UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedSeptember 30, 2019 |
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OR
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-208814
SEEDO CORP.
(Exact name of registrant as specified in its charter)
Delaware | |
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Commission file number:333-208814
GRCR Partners Inc.
(Exact name of registrant in its charter)
| 47-2847446 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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+972 546 642 228 |
(Registrant’s telephone number, including area code) |
Issuer’s telephone number: 203.307.1179
Securities registered under Section 12(b) of the Exchange Act: None
Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
N/A | N/A | N/A |
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001
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.[X]
☒ 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 [ ]
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☒ |
Accelerated filer [ ]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. ☐
Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
Smaller reporting company [X] Emerging Growth Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]☐ No [X] ☒
State
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 November 14, 2019 | |
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Common Stock, $0.0001 par value per share |
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TABLE OF CONTENTS
PART I. | FINANCIAL INFORMATION | 1 | |
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ITEM 1. | INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 1 | |
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ITEM 2. | FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. | 10 | ||
ITEM 4. | 10 | ||
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PART II |
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ITEM |
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3
Item 1. Interim Financial Statements.
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GRCR PARTNERS INC
CONDENSED BALANCE SHEETS
AS OF JUNE 30, 2018 (UNAUDITED) AND SEPTEMBER 30, 2017
ASSETS |
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| 6/30/18 |
| 9/30/17 |
CURRENT ASSETS: |
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Cash or cash equivalents |
| $ 251 |
| $ 2,611 |
Accounts receivable, net |
| 5,000 |
| 16,250 |
TOTAL CURRENT ASSETS |
| 5,251 |
| 18,861 |
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TOTAL ASSETS |
| $ 5,251 |
| $ 18,861 |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
| $ 24,801 |
| $ 25,466 |
Accrued taxes |
| 320 |
| 320 |
Accrued interest |
| 3,872 |
| 1,627 |
Note payable |
| 25,000 |
| 25,000 |
TOTAL CURRENT LIABILITIES |
| 53,993 |
| 52,413 |
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TOTAL LIABILITIES |
| 53,993 |
| 52,413 |
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Commitments and Contingencies |
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STOCKHOLDERS' (DEFICIT): |
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Preferred stock, $.0001 par value, 15,000,000 shares |
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authorized, none issued and outstanding |
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Common stock, $.0001 par value, 500,000,000 shares authorized, 2,926,500 issued and outstanding |
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as of June 30, 2018 and September 30, 2017 |
| 293 |
| 293 |
Additional paid-in capital |
| 55,083 |
| 55,083 |
Retained (deficit) |
| (104,118) |
| (88,928) |
TOTAL STOCKHOLDERS' (DEFICIT) |
| (48,742) |
| (33,552) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
| $ 5,251 |
| $ 18,861 |
The accompanying notes to financial statements are
an integral part of these statements.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2019
1
GRCR PARTNERS INC
SEEDO CORP.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2019
IN THOUSANDS OF U.S. DOLLARS
INDEX
- - - - - - - - - - - -
F-1
CONDENSED STATEMENTS OF OPERATIONSCONSOLIDATED BALANCE SHEETS (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2018 AND 2017U.S. dollars in thousands, except share and per share data
| Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 |
| Nine Months Ended June 30, 2018 | Nine Months Ended June 30, 2017 |
| (Unaudited) | (Unaudited) |
| (Unaudited) | (Unaudited) |
Revenues: |
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Professional service revenues | $ 13,750 | $ 16,000 |
| $ 57,460 | $ 25,000 |
Expense reimbursement | 735 | - |
| 3,452 | - |
Total Revenues | 14,485 | 16,000 |
| 60,912 | 25,000 |
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Cost of revenues | 7,000 | 5,500 |
| 28,550 | 10,000 |
Cost of revenues from a related party | 1,500 | 2,000 |
| 3,250 | 2,000 |
Gross Profit | 5,985 | 8,500 |
| 29,112 | 13,000 |
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Operating expenses: |
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Marketing and sales | - |
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| 2,141 | - |
Depreciation | - | - |
| - | 838 |
General and administrative | 13,157 | 5,493 |
| 39,067 | 34,107 |
General and administrative costs from a related party | 500 | 1,000 |
| 850 | 1,000 |
Total operating expenses | 13,657 | 6,493 |
| 42,058 | 35,945 |
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Income (Loss) from operations | (7,672) | 2,007 |
| (12,946) | (22,945) |
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Other Expenses |
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Interest expense | 748 | 748 |
| 2,244 | 871 |
Total other expenses | 748 | 748 |
| 2,244 | 871 |
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Income (Loss) before taxes | (8,420) | 1,259 |
| (15,190) | (23,816) |
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Net Income (Loss) applicable to common shareholders | $ (8,420) | $ 1,259 |
| (15,190) | (23,816) |
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Net income (loss) per share - basic and diluted | ($0.00) | $ 0.00 |
| ($0.01) | ($0.01) |
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Weighted number of shares outstanding - |
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Basic and diluted | 2,926,500 | 2,926,500 |
| 2,926,500 | 4,695,379 |
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 to financial statements are an integral part of these condensed consolidated financial statements.
F-2
GRCR PARTNERS INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWOPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED JUNE 30, 2018 AND 2017U.S. dollars in thousands, except share and per share data
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| For the nine months ended June 30, 2018 |
| For the nine months ended June 30, 2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net (loss) |
| $ (15,190) |
| $ (23,816) |
Adjustments to reconcile net (loss) to cash (used in) operating activities: |
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Depreciation |
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| 838 |
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Change in operating assets and liabilities: |
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Accounts receivable |
| 11,250 |
| (10,500) |
Accrued interest |
| 2,245 |
| 871 |
Accounts payable and accrued expenses |
| (665) |
| 2,077 |
Net cash (used in) operating activities |
| (2,360) |
| (30,530) |
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CASH FLOW FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of common stock |
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| 500 |
Proceeds from issuance of note |
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| 25,000 |
Net cash provided by financing activities |
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| 25,500 |
NET (DECREASE) IN CASH |
| (2,360) |
| (5,030) |
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CASH AND CASH EQUIVALENTS at beginning of period |
| 2,611 |
| 13,973 |
CASH AND CASH EQUIVALENTS at end of period |
| $ 251 |
| $ 8,943 |
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Supplemental disclosure of cash flow information |
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Cash paid for: |
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Interest |
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Income Taxes |
| - |
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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 to financial statements are an integral part of these condensed consolidated financial statements.
