UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 | |
For the quarterly period endedSeptember 30, 2019
OR
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commissionfile 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: | 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or 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 equity,stock, as of the latest practicable date.
| Class | Shares Outstanding as of | |
| Common Stock, $0.0001 par value per share |
TABLE OF CONTENTS
| 5. | ||
| 6. | ||
| 12 | ||
i
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As of March 31,September 30, 2019
1
SEEDO CORP.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As of March 31,September 30, 2019
IN THOUSANDS OF U.S. DOLLARS
INDEX
| Page | |
| F-2 | |
| F-3 | |
| F-4 - F-5 | |
- - - - - - - - - - - -
F-1
U.S. dollars in thousands, except share and per share data
| March 31 | December 31 | |||||||||||
| Note | 2019 | 2018 | ||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS: | ||||||||||||
| Cash and cash equivalents | $ | 2,373 | $ | 921 | ||||||||
| Restricted bank deposit | 91 | 87 | ||||||||||
| Financial institute | 753 | 830 | ||||||||||
| Other accounts receivable | 439 | 409 | ||||||||||
| Inventory | 276 | 157 | ||||||||||
Total current assets | 3,932 | 2,404 | ||||||||||
| Property and equipment, net | 1,241 | 1,234 | ||||||||||
Total assets | $ | 5,173 | $ | 3,638 | ||||||||
| LIABILITIES AND SHAREHOLDERS' DEFICIENCY | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Short-term loan | 5 | $ | 692 | $ | 411 | |||||||
| Trade payables | 689 | 521 | ||||||||||
| Convertible loans | 7 | 250 | 771 | |||||||||
| Loan from related party | 6 | 850 | 908 | |||||||||
| Advances from customers | 2,806 | 3,016 | ||||||||||
| Other accounts payable | 1,204 | 1,121 | ||||||||||
Total current liabilities | 6,491 | 6,748 | ||||||||||
| LONG-TERM LIABILITIES | ||||||||||||
| Convertible loan | 7 | 173 | - | |||||||||
| COMMITMENTS AND CONTINGENT LIABILITIES | 4 | |||||||||||
| SHAREHOLDER'S DEFICIENCY | 8 | |||||||||||
| Ordinary shares of $ 0.0001 par value: | ||||||||||||
| Authorized: 500,000,000 shares at March 31, 2019 and December 31, 2018; Issued and Outstanding: 17,518,975 and 16,198,578 shares at March 31, 2019 and December 31, 2018, respectively | 2 | 2 | ||||||||||
| Additional Paid in capital | 10,620 | 5,410 | ||||||||||
| Accumulated deficit | (12,113 | ) | (8,522 | ) | ||||||||
Total shareholders' deficiency | (1,491 | ) | (3,110 | ) | ||||||||
| Total liabilities and shareholders' deficiency | $ | 5,173 | $ | 3,638 | ||||||||
| 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
F-2
U.S. dollars in thousands, except share and per share data
Three months ended March 31 | ||||||||||||
| Note | 2019 | 2018 | ||||||||||
| Revenues | $ | 10 | $ | - | ||||||||
| Cost of revenues | 14 | - | ||||||||||
| Gross Loss | 4 | - | ||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 830 | $ | 562 | ||||||||
| Selling and marketing | 234 | 212 | ||||||||||
| General and administrative | 616 | 381 | ||||||||||
| Operating loss | 1,684 | 1,155 | ||||||||||
| Financial expenses | 9 | 1,907 | 50 | |||||||||
| Net Loss | $ | 3,591 | $ | 1,205 | ||||||||
| Basic and diluted net loss per share | $ | (0.21 | ) | $ | (0.11 | ) | ||||||
| Weighted average number of ordinary shares used in computing basic and diluted loss per share | 17,028,124 | 10,572,078 | ||||||||||
| 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
F-3
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
| Ordinary shares | ||||||||||||||||||||
Number | Amount | Additional Paid in capital | Accumulated deficit | Total Shareholders' Deficiency | ||||||||||||||||
| Balance as of December 31, 2017 | 10,525,587 | $ | 1 | $ | 1,534 | $ | (2,385 | ) | $ | (850 | ) | |||||||||
| Net Loss | - | - | - | (1,205 | ) | (1,205 | ) | |||||||||||||
| Balance as of March 31, 2018 | 10,525,587 | $ | 1 | $ | 1,534 | $ | (3,590 | ) | $ | (2,055 | ) | |||||||||
| Balance as of December 31, 2018 | 16,198,578 | $ | 2 | $ | 5,410 | $ | (8,522 | ) | $ | (3,110 | ) | |||||||||
| Conversion of convertible loans | 1,270,397 | * | 1,500 | - | 1,500 | |||||||||||||||
| Share Based Compensation to non-employees | 50,000 | * | 47 | - | 47 | |||||||||||||||
| Beneficial conversion feature related to convertible loan | - | - | 96 | - | 96 | |||||||||||||||
| Receipt on account of shares and warrants | - | - | 3,567 | - | 3,567 | |||||||||||||||
