest.

     
    Eroll shall repay the loan amount in full at the lapse of 90 days from the loan date. 

 

F-27

 

 

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

 

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 AND THE RELATED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, BOTH OF WHICH ARE CONTAINED IN OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), ON JANUARY 15, 2019. PAST OPERATING RESULTS ARE NOT NECESSARILY INDICATIVE OF RESULTS THAT MAY OCCUR IN FUTURE PERIODS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS QUARTERLY REPORT.

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws.  Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future financial conditions, results or projections or current expectations These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties. Although we believe that the expectations reflected-in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our actual results may differ materially from those anticipated in these forward-looking statements. These forward-looking statements are made as of the date of this report, and we assume no obligation to update these forward-looking statements whether as a result of new information, future events, or otherwise, other than as required by law. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this report might not occur and actual results and events may vary significantly from those discussed in the forward-looking statements. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Readers are also urged to carefully review and consider the various disclosures we have made in that report.

 

When used in this quarterly report, the terms “Seedo,” “the Company,” “we,” “our,” and “us” refer to SEEDO CORP., a Delaware corporation, unless otherwise indicated or as otherwise required by the context.

 

Company Overview

 

We are a global technology company focusing on producing cutting edge technology for the Agro-tech markets for home, industrial, commercial and medical use. We produce automated plant growing devices managed and controlled by an artificial intelligent algorithm, allowing customers to grow their own herbs and vegetables effortlessly from seed to harvest, while providing optimal conditions to assure premium quality produce year-round. Seedo delivers the future of automated plant growing technologies today. Our technology affords for pesticide free, soil free optimal growing in a self-regulating climate - allowing anyone to grow simply, from seed to harvest.

 

Sales, Marketing and the SEEDO “Community”

 

We are continuing our organic marketing efforts and have approximately:

 

  87,000 followers on Facebook
  63,000 followers on Instagram
  More than 50 million views on Facebook
  1.3 million views on YouTube

 

As of September 30, 2019, we have delivered 462 home cultivator units which amounts to approximately 17% of our pre-orders. We believe that following the delivery of the pre-order units combined with a marketing campaign and our community strength, we will be able to sell and deliver thousands of our “Home Cultivator” devices world-wide.   At the moment, we have delivered to customers in Europe and North America, which are our target markets, though our devices are also being sold in Latin America, Asia, Australia, the Middle East and Africa.

 

In addition, we recently entered into an agreement with a company affiliated with Mr. Calvin Cordozar Broadus Jr., professionally known as “Snoop Dogg” (“Snoop Dogg”), with respect to services that Snoop Dogg will provide to the Company as its brand ambassador. In this role, Snoop Dogg will represent the Company on a variety of platforms and work closely with the Company to achieve maximum brand awareness and sales growth.

 

We also recently signed an agreement with a leading online cannabis retailer, Namaste Technologies, for marketing and distribution across Europe and Canada.

 

2

 

 

Our Opportunity

 

Since September 14, 2018, our main business has been operated by our wholly owned subsidiary Eroll Grow Tech Ltd. (“Eroll”). We deliver devices that we believe represent the future of automated plant growing technologies, for home, commercial, and medical use.

 

The Home Cultivator

 

We target the world-wide population which wants to grow their own herbs and vegetables pesticide free, with self-regulating climate control capabilities - allowing each user to grow its own herbs and vegetables, from seed to harvest. Our cutting-edge technology also addresses the medical cannabis market, as we have optimized our growing technologies for the cannabis plant.

 

We believe that the following advantages afford us a unique market penetration opportunity:

 

  Automated home growing device.
  Simplifying the seed to harvest process with seamless technology.
  Growth cycle operated and monitored by mobile app.
  Self-regulating climate control system.
  No prior knowledge needed.
  Simple installment – water, electricity and Wi-Fi.
  100% pesticide free.

 

Farm Establishments and Commercial Containers

 

During our 2019 second fiscal quarter, which ended on March 31, 2019, we launched our commercial container product and entered into two agreements for industrial projects in Israel, on Kibbutz Dan and Moshav Brosh for government licensed pharmaceutical-grade medical cannabis. We believe that entering into such agreements served as a verification of our technology and expertise to the Agro-tech commercial world. Our implemented technology now provides industrial farmers full control and automation of all plant feeding and environmental parameters, better unified standardized yields suitable for the medical pharmaceutical industry in a hermetically sealed system, including full isolation, and with no need for any pesticides. This affords dramatic space savings as well as water consumption and human resources reductions. We are targeting this product for any herb and/or vegetable growth including, but not limited to, medical grade cannabis.