F-3
GRCR PARTNERS INC
NOTES TO UNAUDITED INTERIM SEEDO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
U.S. dollars in thousands, except share and per share data
Additional | Total | |||||||||||||||||||
shares of common stock | Paid in | Accumulated | Shareholders’ | |||||||||||||||||
Number | Amount | capital | deficit | Deficiency | ||||||||||||||||
Balance as of July 1, 2018 (Unaudited) | 10,525,587 | $ | 1 | $ | 1,534 | $ | (4,540 | ) | $ | (3,005 | ) | |||||||||
Issuance of shares with respect to the Reverse Merger | 369,000 | - | (349 | ) | - | (349 | ) | |||||||||||||
Conversion of convertible loans | 1,546,491 | - | 1,244 | - | 1,244 | |||||||||||||||
Share Based Compensation to non-employees | 2,558,922 | - | 948 | - | 948 | |||||||||||||||
Issuance of warrants | 42 | 42 | ||||||||||||||||||
Net Loss | - | - | - | (2,274 | ) | (2,274 | ) | |||||||||||||
Balance as of September 30, 2018 (Audited) | 15,000,000 | $ | 1 | $ | 3,419 | $ | (6,814 | ) | $ | (3,394 | ) | |||||||||
Balance as of July 1, 2019 (Unaudited) | 20,007,144 | $ | 2 | $ | 14,555 | $ | (15,712 | ) | $ | (1,155 | ) | |||||||||
Share Based Compensation to employees and non-employees | - | - | 910 | - | 910 | |||||||||||||||
Exercise of warrants | 433,333 | - | - | - | - | |||||||||||||||
Net Loss | - | - | - | (3,125 | ) | (3,125 | ) | |||||||||||||
Balance as of September 30, 2019 (Unaudited) | 20,440,477 | $ | 2 | $ | 15,465 | $ | (18,837 | ) | $ | (3,370 | ) |
F-4
SEEDO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
U.S. dollars in thousands, except share and per share data
Additional | Total | |||||||||||||||||||
shares of common stock | Paid in | Accumulated | Shareholders’ | |||||||||||||||||
Number | Amount | capital | deficit | Deficiency | ||||||||||||||||
Balance as of January 1, 2018 (Unaudited) | 10,525,587 | $ | 1 | $ | 1,534 | $ | (2,385 | ) | $ | (850 | ) | |||||||||
Issuance of shares with respect to the Reverse Merger | 369,000 | - | (349 | ) | - | (349 | ) | |||||||||||||
Conversion of convertible loans | 1,546,491 | - | 1,244 | - | 1,244 | |||||||||||||||
Share Based Compensation to non-employees | 2,558,922 | - | 948 | - | 948 | |||||||||||||||
Issuance of warrants | 42 | 42 | ||||||||||||||||||
Net Loss | - | - | - | (4,429 | ) | (4,429 | ) | |||||||||||||
Balance as of September 30, 2018 (Audited) | 15,000,000 | $ | 1 | $ | 3,419 | $ | (6,814 | ) | $ | (3,394 | ) | |||||||||
Balance as of January 1, 2019 (Unaudited) | 16,198,578 | $ | 2 | $ | 5,410 | $ | (8,522 | ) | $ | (3,110 | ) | |||||||||
Issuance of shares of common stock | 1,820,575 | * | 4,404 | - | 4,404 | |||||||||||||||
Conversion of convertible loans | 1,893,422 | * | 2,318 | - | 2,318 | |||||||||||||||
Share Based Compensation to employees and non-employees | - | - | 1,889 | - | 1,889 | |||||||||||||||
Shares Based Compensation to non-employees | 94,569 | * | 134 | - | 134 | |||||||||||||||
Beneficial conversion feature related to convertible loan | - | - | 96 | - | 96 | |||||||||||||||
Issuance of Warrants | - | - | 514 | 514 | ||||||||||||||||
Exercise of warrants | 433,333 | - | 700 | - | 700 | |||||||||||||||
Net Loss | - | - | - | (10,315 | ) | (10,315 | ) | |||||||||||||
Balance as of September 30, 2019 (Unaudited) | 20,440,477 | $ | 2 | $ | 15,465 | $ | (18,837 | ) | $ | (3,370 | ) |
*) | Represents an amount less than $1. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
U.S. dollars in thousands
Nine months ended | ||||||||
September 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net Loss | $ | (10,315 | ) | $ | (4,429 | ) | ||
Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 131 | 19 | ||||||
Financial expenses related to convertible loans | 640 | 178 | ||||||
Financial expenses related to short-term loans | 657 | - | ||||||
Financial expenses related to loans from related party | 942 | - | ||||||
Share based compensation expenses to employees and non-employees | 1,921 | 948 | ||||||
Other | 1 | (10 | ) | |||||
Changes in assets and liabilities: | ||||||||
Increase in other accounts receivable | (660 | ) | (688 | ) | ||||
Increase in inventory | (386 | ) | (122 | ) | ||||
Increase (Decrease) in advances from customers | (574 | ) | 1,684 | |||||
Increase in trade payables | 1,245 | 406 | ||||||
Increase in other accounts payable | 358 | 223 | ||||||
Net cash used in operating activities | (6,040 | ) | (1,791 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (62 | ) | (454 | ) | ||||
Net cash used in investing activities | (62 | ) | (454 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from convertible loans | 258 | - | ||||||
Proceeds from short-term loans | 463 | 1,669 | ||||||
Repayment of short-term loan | (300 | ) | - | |||||
Proceeds from issuances of shares of common stock | 4,404 | 500 | ||||||
Issuance of warrants | 514 | - | ||||||
Net cash provided by financing activities | 5,339 | 2,169 | ||||||
Increase (Decrease) in cash and cash equivalents and restricted cash | (763 | ) | (76 | ) | ||||
Cash and cash equivalents and restricted cash at the beginning of the year | 1,008 | 607 | ||||||
Cash and cash equivalents at the end of the year and restricted cash | $ | 245 | $ | 531 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash and cash equivalents | $ | 94 | $ | 472 | ||||
Restricted bank deposits included in short term assets | 151 | 59 | ||||||
$ | 245 | $ | 531 | |||||
Cash paid for interest | $ | 210 | 48 | |||||
Supplemental disclosures of non- cash flow information: | ||||||||
Conversion of convertible loans | $ | 2,300 | $ | - | ||||
Exercise of warrants | $ | 700 | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-6
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 1:- | GENERAL |
a. | Seedo Corp. (the “Company,” “Our” or “We”), was incorporated on January 16, 2015, as GRCR Partners Inc., under the laws of Delaware. Prior to September 14, 2018, we were solely a provider of risk management and asset protection (“RAP”) services for businesses, individuals and families. On September 14, 2018, we acquired Eroll Grow Tech Ltd. (“Eroll”), an Israeli company and now the wholly owned subsidiary of the Company. On September 17, 2018, the Company’s name was changed to Seedo Corp. Since the acquisition of Eroll, we produce the world’s first fully-automated plant growing device managed and controlled by an artificial intelligent algorithm, allowing consumers to grow their own herbs and vegetables effortlessly from seed to plant, while providing optimal conditions to assure premium quality produce year-round. |
Reverse merger
Note 1. TheOn September 14, 2018, the Company History and NatureEroll completed a merger transaction. Eroll survived the merger as a wholly-owned subsidiary of the BusinessCompany.