| Net Loss | - | - | - | (3,591 | ) | (3,591 | ) | |||||||||||||
| Balance as of March 31, 2019 | 17,518,975 | $ | 2 | $ | 10,620 | $ | (12,113 | ) | $ | (1,491 | ) | |||||||||
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
F-4
U.S. dollars in thousands
Three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
| Net Loss | $ | (3,591 | ) | $ | (1,205 | ) | ||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 43 | 4 | ||||||
| Financial expenses related to convertible loans | 579 | - | ||||||
| Financial expenses related to short-term loans | 369 | - | ||||||
| Financial expenses related to loans from related party | 942 | |||||||
| Loss from changes in fair value of warrants | 1 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Increase in other accounts receivable | (31 | ) | (462 | ) | ||||
| Increase in inventory | (119 | ) | - | |||||
| Increase (Decrease) in advances from customers | (133 | ) | 1,145 | |||||
| Increase in trade payables | 168 | 85 | ||||||
| Increase in other accounts Payable | 3 | 1 | ||||||
| Net cash used in operating activities | (1,769 | ) | (432 | ) | ||||
Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (50 | ) | (81 | ) | ||||
| Net cash used in investing activities | (50 | ) | (81 | ) | ||||
Cash flows from financing activities: | ||||||||
| Proceeds from convertible loans | 258 | - | ||||||
| Receipt on account of shares and issuance of warrants | 3,017 | - | ||||||
| Net cash provided by financing activities | 3,275 | - | ||||||
| Increase (Decrease) in cash and cash equivalents and restricted cash | 1,456 | (513 | ) | |||||
| Cash and cash equivalents at the beginning of the year | 1,008 | 607 | ||||||
| Cash and cash equivalents at the end of the year and restricted cash | $ | 2,464 | $ | 94 | ||||
Supplemental disclosures of cash flow information: | ||||||||
| Cash and cash equivalents | $ | 2,373 | $ | 48 | ||||
| Restricted bank deposits included in short term assets | 91 | 46 | ||||||
| $ | 2,464 | $ | 94 | |||||
| Cash paid for interest | $ | 35 | - | |||||
Supplemental disclosures of non- cash flow information: | ||||||||
| Conversion of convertible loans | $ | 2,050 | $ | - | ||||
| 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 |
Reverse merger
On September 14th,14, 2018, Eroll Grow Tech Ltd., an Israeli company and now the fully owned subsidiary of the Company and the CompanyEroll completed a merger of Acquisition.transaction. Eroll Grow Tech Ltd. survived the merger as a wholly-owned subsidiary of the Company.
Immediately following the merger, Eroll Grow Tech Ltd. shareholders held approximately 87.4% of the outstanding ordinary shares of common stock of the Company in exchange of 1,137 ordinary shares of common stock of Eroll Grow Tech Ltd on a fully diluted basis while the pre-merger Company shareholders retained the remaining approximate 12.6%. The pre-merger Eroll Grow Tech Ltd. shareholders hold their existing shares of the company's Ordinary stock.
Pursuant to the terms and conditions of the Agreement,agreement governing the Reverse Merger, at the time of the Transaction,Reverse Merger, the Company issued 12,073,500 nonassessable shares of their ordinary shares.its shares of common stock. Each of the holders of the pre-acquisitionpre-Reverse Merger issued and outstanding ordinary shares of common stock of Eroll Grow Tech Ltd. received their pro-rata allotment of these shares in the Company according to their then current shareholding in the Eroll Grow Tech Ltd.Eroll. At the closing of this transaction,Reverse Merger, there were 15,000,000 ordinary shares of common stock of the Company.
The Reverse Mergerreverse 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 Grow Tech Ltd. 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 Grow Tech Ltd. since inception.
F-7
| SEEDO CORP. |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
| U.S. dollars in thousands |
| NOTE 1:- | GENERAL (Cont.) |
Eroll Grow Tech Ltd. ("Eroll") was incorporated pursuant to the laws of the state of Israel on May 18, 2015.
Eroll has four wholly ownedseven subsidiaries as followings:
Seedo Us IncU.S. Inc. (Seedo Inc.) incorporated pursuant to the laws of the state of Colorado, U.S in November 2016. To this 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 IncInc. (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 ltdLtd. (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'sCompany’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. |
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.