 

We currently expect two main types of reoccurring business within our commercial container activities:

 

  1) containers specifically designs for vegetables and herb cultivation; and
  2) containers specifically designs for medical cannabis cultivation.

 

For each such type of business, we are targeting to enter into two types of agreements:

 

  1) Entering into partnerships whereby we will aim to become partners with new farms and manage their establishment and operations.
  2) Supplying commercial containers to farms, research institutions, etc.

 

Immediate Strategy

 

Over the upcoming twelve months we plan to:

 

  Continuing the Delivery, the pre orders of the home cultivator;
  Increase sales and marketing efforts;
  Increase home cultivator manufacturing quantities;
  Progress the commercial container product development efforts;
  Sign new agreements with farms for establishment and operates its activities;
  Sell containers;
  Start to establish the Kibbutz Dan government licensed pharmaceutical-grade medical cannabis farm; and
  Prepare the Company for future expected growth.

 

As our Company expansion has increased, we have set up regional logistics centers, including in Los Angeles, California, and Rotterdam, Netherlands. These centers provide distribution services from receipt of orders for our product containers including quality inspection and delivery to final end customers. Additionally, we have a live call center and customer support center.

 

3

 

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

 

These unaudited condensed financial statements should be read in conjunction with our September 30, 2018 annual financial statements included in our Form 10-K, filed with the SEC on January 15, 2019.

 

Change in Fiscal Year End

 

As reported on our Current Report on Form 8-K filed with the SEC on February 5, 2019, we changed our fiscal year end from September 30 to December 31. We made this change to align the Company’s fiscal year end with its subsidiaries following the reverse merger. Subsequent to this Quarterly Report on Form 10-Q, our Form 10-K will cover the calendar year from January 1 to December 31. 

 

Going Concern

 

Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the audited financial statements for the year ended September 30, 2018 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

 

Our unaudited condensed financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited condensed financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. There is no assurance that our operations will be profitable. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.

 

Research and Development Costs

 

Research and development (“R&D”) costs are charged to the consolidated statement of operations as incurred. ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.

 

Based on our product development process, technological feasibility is established upon the completion of a working model.

 

We do not incur material costs between the completion of a working model and the point at which the products are ready for general release. Therefore, R&D costs are charged to the consolidated statement of operations as incurred. We did not capitalize expenses during the three months ended September 30, 2019.

 

Stockholders’ Equity (Deficit)

 

Authorized Shares

 

The Company is authorized to issue up to 500,000,000 shares of common stock, par value $0.0001 par value. Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.

 

Commitments and Contingencies

 

On October 2017, Eroll entered into lease agreements for its office premises which lease will end on June 30, 2024.

 

On September 2017, Eroll entered into a vehicle operating lease agreement for a period of 32 months.

 

4

 

 

Subsequent Events

 

a. On October 15, 2019, the Company received a convertible loan from a third party (the “Lender”). The Loan has two years term, in the principal amount of $1,100 that bears an annual 10% interest rate. Prior to the maturity date of the convertible loan, the Company, at its option, has the right to redeem, in cash in part or in whole, the amounts outstanding provided that as of the date of the redemption notice (i) the volume-weighted average price of the Company’s shares of common stock is less than $1.25 and (ii) there is no equity condition failures as defined therein. In the event that the Company wishes to redeem any amount under the convertible loan, the Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the outstanding amount being redeemed in addition to outstanding and accrued interest.

 

The Lender shall be entitled to convert the principal loan and the outstanding interest (the “Conversion Amount”) into shares of common stock, the number of issuable shares upon conversion of any shall be determined by dividing (x) such Conversion Amount by (y) the Fixed Conversion Price of $1.25 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.

 

b. On November 11, 2019, Eroll received a loan from a related party in the principal amount of approximately $286 (NIS 1,000). The principal amount shall bear no interest.

 

Eroll shall repay the loan amount in full at the lapse of 90 days from the loan date.

 

Financing Needs

 

We will require additional financing to implement our business plan, which may include joint venture projects and debt or equity financings. The nature of this enterprise and constraint of positive cash flow places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable profits and losses can be demonstrated. Therefore, any debt financing of our activities may be costly and result in substantial dilution to our stockholders.