GRCR Partners Inc. (the “Company”, “Our” or “We”), formed on January 16, 2015 is a providerImmediately following the merger, Eroll shareholders held approximately 87.4% of risk management and asset protection (RAP) services for businesses, individuals and families. Prior to 2017,the outstanding shares of common stock of the Company provided its services primarily to businessesin exchange of 1,137 shares of common stock of Eroll on a project-based fee arrangement. During 2017,fully diluted basis while the pre-merger Company shareholders retained the remaining approximate 12.6%.
Pursuant to the terms and conditions of the agreement governing the Reverse Merger, at the time of the Reverse Merger, the Company shiftedissued 12,073,500 nonassessable shares of its business modelshares of common stock. Each of the holders of the pre-Reverse Merger issued and outstanding shares of common stock of Eroll received their pro-rata allotment of these shares in the Company according to more recurring fee based engagements and expanded target markets to included individuals and families. The Company delivers services following a proprietary progressive bSecure methodology. The Company believes that by combining expert consulting, proven processes and software, clients can cost effectively build and maintain RAP programs that reduce day-to-day and long-term riskstheir then current shareholding in their work environment, personal and family lives.Eroll. At the closing of this Reverse Merger, there were 15,000,000 shares of common stock of the Company.
The reverse merger was accounted for as a reverse recapitalization which is outside the scope of ASC Topic 805, “Business Combinations” (“ASC 805”). Under reverse capitalization accounting, Eroll is considered the acquirer for accounting and financial reporting purposes and acquired the assets and assumed the liabilities of the Company. The assets acquired and liabilities assumed are reported at their historical amounts. The annual consolidated financial statements of the Company reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. The annual consolidated financial statements include the accounts of the Company since the effective date of the reverse capitalization and the accounts of Eroll since inception.
F-7
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 1:- | GENERAL (Cont.) |
Eroll was incorporated pursuant to the laws of the state of Israel on May 18, 2015.
Eroll has seven subsidiaries as followings:
Seedo U.S. Inc. (Seedo Inc.) incorporated pursuant to the laws of the state of Colorado, U.S in November 2016. To date, the subsidiary has no activities.
Seedo USA LLC (Seedo USA) incorporated pursuant to the laws of the state of Nevada U.S on March 2017. To this date the subsidiary has no activities.
Urban Auto Grow Inc. (UAG) incorporated pursuant to the laws of the state of Nevada U.S on January 2017. To this date the subsidiary has no activities.
E.L Urban Auto Grow Ltd. (Urban) incorporated pursuant to the laws of the state of Cyprus on December 2017. To this date the subsidiary has no activities.
Seedo FarmTech Ltd. incorporated pursuant to the laws of the state of Israel on April 10, 2019. To this date the subsidiary has no activities.
Dan SeedoFarm Ltd Ltd incorporated pursuant to the laws of the state of Israel on June 27, 2019. To this date the subsidiary has no activities.
Tech Farm Agricola S.R.L incorporated pursuant to the laws of the state of Messina, Italy on May 20, 2019. To this date the subsidiary has no activities. The Company holds 33% of Tech Farm Agricola S.R.L.
b. | The Company operates mainly in the fields of development and distribution of home growing automated machines and commercial containers for variety of herbs and vegetables worldwide. The Company also plans, establishes and will operate container farms. |
c. | Basis of presentation: |
Effective December 31, 2018, the Company changed its fiscal year end from September 30 to December 31. This change is being made in order to align the Company’s fiscal year end with its subsidiaries following the reverse merger. The Company refers to the period beginning October 1, 2017 and ending September 30, 2018 as “fiscal 2018.”
d. | The Company has an accumulated deficit in the total amount of $18,837 as of September 30, 2019, the Company has negative operating cash flow in the total amount of $6,040 for the period of nine months ended September 30, 2019, further losses are anticipated in the development of its business. Those factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. |
F-8
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 1:- | GENERAL (Cont.) |
The Company intends to finance operating costs over the next twelve months with existing cash on hand, reducing operating spend, and future issuances of equity and debt securities, or through a combination of the foregoing. However, the Company will need to seek additional sources of financing if the Company requires more funds than anticipated during the next 12 months or in later periods.
The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted inassuming the United States of America applicable forCompany will continue as a going concern, which assumes thatcontemplates the Company will realize itsrealization of assets and discharge its liabilities and commitments in the ordinarynormal course of business. Since inception, the Company has a retained deficit of $104,118 and has a working capital deficit of $48,742 at June 30, 2018. Although we are generating revenue, our growth is dependent upon achieving sales growth, management of operating expenses and ability of the Company to obtain the necessary financing to fund future obligations and pay liabilities arising from normal business operations when they come due, and upon profitable operations. The Company may also explore other grow opportunities, including, but not limited to, a merger or acquisitions.
Management has concludedAs of September 30, 2019, the condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that duemay result from uncertainty related to the conditions described above, there is substantial doubt about the entity’sCompany’s ability to continue as a going concern through August 2019. We have evaluated the significance of these conditions in relation to our ability to meet our obligations and believe that we may need to either borrow funds from our majority shareholder or raise additional capital through equity or debt financings. We expect our current majority shareholder will be willing and able to provide such additional capital or sell ownership in the Company. However, we cannot be certain that such capital (from our shareholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
Note 2. Summary of Significant Accounting Policiesconcern.
Basis of Presentation and Organization
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 were prepared from the accounts of the Company under the accrual basis of accounting. The balance sheet at September 30, 2017 was derived from auditedAccounting Oversight Board for interim financial statements but doesinformation. Accordingly, they do not include all disclosuresthe information and footnotes required by accounting principals generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s (i) consolidated financial position as of September 30, 2019, (ii) consolidated results of operations for the three and nine months ended September 30, 2019 and (iii) consolidated cash flows for the nine months ended September 30, 2019. The results for the three and nine months periods ended September 30, 2019, as applicable, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
NOTE 3:- | SIGNIFICANT ACCOUNTING POLICIES |
The consolidated financial statements have been prepared in accordance with U.S Generally Accepted Accounting Principles in the United States of America. The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for the fair presentation of the results for the periods covered. These financial statements should be read in conjunction with the financial statements and additional information as contained in our Form 10K for the year ended September 30, 2017.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. The Company’s cash and cash equivalents are located in a United States bank. The Company does not have any cash equivalents as of June 30, 2018 or September 30, 2017.
Accounts Receivable
The Company’s accounts receivables are derived from direct customers. Collateral is not required for accounts receivable. The Company maintains an allowance for potential credit losses as considered necessary. The Company performs ongoing reviews of all customers that have breached their payment terms or for whom information has become available indicating a risk of non-recoverability. The Company records an allowance for bad debts for specific customers identified as well as an allowance based on its historical collection experience. The Company’s evaluation of the allowance for potential credit losses requires the use of estimates and the actual results may differ from these estimates. At June 30, 2018 and September 30 2017, the allowance for potential credit losses was $0.