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 March 31,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'sCompany’s (i) consolidated financial position as of March 31,September 30, 2019, (ii) consolidated results of operations for the three and nine months ended March 31,September 30, 2019 and (iii) consolidated cash flows for the threenine months ended March 31,September 30, 2019. The results for the three and nine months periods ended March 31,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 ("GAAP").
| a. | The significant accounting policies applied in the audited consolidated financial statements of the Company as disclosed in the |
| 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
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'sparty’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'scustomer’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 or service provided.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 March 31,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 estimated revenueexpected 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 recognizedoutstanding. 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 future relatedexpected 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 the sales of our Home Growing Devices amounted to $2,806.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 |
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”,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 AprilJune 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 March 31,September 30, 2019, are as following:
| 2019 | $ | 93 | ||
| 2020 | 124 | |||
| 2021 | 124 | |||
| 2022 | 41 | |||
| $ | 382 |
| 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 March 31,September 30, 2019, are as following:
| 2019 | $ | 78 | ||
| 2020 | 89 | |||
| 2021 | 30 | |||
| $ | 197 |
| 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 Lenderforegoing lender warrants to purchase 333,333 and 100,000 Ordinary shares of common stock of the Company at an exercise price of $ 1.5$1.5 and $ 2$2 per share, respectively. The warrants were classified as shareholders'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-ScholesBlack-Scholes-Merton option pricing model using the following weighted average assumptions:
| 2018 | ||||
| Dividend yield | % | |||
| Risk-free interest rate | % | |||
| Expected term (in years) | 2 | |||
| Volatility | % | |||
The Company also granted the broker 33,333 ordinary shares of common stock of the Company which as of March 31, 2019, weren’t issued. The shares 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 ordinary 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 threenine months period ended March 31,September 30, 2019 the Company recorded interest and financial expenses related to the loan in the amount of $369.
| 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 |
| b. | On August 10, 2018, Eroll entered into a Convertible Loan Agreement (the |
According to the August Loan Agreement, the Company shall issue Cannabics Pharmaceuticals Inc. ordinary 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 Investment,Loan, Cannabics Pharmaceuticals Inc. shall hold 15% of the outstanding shares on a fully-diluted basis of the Company. In addition, according to the agreement Cannabics Pharmaceuticals Inc. shall issue to the companyCompany 1,000,000 warrants with an exercise price of $ 2$2 per share, of the Cannabics Pharmaceuticals Inc. shares, for a period of 12 months. The warrants were issued Onon August 14, 2018. The warrants were classified as an asset and are evaluated every report date. During the threenine months period ended March 31,September 30, 2019 the Company recorded expenses due to the warrant in the amount of $1. As of March 31,September 30, 2019, and December 31, 2018 the warrants fair value amount was $ 0$0 and $1, respectively.
On September 12, 2018, Eroll and Cannabics Pharmaceuticals Inc. executed an Amendmentamendment to theirthe August Loan Agreement, noted supra solely amending the mechanics of the percentage of the Company shares Cannabics Pharmaceuticals Inc. may convert for its investment;investment, though the finite amount remains unchanged. The Amendmentamendment to the August Loan was as follows: Cannabics Pharmaceuticals Inc. is to receive 10% of the ordinary shares of common stock, for the initial $1,000 financing (as opposed to 15%); and for the Second Loan, the Cannabics Pharmaceuticals Inc. shall receive 10% (5% issued on the date of the money transfer and an additional 5% issued on the date of conversion) of the ordinary shares.
On September 26, 2018, pursuant to the August Loan Agreement with Cannabics, Pharmaceuticals Inc. noted supra, the Company received its 2ndsecond 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 Pharmaceuticals Inc. 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 |
| (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 Pharmaceuticals Inc. the Company received $300 towards the second loan,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 agreementAugust Loan Agreement the Company wroterecorded 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"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 Pharmaceuticals Inc. 770,397 ordinary shares of common stock with $0.0001 par value.value each. As a result, the Company recorded financial expenses related to the loan in the amount of $942. The total holding as of March 31,September 30, 2019, for Cannabics is 20.43%17.52% of the Company's ordinary shares.
| c. | During September 7, 2018, Eroll has entered into a |
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, |
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 CompanyJune Loan was converted the Loan tointo 500,000 ordinary shares of common stock with $0.0001 par value.
During the 3nine months period ended March 31,September 30, 2019, the Company recorded an interest expenses in the total amount of $10.
| b. | During July 2018, Eroll entered into a |
During the 3nine months period ended March 31,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 convertible loanJuly Loan since the contingent BCF shall not be recognized in earnings until the contingency is resolved.