 

Future financing through equity investments is likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.

 

Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the Agro-tech industry, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenue from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

 

There is no assurance that we will be able to obtain financing on terms satisfactory to us, or at all. We do not have any arrangements in place for any future financing. If we are unable to secure additional funding, we may cease or suspend operations. We have no plans, arrangements or contingencies in place in the event that we cease operations.

 

5

 

 

Results of Operations

 

Nine months ended September 30, 2019, compared to the nine months ended September 30, 2018

 

Operating Expenses

 

Revenues for the nine months ended September 30, 2019 were $703 thousand compared to $0 for the same period in 2018. The increase resulted due to initial sales our home devices to customers in Europe and the United States that started during the first nine months of fiscal year 2019. The Company delivered 462 devices to its pre-order customers, with an average selling price of $1.5 thousand.

 

Cost of sales for the nine months ended September 30, 2019 were $1,142 thousand compared to $0 for the same period in 2018. The increase mainly consists of direct costs   in the amount of $561 thousand, sub-contractors costs related to customer service and customer support in the amount of $342 thousand, share based compensation expenses in the amount of $34 thousand, allowance for warranty cost in the amount of $35 thousand, an increase of $137 thousand in shipment and warehouse costs and an increase of $33 thousand in miscellaneous costs.

 

R&D expenses for the nine months ended September 30, 2019 were $3,160 thousand compared to $1,633 thousand for the same period in 2018. This increase was primarily due to increased R&D efforts for progressing the Home Cultivator from a prototype version into mass production, and from developing our commercial scale containers, which resulted in increased salary and related costs of $101 thousand, increased R&D material costs of $563 thousand, increased depreciation expenses related to R&D of $100 thousand and increased share based compensation expenses of $302 thousand increase of $432 thousand in expense to subcontractors, an increase of $29 thousand in miscellaneous costs.

 

Total marketing expenses for the nine months ended September 30, 2019, were $715 thousand compared to $704 thousand for the same period in 2018. This was primarily due to an increase of $17 in share based compensation expenses.

 

Total general and administrative (“G&A”) expenses for the nine months ended September 30, 2019, were $3,422 thousand compared to $1,841 thousand, for the same period in 2018. This was primarily due to increases of $409 thousand in expenses for salary and related costs, increase of $63 thousand in travel expenses, increase of $1,534 thousand in shared based compensation expenses, increase of $50 thousand in insurance expenses and of $46 in miscellaneous G&A expenses. The increase was offset with a decrease of $521 thousand in expenses for external advisors and professional services due to the Reversed merger took place on September 14, 2018.

 

Total financial expenses for the nine months ended September 30, 2019, were $2,579 thousands, compared to $251 thousand for the same period in 2018. The increase of $2,328 thousand was primarily due to an increase of $2,424 in expenses of convertible loans in accordance with ASC 470-20, “Debt” with Conversion and Other Options with a Beneficial Conversion Feature.

 

6

 

 

Liquidity and Capital Resources

 

Overview

 

Since inception on January 16, 2015, the Company has a cumulative deficit of $18,837 thousand and a working capital deficit of $4,301thousand as of September 30, 2019. Our future growth is dependent upon achieving further purchase orders and execution, management of operating expenses and ability of the Company to obtain the necessary financing to fund future obligations, and upon profitable operations.

 

Historically, we have financed our cash flow and operations from the initial contribution of our majority shareholder and by raising equity and convertible loans. Since incorporation and as of September 30, 2019, the Company has raised approximately $13.1 millions, and raised $6.6 millions during the nine months ended September 30, 2019.

 

As of September 30, 2019, our cash balance was $94 thousand. We believe we will require a minimum of $7,000 thousand in working capital over the next 12 months to grow the Company as currently planned, which is inclusive of cost of sales, covering our operation costs and maintaining our regulatory reporting and filings. Should our revenues not increase as expected, or if our costs and expenses prove to be greater than we currently anticipate, or should we change our current business plan in a manner that will increase or accelerate our anticipated costs and expenses; we may need funds in excess of the amounts currently contemplated, we depend on loans and equity raises and there is no assurance that we may be able to obtain such funding in the near future.