Fixed Assets
Office equipment is stated at cost and depreciated over three years using the straight-line method of accounting. For the three and nine months ended June 30, 2018, and 2017, the Company recorded depreciation expense of $0 and $0, and $0 and $838, respectively.
Revenue Recognition
The Company derives its revenue from the sale of compliance, legal, risk management and management and public reporting consulting services. The Company utilizes written contracts as the means to establish the terms and condition services are sold to customers.
Consulting Services
Because the Company provides its applications as services, it follows the provisions of Accounting Standards Codification No.605,Revenue Recognition. The Company recognizes revenue when all of the following conditions are met:
a. |
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| The significant accounting policies applied in the | |
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The Company recognizesgenerates 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 services are performed or monthly based upon contract terms. Contracts may eitherthe amount of consideration to which we expect to be for a specific project, or, a monthly recurring fee.entitled
ReimbursementsIn 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 incurs certain out-of-pocket expenses that are reimbursed by its clients,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 its Statement of Operations.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.
Net Income (Loss) per Common ShareTypical timing of payment
Basic income (loss) per shareThe 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 computed by dividing$2.4 million.
The Company recognized revenues of $703 for the net income (loss) attributable tonine 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 common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted income per share is computed similar to basic income per share exceptconsumer with assurance that the denominator is increased to includeproduct will function as intended for a limited period of time. As of September 30, 2019, the numberCompany recorded a provision for warranty in a total amount of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the periods ended June 30, 2018 or 2017.$35.
Income Taxes
c. | Accounting for share-based Compensation: |
The Company accounts for income taxes pursuantshare-based compensation in accordance with ASC No. 718, “Compensation-Stock Compensation” (“ASC No. 718”). ASC No. 718 requires companies to FASB ASC 740. Deferred tax assets and liabilities are determinedestimate 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 temporary differences between the basesstraight-line method over the requisite service period of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classificationeach of the assets and liabilities generating the differences.awards.
The Company maintainsselected 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 valuation allowancenumber 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 respectStaff Accounting Bulletin No. 110, as adequate historical experience is not available to deferred tax assets.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 establishes a valuation allowancehas historically not paid dividends and has no foreseeable plans to pay dividends.
F-11
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 3:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
c. | Accounting for share-based Compensation (Cont): |
The fair value of Restricted Stock Units (“RSUs”) granted is determined based uponon the potential likelihoodprice of realizing the deferred tax asset and taking into consideration the Company’s financial positionshares 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 resultsother service providers under ASC No. 718 and ASC No. 505, “Equity-based payments to non-employees.” The fair value of operations forthese options was estimated using a Black-Scholes-Merton option-pricing model.
In the current period. Future realizationnine months ended September 30, 2019, the non-cash compensation expenses related to nonemployees were $766. As of September 30, 2019, there were $3,971 of total unrecognized compensation cost related to non-vested share-based compensation to non-employees.
d. | New Accounting Pronouncements |
Recently Implemented Accounting Pronouncements
1. | Revenues - In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle is that an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The standard provides a five-step model to be applied to all contracts with customers, which steps are to (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is satisfied. |
F-12
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 3:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
d. | New Accounting Pronouncements (Cont.): |
The Company early adopted ASU 2014-09 as of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could causeJanuary 1, 2019. The adoption did not have a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimates.
The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. Among its numerous changes to the Internal Revenue Code, the Act reduces U.S. corporate rates from 35% to 21%. Additionally, the Act limits the use of net operating loss carry backs, however any future net operating losses will instead be carried forward indefinitely. Only 80% of current income will be able to be offset with a net operating loss carryforward, with the remainder of the net operating loss continuing to carry forward. Based on an initial assessment of the Act, the Company believes that the most significant impact on the Company’s consolidated financial statements will be reduction of deferred tax assets related to net operating losses. Such reduction is expected to be largely offset by changes to the Company’s valuation allowance.income.
Fair Value of Financial InstrumentsRecently Implemented Accounting Pronouncements :
The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange. As of December 31, 2017 the carrying value of accounts receivable, accounts payable-trade and accrued liabilities approximated fair value due to the short-term nature and maturity of these instruments.
Customer Concentration Disclosure.
For the three months ended June 30, 2018 and 2017, 1 and 3 customers made up 100% and 94% of our revenue, respectively. Those customers represented 100%, and 38%, 38%, 19%, respectively for three months ended March 31, 2018 and 2017.
For the nine months ended June 30, 2018 and 2017, 3 and 3 customers made up 81% and 96% of our revenue, respectively. Those customers represented 51%, 15%, 15% and 40%, 40% 16%, respectively for nine months ended June 30, 2018 and 2017.
Estimates
The financial statements are prepared on the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses. Actual results could differ from those estimates made by management.
Recent 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 May 2014,July 2017, the FASB issued ASU 2014-09, Revenue from Contracts2017-11, “Earnings per share: I. Accounting for Certain Financial Instruments with CustomersDown Round Features,” which modifies how all entities recognize revenue and various other revenue accounting standards for specialized transactions and industries. This updateallows companies to exclude a down round feature when determining whether a financial instrument is considered indexed to the entity’s own stock. As a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expectsresult, financial instruments with down round features may no longer be required to be entitled in exchange for those goods or services. In August 2015,accounted classified as liabilities. A company will recognize the FASB issued ASU 2015-14, which deferredvalue of a down round feature only when it is triggered, and the effective datestrike 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 to2017-11 is effective for fiscal years beginning after December 15, 2017,2019, 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 has completed evaluationearly adopted this guidance in connection with the down round feature within the embedded optional conversion feature of the possiblewarrants, as discussed in Note 7d.
3. | In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be ubstantially aligned. This ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The Company early adopted this standard, the adoption of this standard had an immaterial impact on the Company’s consolidated financial statements. |
F-13
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 4:- | COMMITMENTS AND CONTINGENT LIABILITIES |
In October 2017, Eroll entered into rental agreements for its office premises in Israel which will end on June 30, 2022. The agreement is secured by bank guarantees and monthly debentures equivalent with the lease payments.
On June 20, 2019 the Company signed an amendment to its rental agreement, accordingly the Company signed an extension to its original agreement until June 30, 2022, and rented two additional office premises until June 30, 2024.
The future minimum lease fees payable for the lease agreement as of ASU 2014-15 includingSeptember 30, 2019, are as following:
2019 | $ | 50 | ||
2020 | 244 | |||
2021 | 262 | |||
2022 | 202 | |||
And thereafter | 213 | |||
$ | 971 |
The Company enters into a vehicle operating lease agreement for a period of 32 months. The future minimum lease fees payable for both above agreements as of September 30, 2019, are as following:
2019 | $ | 27 | ||
2020 | 94 | |||
2021 | 31 | |||
$ | 152 |
NOTE 5:- | SHORT TERM LOANS |
a. | On December 11, 2018, the Company received a loan from a lender in the principal amount of $1,000 (out of which $50 was directly transferred as finder fee). The loan is to be repaid in full at the end of 180 days, the principal amount shall bear interest at the rate of 17.5% calculated per the commencing of the date of the actual provision of the principal amount and ending on the maturity date, on a linear daily basis, up to a maximum amount of approximately $175. The interest shall be accrued but not compounded. |
The Company also granted the contract reviewforegoing lender warrants to purchase 333,333 and has no material impact100,000 shares of common stock of the Company at an exercise price of $1.5 and $2 per share, respectively. The warrants were classified as shareholders’ equity.