On April 11, 2019 the CompanyJuly Loan was converted the loan amountinto 150,000 shares of $250 to 150,000 ordinary sharescommon stock with $0.0001 par value.
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 at its option shall have the right to redeem, (a “Redemption”), in part or in whole, outstanding Principalprincipal and Interestinterest under this loanthe December Loan agreement prior to the Maturity Date.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 Interestinterest.
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 Ordinary shares,common stock, at the lower of the Fixed Conversion Pricefixed conversion price then in effect or the Market Conversion Price.market conversion price. The number of shares of ordinary sharescommon stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such Conversion Amountconversion amount by (y) the Fixed Conversion Pricefixed conversion price of $1.2 or (z) 80% of the lowest the volume-weighted average price of the Company’s ordinary 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 ordinary shares of common stock with $0.0001 par value.
During the threenine months period ended March 31,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 |
| CONVERTIBLE LOANS (Cont.) |
| d. | On February 21, 2019, |
The Company at its option shall have the right to redeem, (a “Redemption”), in part or in whole, outstanding Principalprincipal amount and Interestinterest under this loan agreement prior to the Maturity Date.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 Interestinterest.
The February Lender shall be entitled to convert at its option any portion of the outstanding and unpaid Principalprincipal or accrued interest into fully paid and nonassessable of shares of Ordinary shares,common stock, at the lower of the Fixed Conversion Pricefixed conversion price then in effect or the Market Conversion Price.market conversion price. The number of shares of ordinary sharescommon stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such Conversion Amountconversion amount by (y) the Fixed Conversion Pricefixed conversion price of $2 or (z) 80% of the lowest the volume-weighted average price of the Company’s ordinary 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 Ordinary shares of common stock of the Company at an exercise price of $ 2$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-ScholesBlack-Scholes-Merton option pricing model using the following weighted average assumptions:
| 2019 | ||||
| Dividend yield | % | |||
| Risk-free interest rate | % | |||
| Expected term (in years) | 3 | |||
| Volatility | % | |||
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 threenine months period ended March 31,September 30, 2019, the Company recorded interest and financial expenses related to convertible loan in the amount of $17.
| NOTE 8:- |
| a. | As of |
| March 31, 2019 | December 31, 2018 | |||||||||||||||
| Authorized | Issued and outstanding | Authorized | Issued and outstanding | |||||||||||||
| Number of shares | ||||||||||||||||
| Ordinary shares of $0.0001 par value each | 500,000,000 | 17,518,975 | 500,000,000 | 16,198,578 | ||||||||||||
| 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'sCompany’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 |
| 2. | On January 28, 2019 the Company issued 50,000 |
| 3. | On March 5, 2019 the Company converted 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:- |
| 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 date | Warrants outstanding | Exercise price per warrant | Warrants outstanding and exercisable | Contractual term | |||||||||
| (number) | (number) | ||||||||||||
| September 2, 2018 (1) | 100,000 | $ | 2 | 100,000 | September 2, 2020 (1) | ||||||||
| December 11, 2018 (2) | 333,333 | $ | 1.5 | 333,333 | December 11, 2020 (2) | ||||||||
| December 11, 2018 (2) | 100,000 | $ | 2 | 100,000 | December 11, 2020 (2) | ||||||||
| February 21, 2019 (3) | 137,500 | $ | 2 | 137,500 | February 21, 2022 (3) | ||||||||
| March 11, 2019 (4) | 70,000 | $ | 3 | 70,000 | March 11, 2021(4) | ||||||||
| March 11, 2019 (5) | 333,333 | $ | 1.5 | 333,333 | March 11, 2021(5) | ||||||||
| March 12, 2019 (6) | 70,000 | $ | 3 | 70,000 | March 12, 2021(6) | ||||||||
| 1,144,166 | 1,144,166 | ||||||||||||
| 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, |
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 |
| On March 11, 2019, the Company signed agreements with a new investor, accordingly, the Company |
On March 11, 2019, |
Also as part of the agreement the investor may, in thousands
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).
| On March 12, 2019, the Company signed agreement with a new investor, accordingly, the Company is obligated to issue 140,000 |
| 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 | Average | Aggregate | |||||||||||||
| 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
Three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Bank commissions | $ | 8 | $ | 9 | ||||
| Financial expenses related to revaluation of Investment in warrants | 1 | - | ||||||
| Financial expenses related to loans | 1,890 | - | ||||||
| Foreign currency transactions and other | 8 | 41 | ||||||
| $ | 1,907 | $ | 50 | |||||
| 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 |
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 |
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. | OnNovember 11, 2019, Eroll received a loan | |
| Eroll shall repay the loan amount in full at the lapse of 90 days from the loan date. |
F-27
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS QUARTERLY REPORT.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.