 

Consistent with Section 144 of the Delaware General Corporation Law, it is our current policy that all transactions between the Company and our officers, directors and their affiliates will be entered into only if such transactions are approved by a majority of the existing directors, are approved by vote of the stockholders, or are fair to us as a corporation as approved or ratified by our Board of Directors or authorized officer. We will conduct an appropriate review of all related party transactions on an ongoing basis, and, where appropriate, we review the potential of conflicts of interest.

 

Off Balance Sheet Arrangements

 

As of September 30, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

 

Recently Issued Accounting Pronouncements

 

For information with respect to recent accounting pronouncements, see Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.

 

7

 

 

Critical Accounting Policies

 

Our discussion and analysis of the financial condition and results of operations are based upon the Company’s unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our unaudited condensed financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, allowance for doubtful accounts and income taxes. These policies require that we make estimates in the preparation of our unaudited condensed financial statements as of a given date.

 

Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

 

Revenue Recognition:

 

The Company generates revenues from sales of products. The Company sells its products directly to end customers.

 

In accordance with Topic 606, revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration to which we expect to be entitled in exchange for transferring products or providing services. To achieve this core principle, the Company applies the following five steps:

 

1.Identify the contract with a customer

 

A contract with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

 

2.Identify the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.

 

3.Determine the transaction price

 

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. To the extent the transaction price is variable, revenue is recognized at an amount equal the consideration to which the Company expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and estimated using either the expected value method or the most likely amount method, depending on the nature of the program.

 

4.Allocate the transaction price to performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately.

 

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5.Recognize revenue when or as the Company satisfies a performance obligation.

 

The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased. Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

 

Typical timing of payment

The Company offers several payment methods that includes but not limited to full advance payment and partial amount in advanced while collecting the remaining amount before delivery.

 

Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less.

 

The Company’s unfilled performance obligations as of September 30, 2019 is $2.4 million.

 

The Company recognized revenues of $703 for the nine months ended September 30, 2019, as part of advances recognized in prior periods.

 

Warranties are classified as assurance type. A warranty is considered an assurance type warranty if it provides the consumer with assurance that the product will function as intended for a limited period of time. As of September 30, 2019, the Company recorded a provision for warranty in a total amount of $35.

 

Accounting for share-based Compensation:

 

The Company accounts for share-based compensation in accordance with ASC No. 718, “Compensation-Stock Compensation” (“ASC No. 718”). ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations. The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.

 

The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its share-option awards. The option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated based upon certain peer companies that the Company considered to be comparable. The expected option term represents the period of time that options granted are expected to be outstanding. The expected option term is determined based on the simplified method in accordance with Staff Accounting Bulletin No. 110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.

 

The fair value of Restricted Stock Units (“RSUs”) granted is determined based on the price of the Company’s shares of common stock on the date of grant.

 

The fair value for options granted in April 2019, is estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following assumptions:

 

 

   September 30,
2019
 
     
Expected volatility   131.93%
Risk-free rate   2.29%
Expected term (in years)   4.66-4.75 
Share price  $4.01 

 

The Company accounts for options granted to consultants and other service providers under ASC No. 718 and ASC No. 505, “Equity-based payments to non-employees.” The fair value of these options was estimated using a Black-Scholes-Merton option-pricing model.

 

In the nine months ended September 30, 2019, the non-cash compensation expenses related to nonemployees were $766 thousand.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

In connection with the preparation of our Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2019. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

During evaluation of disclosure controls and procedures as of September 30, 2019 conducted as part of our preparation of the quarterly unaudited condensed financial statements, management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control Over Financial Reporting

 

As of the end of the period covered by this report, there have been no changes in internal control over financial reporting other than the establishment of the Audit Committee (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended September 30, 2019, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 5. Other Information.

 

On November 11, 2019, Mr. Jendayi Frazer, one of the Company’s directors, provided the Company notice of his immediate resignation. Mr. Frazer’s departure was not a result of any disagreement with the Company.

 

Item 6. Exhibits

 

Exhibit
Number
  Description
10.1    Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 2, 2019).
31.1*    Rule 13a-14(a) Certification of the Chief Executive Officer
31.2*    Rule 13a-14(a) Certification of the Chief Financial Officer
32.1**    Section 1350 Certification of Chief Executive Officer
32.2**    Section 1350 Certification of Chief Financial Officer
101.1*   The following materials from Seedo Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

 

*Filed herewith.
*Furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

 

Dated: November 14, 2019 By: /s/ Zohar Levy
   

Zohar Levy

Director, Chief Executive Officer

    SEEDO CORP.

 

 

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