F-14
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 5:- | SHORT TERM LOANS (Cont.) |
The Company estimated the fair value of warrants using the Black-Scholes-Merton option pricing model using the following weighted average assumptions:
2018 | ||||
Dividend yield | 0 | % | ||
Risk-free interest rate | 2.78 | % | ||
Expected term (in years) | 2 | |||
Volatility | 126.23 | % |
The Company also granted the broker 33,333 shares of common stock of the Company which were issued on the Company's consolidated financial statements. April 12, 2019.
The Company has implemented all new accounting pronouncements that areaccounted for the loan in effectaccordance with ASC 470,Debt. The Company allocated the consideration of the loan, the related warrants and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impactthe shares of common stock based on its financial position or resultstheir relative fair value at the date of operations.issuance, which is also the commitment date.
Note 3. Note Payable
On March 16, 2017,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 promissory note (the “Note”) with an unaffiliated lendertotal amount of $700. The remaining debt of $475 will be paid in three separate monthly payments of $158.333 each for the next three months.
On August 15, 2019 the company issued 433,333 shares in respect of exercise of 433,333 warrants granted as part of the loan agreement signed on December 11, 2018.
During the nine months period ended September 30, 2019 the Company recorded interest and financial expenses related to the loan in the amount of $25,000. $800.
b. | On August 18, 2019, the Eroll received a loan from a lender in the principal amount of $311 (NIS1,100) (out of which $9 was deducted as fee), the loan has a one-month term and shall be repaid on September 19, 2019 (The “Maturity Date”). |
The Note matures one year from issuanceprincipal 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 hasthe outstanding interest amount shall bear a 12%monthly interest rate. Throughrate 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 second addendum to7 days notice therefore entered the Note dated August 8, 2018,5% interest, accordingly the Note’s due date was extended until December 31, 2018.
ForCompany recorded interest for the three and nine months ended JuneSeptember 30, 2019 in the amount of $13.
F-15
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 6:- | RELATED PARTIES |
a. | As of September 30, 2019, and December 31, 2018, the Company recorded a provision in the amount of $547 and $520, respectively, that classified in other accounts payable to a related party for management services. |
b. | On August 10, 2018, Eroll entered into a Convertible Loan Agreement (the “August Loan Agreement”) with Cannabics Pharmaceuticals Inc. (“Cannabics”), a U.S. public company and one of the Company’s shareholders. Pursuant to the terms of the August Loan Agreement, Cannabics was obligated to invest up to $2,000 in Eroll Grow Tech. According to the agreement Cannabics is obligated to invest $500 upon execution of the August Loan Agreement, to be followed by second $500 tranche within 90 days and third tranche in the amount of $1,000 (the “Second loan”), 90 days following that. On August 13, 2018, Cannabics invested the initial $500 pursuant to its obligations under the August Loan Agreement. |
According to the August Loan Agreement, the Company shall issue Cannabics shares of common stock of the Company representing 7.5% of the outstanding shares on a fully-diluted basis of the Company at the time of conversion. Following the Second Loan, Cannabics shall hold 15% of the outstanding shares on a fully-diluted basis of the Company. In addition, according to the agreement Cannabics shall issue to the Company 1,000,000 warrants with an exercise price of $2 per share, of the Cannabics shares, for a period of 12 months. The warrants were issued on August 14, 2018. The warrants were classified as an asset and 2017,are evaluated every report date. During the nine months period ended September 30, 2019 the Company recorded $748expenses due to the warrant in the amount of $1. As of September 30, 2019, and $748,December 31, 2018 the warrants fair value amount was $0 and $2,244$1, respectively.
On September 12, 2018, Eroll and $871Cannabics executed an amendment to the August Loan Agreement, solely amending the mechanics of the percentage of the Company shares Cannabics may convert for its investment, though the finite amount remains unchanged. The amendment to the August Loan was as follows: Cannabics is to receive 10% of the shares of common stock, for the initial $1,000 financing (as opposed to 15%); and for the Second Loan, Cannabics shall receive 10% (5% issued on the date of the money transfer and an additional 5% issued on the date of conversion) of the shares of common stock on a fully diluted basis.
On September 26, 2018, pursuant to the August Loan Agreement with Cannabics, the Company received its second installment of $500.
F-16
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 6:- | RELATED PARTIES (Cont.) |
In addition, under the agreement the Company shall pay to Cannabics royalties in interest expense, respectively.an amount equal to a percentage of the Company’s revenues starting of January 2019 sales as follows:
(a) | Until the conversion or repayment of the third tranche (which is the Second Loan) in the amount of an additional $1,000, an amount equal to 2.5% of revenues. |
(b) | Following the conversion or repayment of the Second Loan, an amount equal to 5% of revenues. |
Note 4. Related Party TransactionsNotwithstanding the above, for the first year following the Second Loan closing date, The Company shall pay Cannabics minimum royalties of not less than $500. In the event the Second Loan is converted into shares, the aggregate royalties to be paid hereunder will be capped at max $8,000.
On November 6, 2018, pursuant to the August Loan Agreement with Cannabics the Company received $300 towards the Second Loan, and on December 10, 2018, pursuant to the August Loan Agreement the Company received the remaining $700 out of the Second Loan.
As part of the completion of the August Loan Agreement the Company recorded a provision for royalties in a total amount of $500.
The Company has paidallocated the majority shareholder, officerremaining consideration ($500) of the second convertible loan and director $2,000 and $3,000, and $4,100 and $3,000issuance 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 threeconvertible loan in accordance with ASC 470-20, Debt with conversion and nine month periods ended June 30, 2018 and 2017, respectively. Such amounts are presentedother Options. According to ASC 470-20-30-8, since the intrinsic value of the beneficial conversion feature (“BCF”) exceeds the entire proceeds of the loan, the Company allocated the entire proceeds of $250 related to the convertible loan to the BCF as additional paid in the statements of operations, in the general and administrative line as related party costs. The Company has no formal contract in place with its sole officer and director.capital.