When used in this quarterly report, the previous 3-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a large accelerated filer, as defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30.
Company Overview
We are a global technology company focusing on producing cutting edge technology for the agro-techAgro-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 plant,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 website is www.Seedolab.com
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.
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.
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“Costs of Software to Be Sold, Leased, or Marketed",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, research and developmentR&D costs are charged to the consolidated statement of operations as incurred. We did not capitalize expenses during the three months ended March 31,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 rentallease agreements for its office premises which lease will end on AprilJune 30, 2022.
On September 2017, Eroll entered into a vehicle operating lease agreement for a period of 32 months.
Subsequent Events
a. On October 15, 2019, |
The Company has evaluated subsequent events throughLender shall be entitled to convert the dateprincipal loan and the unaudited condensed financial statements were issued and filed withoutstanding interest (the “Conversion Amount”) into shares of common stock, the Securities and Exchange Commission and hasnumber of issuable shares upon conversion of any shall be determined that there are no otherby dividing (x) such events that warrant disclosureConversion Amount by (y) the Fixed Conversion Price of $1.25 or recognition(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 financial statements.
Eroll shall repay the loan amount in full at the lapse of 90 days from the loan date.
Financing
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
ThreeNine months ended March 31,September 30, 2019, compared to the threenine months ended March 31,September 30, 2018
Operating Expenses
Revenues for the 3nine months ended March 31,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 2018,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 $830$1,142 thousand versus $562compared to $0 for the same period in 2018. The increase mainly consists of direct costs in the amount of $561 thousand, respectively fromsub-contractors costs related to customer service and customer support in the main activityamount of $342 thousand, share based compensation expenses in the Company.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 mainly due toin increased HCsalary and related costs of $24$101 thousand, increased R&D material costs of $214$563 thousand, an increase of $30 thousand inincreased depreciation expenses related to R&D.
Total marketing expenses for the 3nine months ended March 31,September 30, 2019, and 2018, were $234$715 thousand versus $212compared to $704 thousand respectively. This was primarily due to increased marketing campaign efforts, which resulted mainly due to increased Marketing material costs of $69,for the increase was offset with decrease of $12 thousandsame period in HC costs and $35 thousands in other expenses and payment providers.
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 HC,salary and related costs, increase of $37$63 thousand in travel expenses, increase of $144 thousands$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 and increase of $7 thousands in depreciation expenses.
Total Financialfinancial expenses for the 3nine months ended March 31,September 30, 2019, and 2018, were $1,907 versus $50$2,579 thousands, compared to $251 thousand respectively.for the same period in 2018. The increase of $1,857$2,328 thousand was primarily due to an increase of $1,762$2,424 in expenses of convertible loans in accordance with ASC 470-20, Debt“Debt” with conversionConversion and otherOther Options with a Beneficial Conversion Feature ("BCF") .
Liquidity and Capital Resources
Overview
Since inception on January 16, 2015, the Company hadhas a cumulative deficit of $12,113$18,837 thousand and we have a working capital deficit of $2,559 thousand$4,301thousand as of March 31,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 March 31,September 30, 2019, Thethe Company has raised approximately $11.7 million,$13.1 millions, and raised $6.6 millions during the 3nine months ended March 31, 2019 the Company raised $5.2 million.
As of March 31,September 30, 2019, our cash balance was $2,373 thousand, we$94 thousand. We believe we will require a minimum of $6 million$7,000 thousand in working capital over the next 12 months to grow the companyCompany as currently planned, which is inclusive of Costcost of Sales,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 currently planned.
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 March 31,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 statementsCritical 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.
| 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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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.
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 Securities Exchange Act of 1934 (Exchange Act) as of March 31,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 March 31,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.,
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 March 31,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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On November 11, 2019, Mr. Jendayi Frazer, one of Directorsthe Company’s directors, provided the Company notice of SEEDO CORP. has changed our fiscal year end from September 30 to December 31, as announced in our 8K to this effect filedhis immediate resignation. Mr. Frazer’s departure was not a result of any disagreement with the SEC on February 5, 2019. We made this change to align the Company's fiscal year end with its subsidiaries following the reverse merger. Subsequent to this, our Form 10-K will cover the calendar year January 1 to December 31.
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). | |
| * | ||
| * |
| 101.1* | ||
| * | Filed herewith. |
| * | Furnished herewith. |
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: | By: | /s/ Zohar Levy |
Zohar Levy Director, Chief Executive Officer | ||
| SEEDO CORP. |
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