Note 5. Subsequent Events
On AugustJanuary 15, 2018,2019 according to the original agreement and the amendment stated above the Company executed a promissory note (the “Note2”) with an unaffiliated lenderconverted the Second Loan, in the amount of $10,000.$1,000 and issued Cannabics 770,397 shares of common stock with $0.0001 par value each. As a result, the Company recorded financial expenses related to the loan in the amount of $942. The Note2 matures one yeartotal holding as of September 30, 2019, for Cannabics is 17.52% of the Company’s shares of common stock.
c. | During September 7, 2018, Eroll has entered into a loan agreement with Cannabics in the amount of $350 that shall have a one-year defined term and bears no interest. As part of the agreement Cannabics were also entitled to 3.6% of the Company’s shares of common stock, in return to services provided as part Reverse Merger. |
F-17
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 6:- | RELATED PARTIES (Cont.) |
As a result on September 27, 2018, the Company issued 540,000 shares of common stock with 0.0001 par value each with respect to share based compensation. As defined in an amendment as of November 6, 2018, the loan shall have a due date certain of November 4, 2019.
d. | On September 19, 2019, the Eroll received a loan from a lender in the principal amount of $100. The principal amount shall bear interest at an annual rate of 1%. |
The Company shall repay the loan as soon as practicable following the date of Seedo Corp’s receipt of a loan from issuancea third party.
The Company repaid the loan on October 23, 2019.
NOTE 7:- | CONVERTIBLE LOANS |
a. | On June 6, 2018, Eroll entered into a loan agreement (the “June Loan Agreement”) with a third party (the “June Lender”), in a total amount of $500 (the “June Loan”). The June Loan bears interest at a monthly rate of 2%, for a year. Eroll shall pay the June Lan and interest within one year from the closing date. In future event when Eroll will merge with public company the June Lender has the right to convert the June Loan and interest into equity securities of the public company, at a price per share equal to the lower of (i) a valuation of the Company of $15,000, or (ii) the fair market value of the Company as shall be evaluated as of the Company’s first raising via equity issuance. According ASC 470 the Company did not record a BCF. |
With respect to convertible loan since the contingent BCF shall not be recognized in earnings until the contingency is resolved.
On March 5, 2019, the June Loan was converted into 500,000 shares of common stock with $0.0001 par value each.
During the nine months period ended September 30, 2019, the Company recorded an interest expenses in the total amount of $10.
b. | During July 2018, Eroll entered into a convertible loan agreement (the “July Agreement”) with a third party (the “July Lender”), in a total amount of $250 (the “July Loan”). The July Loan bears interest at a monthly rate of 2%, for a year. Pursuant to the terms of the July Agreement, if Eroll will merge with a public company the July lender has the right to convert the July Loan and interest into equity securities of the public Company, at a price per share equals to the lower of (i) a valuation of the Company of $25,000, or (ii) the fair market value of the Company as shall be evaluated as of the Company’s first raising via equity issuance. If the future event will not occur Eroll shall pay the loan and interest within one year from the closing date. |
During the nine months period ended September 30, 2019, the Company recorded an interest expenses in the total amount of $10. According to ASC 470 the Company did not record a BCF with respect to July Loan since the contingent BCF shall not be recognized in earnings until the contingency is resolved.
On April 11, 2019 the July Loan was converted into 150,000 shares of common stock with $0.0001 par value each.
F-18
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands, except share and per share data |
NOTE 7:- | CONVERTIBLE LOANS (Cont.) |
c. | On December 3, 2018, the Company received a convertible loan from third party (the “December Lender”) the loan has two year term, in the principal amount of $550 which bears 10% annual interest rate (out of which $50 was directly transferred as finder fee). |
The Company at its option shall have the right to redeem, in part or in whole, outstanding principal and hasinterest under the December Loan agreement prior to the maturity date. The Company shall pay an amount equal to the principal amount being redeemed plus a 6%redemption premium equal to 20% of the outstanding principal amount being redeemed plus outstanding and accrued interest rate. .
The Note 2 has no prepayment penalty and has a conversion clause that allows the noteholderDecember Lender shall be entitled to convert at its option any portion of the outstanding and unpaid conversion amount into fully paid and nonassessable shares of common stock, at the lower of the fixed conversion price then in effect or the market conversion price. The number shares of common stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such conversion amount by (y) the fixed conversion price of $1.2 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.
The Company accounted for the convertible loan in accordance with ASC 470-20, Debt with conversion and other Options. According to ASC 470-20-30-8, since the intrinsic value of the BCF exceeds the entire proceeds of the loan, The Company allocated the entire proceeds to the BCF as additional paid in capital.
On April 3, 2019, the loan and the accrued interest in the amount of $568 were converted to 473,025 shares of common stock with $0.0001 par value each.
During the nine months period ended September 30, 2019, the Company recorded interest and financial expenses related to the convertible loan in the amount of $543.
F-19
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands, except exercise price per warrant |
NOTE 7:- | CONVERTIBLE LOANS (Cont.) |
d. | On February 21, 2019, the Company received a convertible loan from third party (the “February Lender”), the loan has two year term, in the principal amount of $550 which bears 10% annual interest rate (out of which $50 was directly transferred as finder fee). |
The Company at its option shall have the right to redeem, in part or in whole, outstanding principal amount and interest under this loan agreement prior to the maturity date. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the outstanding principal amount being redeemed plus outstanding and accrued interest.
The February Lender shall be entitled to convert at its option any portion of the outstanding and unpaid principal or accrued interest into fully paid and nonassessable of shares of common stock, at the lower of the fixed conversion price then in effect or the market conversion price. The number of shares of common stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such conversion amount by (y) the fixed conversion price of $2 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.
The Company also granted the February Lender a warrant to purchase 137,500 shares of common stock of the companyCompany at $0.75an exercise price of $2 per share.
On August 20, 2018,share, such exercise price is subject to any future price-based anti-dilution adjustments. As the Company executed a promissory note (the “Note3”early adopted ASU 2017-11 the warrants were classified in shareholders equity.
The Company estimated the fair value of warrants using the Black-Scholes-Merton option pricing model using the following weighted average assumptions:
2019 | ||||
Dividend yield | 0 | % | ||
Risk-free interest rate | 2.49 | % | ||
Expected term (in years) | 3 | |||
Volatility | 123.90 | % |
The fair value of the warrants granted was $242.
F-20
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands, except share and per share data |
NOTE 7:- | CONVERTIBLE LOANS (Cont.) |
The Company accounted for the convertible loan in accordance with an unaffiliated lenderASC 470-20, Debt with conversion and other Options. The intrinsic value of the BCF was calculated and the Company allocated $96 to the BCF as additional paid in capital. The remaining consideration of $162 was allocated to convertible loan.
During the nine months period ended September 30, 2019, the Company recorded interest and financial expenses related to convertible loan in the amount of $10,000. The Note3 matures$105.
NOTE 8:- | SHAREHOLDERS’ DEFICIENCY |
a. | As of September 30, 2019, and December 31, 2018, the Company’s share capital is composed as follows: |
September 30, 2019 |
December 31, 2018 | |||||||||||||||
Authorized | Issued and outstanding |
Authorized | Issued and outstanding | |||||||||||||
Number of shares | ||||||||||||||||
Shares of common stock of $0.0001 par value each | 500,000,000 | 20,440,477 | 500,000,000 | 16,198,578 |
Each Ordinary share is entitled to receive dividend, participate in the distribution of the Company’s net assets upon liquidation and to receive notices of participate and vote (at one yearvote per share) at the general meetings of the Company on any matter upon which the general meeting is authorized.
b. | Issuance of shares: |
1. | On January 15, 2019 the Company converted a loan in the amount of $1,000 to 770,397 shares of common stock with a par value each of $0.0001. (See note 6-b). |
2. | On January 28, 2019 the Company issued 50,000 shares of common stock with $0.0001 par value each to one of its consultants, in exchange for services rendered whose fair value was $47. |
3. | On March 5, 2019 the Company converted a loan in the amount of $500 to 500,000 shares of common stock with a par value each of $0.0001. (See note 7-a). |
4. | On April 3, 2019 the Company converted a loan received on December 3, 2018, to 473,025 shares of common stock with a par value of $0.0001 each. (See note 7-c). |
5. | On April 10, 2019, the Company converted a loan received on July 18, 2018, to 150,000 shares of common stock with $0.0001 par value each. (See note 7-b). |
F-21
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands, except share and per share data |
NOTE 8:- | SHAREHOLDERS’ DEFICIENCY (Cont.) |
b. | Issuance of shares (Cont.): |
6. | On April 11, 2019 the Company issued 1,493,908 shares of common stock with a par value of $0.0001 each to 26 investors as part of investment round in a private placement in a total amount of $4,107. The Company also issued 11,236 shares of common stock with a par value of $0.0001 each to broker involved in the investment round, and the Company recorded an expenses in a total amount $32. |
7. | On March 11, 2019, the company signed agreement with new investor for a total consideration of $216, accordingly, on April 11, 2019, the Company issued 120,000 shares of common stock with $0.0001 par value each. (See note 8-c-3). |
8. | On March 11, 2019, the company signed agreement with new investor for a total consideration of $100, accordingly, on April 11, 2019, the Company issued 66,667 shares of common stock with $0.0001 par. (See note 8-c-4). |
9. | On March 12, 2019, the company signed agreement with new investor for a total consideration of $252, accordingly, on April 11, 2019, the Company issued 140,000 shares of common stock with $0.0001 par value each. (See note 8-c-5). |
10. | On April 12, 2019, the Company issued 33,333 shares of common stock with $0.0001 par value each, which were granted as part of a loan agreement received on December 11, 2018. (See note 5). |
11. | On August 15, 2019 the company issued 433,333 shares in respect of exercise of 433,333 warrants granted as part of the loan agreement signed on December 11, 2018. (see note 5-a). |
c. | Issuance of warrants: |
Issuance date | Warrants outstanding | Exercise price per warrant | Warrants outstanding and exercisable | Contractual term | ||||||||||
September 2, 2018 (1) | 100,000 | $ | 2 | 100,000 | September 2, 2020 (1) | |||||||||
February 21, 2019 (2) | 137,500 | $ | 2 | 137,500 | February 21, 2022 (2) | |||||||||
March 11, 2019 (3) | 70,000 | $ | 3 | 70,000 | March 11, 2021(3) | |||||||||
March 11, 2019 (4) | 333,333 | $ | 1.5 | 333,333 | March 11, 2021(4) | |||||||||
March 12, 2019 (5) | 70,000 | $ | 3 | 70,000 | March 12, 2021(5) | |||||||||
710,833 | 710,833 |
1. | On September 2, 2018, Eroll received a convertible loan from a private investor in the amount of $250 that bears 2% monthly interest, which on October 23, 2018, was converted to 250,000 shares of common stock with 0.0001 par value each. Eroll also granted the lender a warrant to purchase 100,000 shares of common stock of the Company at an exercise price of $2 per share. The warrants were classified as shareholders’ equity. |
F-22
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands, except share and per share data |
NOTE 8:- | SHAREHOLDERS’ DEFICIENCY (Cont.) |
c. | Issuance of warrants (Cont.): |
2. | On February 21, 2019, the Company received a convertible loan from the February Lender in the amount of $550 (See Note 7-d). The Company granted the February Lender a warrant to purchase 137,500 shares of common stock of the Company at an exercise price of $2 per share. The warrants were classified as shareholders’ equity. |
3. | On March 11, 2019, the Company signed agreements with a new investor, accordingly, the Company issued 120,000 shares of common stock with a par value of $0.0001 each, for a total consideration of $216. The Company also granted the investor warrants to purchase 70,000 shares of common stock at a price of $3 per share for a period of 24 months. |
4. | On March 11, 2019, the Company signed an agreement with a new investor, accordingly, the Company issued 66,667 shares of common stock with a par value of $0.0001 each, for a total consideration of $100. |
Also as part of the agreement the investor may, in its sole determination, from issuance and has a 6% interest rate. The Note 2 has no prepayment penalty and has a conversion clause that allows the noteholderclosing date until the 24-month anniversary of the closing date, elect to convert any principal and accrued interest intopurchase in one or more purchases, additional shares of common stock of the companyCompany with an aggregate
Subscription amount thereof equal to up to $500, at $0.75the price per share. share of $1.5 (such securities, the “Greenshoe Securities” and such right to receive the Greenshoe Securities).
5. | On March 12, 2019, the Company signed agreement with a new investor, accordingly, the Company is obligated to issue 140,000 shares of common stock with a par value of $0.0001 each, for a total consideration of $252. The Company also granted the investor warrants to purchase 70,000 shares of common stock at a price of $3 per share for a period of 24 months. |
d. | Restricted Share Units and Share option plans: |
On April 1, 2019, the Company’s board of directors adopted the Seedo Corp. 2018 Share Options Plan (the “2018 Plan”). As of September 30, 2019, the Company had reserved 3,019,330 shares of common stock under the 2018 Plan, for issuance to the Company’s and its affiliates’ respective employees, directors, officers, consultants and contractors.
Awards granted under the 2018 Plan are subject to vesting schedules and unless determined otherwise by the administrator of the 2018 Plan, generally vest following a period of four years from the applicable vesting commencement date, such that the awards vest in four annual equal installments and/or generally vest following a period of one year from the applicable vesting commencement date, such that the awards vest in four quarterly equal installments.
F-23
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands, except share and per share data |
NOTE 8:- | SHAREHOLDERS’ DEFICIENCY (Cont.) |
d. | Restricted Share Units and Share option plans (Cont.): |
Subject to the discretion of the 2018 Plan administrator, if an award has not been exercised within seven years after the date of the grant, the award expires.
RSUs under the 2018 Plan may be granted upon such terms and conditions, no monetary payment (other than payments made for applicable taxes) shall be required as a condition of receiving the Company’s shares pursuant to a grant of RSUs, and unless determined otherwise by the Company, the aggregate nominal value of such RSUs shall not be paid and the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable laws regarding issuance of shares for consideration that is lower than the nominal value of such shares. If, however, the Company’s board of directors determines that the nominal value of the shares shall not be waived and shall be paid by the grantees, then it shall determine procedures for payment of such nominal value by the grantees or for collection of such amount from the grantees by the Company.
Shares issued pursuant to any RSUs units may (but need not) be made subject to exercise conditions, as shall be established by the Company and set forth in the applicable notice of grant evidencing such award. During any restriction period in which shares acquired pursuant to an award of RSUs remain subject to exercise conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of unless otherwise provided in the 2018 Plan. Upon request by the Company, each grantee shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares hereunder and the Company may place appropriate legends evidencing any such transfer restrictions on the relevant share certificates.
F-24
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands, except share and per share data |
NOTE 8:- | SHAREHOLDERS’ DEFICIENCY (Cont.) |
d. | Restricted Share Units and Share option plans (Cont.): |
A summary of employee share options activity during the nine months ended September 30, 2019 is as follows:
Nine months ended September 30, 2019 | ||||||||||||||||
Number |
Average | 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
SEEDO CORP. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
U.S. dollars in thousands |
NOTE 9:- | FINANCIAL EXPENSES |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Bank commissions | $ | 16 | $ | 11 | $ | 43 | $ | 23 | ||||||||
Financial expenses related to revaluation of investment in warrants | - | 10 | 1 | 10 | ||||||||||||
Financial expenses related to loans | 60 | 213 | 2,424 | 227 | ||||||||||||
Foreign currency transactions and other | 24 | 1 | 111 | (9 | ) | |||||||||||
$ | 100 | $ | 235 | $ | 2,579 | $ | 251 |
NOTE 10:- | SUBSEQUENT EVENTS |
a. | On October 15, 2019, the Company received a convertible loan from a third party (the “Lender”). The loan has two years term, in the principal amount of $1,100 that bears an annual 10% interest rate. Prior to the maturity date of the convertible loan, the Company, at its option, has the right to redeem, in cash, in part or in whole, the amounts outstanding provided that as of the date of the redemption notice (i) the volume-weighted average price of the Company’s ordinary shares is less than $1.25 and (ii) there is no equity condition failures as defined therein. In the event that the Company wishes to redeem any amount under the convertible loan, the Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the outstanding amount being redeemed in addition to outstanding and accrued interest. |
The Lender shall be entitled to convert the principal loan and the outstanding interest (the “Conversion Amount”) into such number of ordinary shares determined by dividing (x) such Conversion Amount by (y) the fixed conversion price of $1.25 or (z) 80% of the lowest the volume-weighted average price of the Company’s ordinary shares during the 10 trading days immediately preceding the conversion date.
b. | On October 14, 2019, the “Company entered into a binding Memorandum of Understanding (the “MOU”) with Spanky’s Clothing Inc. (“Spanky’s Clothing”), a company affiliated with Mr. Calvin Cordozar Broadus Jr., professionally known as “Snoop Dogg” (“Snoop Dogg”), with respect to services that Snoop Dogg will provide to the Company as its brand ambassador. Pursuant to the MOU, Snoop Dogg will, among other things, promote the Company’s products on his various social media channels, host a Company sponsored VIP event and provide other brand ambassador services. In return, the Company will pay to Snoop Dogg and/or his affiliates aggregate cash payments of $1,000 over the term of the MOU. The Company will also pay expenses related to the Company sponsored VIP event and the marketing and personal services provided by Snoop Dogg and a marketing budget for the Company’s product. In addition, the Company will issue to Snoop Dogg and/or his affiliates convertible debentures (the “Debentures”) with an aggregate original principal amount of $1,400. Half of the Debentures were issued upon signing of the MOU (of which a portion of the principal amount was issued under the name of Stampede Management, the facilitator of the transactions contemplated under the MoU), and the remainder shall be issued on or before the date that is six (6) months following the signing of the MOU. |
The Debentures are unsecured, have a maturity date six months from the month following the signing of the respective Debenture, bear no interest and may be converted, at the election of the holder, into common stock par value $0.0001 each of the Company at a conversion price of the lesser of (x) $1.40 per share, or (y) the closing bid price of the Company’s common stock on the trading day immediately preceding the date of the applicable notice of conversion. The Debentures contain anti-dilution protection during the period which the Debentures are outstanding, for decrease in share price and additional issuances, to maintain the aggregate percentage of equity holdings of the holders of all Debentures at 4.99%.
c. | OnNovember 11, 2019, Eroll received a loan from a a related party in the principal amount of approximately $286 (NIS 1,000) The principal amount shall bear no interest. | |
Eroll shall repay the loan amount in full at the lapse of 90 days from the loan date. |
F-27
Item 2. Management’s Discussion and Analysis or Plan of Operation.Financial Condition and Results of Operations.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 AND THE RELATED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, BOTH OF WHICH ARE CONTAINED IN OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), ON JANUARY 15, 2019. PAST OPERATING RESULTS ARE NOT NECESSARILY INDICATIVE OF RESULTS THAT MAY OCCUR IN FUTURE PERIODS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS QUARTERLY REPORT.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. SuchThis quarterly report on Form 10-Q contains certain forward-looking statements contained in this Form 10-Q involve riskswithin the meaning of the Private Securities Litigation Reform Act of 1995 and uncertainties,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 statements as to:
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product and technology developments, future financial conditions, results or projections or current expectations These forward-looking statements can generally be identified as such becauseinvolve known or unknown risks, uncertainties and other factors that may cause the contextactual results, performance, or achievements of the statement will include wordsCompany 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,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statementsbelieve that describe our future plans, objectives or goals are also forward-looking statements. Suchthe expectations reflected-in the forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actualreasonable, we cannot guarantee future results, to differ materially from those anticipated aslevels of the date of filing of this Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent eventsactivity, performance or circumstances.
This discussion contains forward-looking statements that reflect our plans, estimates and beliefs.achievements. Our actual results may differ materially from those anticipated in these forward-looking statements.
Summary of Business
GRCR Partners Inc. (the “Company”, “Our” or “We”) was formed on January 16, 2015 under the laws These forward-looking statements are made as of the Statedate of Delaware. We are a provider of risk managementthis report, and asset protection services for businesses, individuals and families. Our offices are located at 1771 Post Rd East #178, Westport CT 06880. Our telephone number is 203-307-1179 and our website iswww.grcrpartners.com
Priorwe assume no obligation to 2017, the Company provided its services primarily to small businesses on a project-based fee arrangement. During 2017, the Company shifted its business model to more recurring fee based engagements and expanded target markets to included individuals and families. The Company delivers services following its progressive bSecure methodology. The Company believes that by combining expert consulting, proven processes and software, clients can cost effectively build and maintain RAP programs that reduce day-to-day and long-term risks in their work environment, personal and family lives.
Our Opportunity
Along with the lack of clearly identified corporate risk management roles, an overall complex approach to personal and family asset protection, we believe there is a need to bridge the communication gap between technology and risk as well as lack of appropriate metrics to define and track enterprise risks. Some may be scratching their heads and wondering why CROs are necessary. After all, isn’t risk already part of the domain responsibility of the chief executive officer (CEO), general counsel, chief security officer (CSO), chief information officer (CIO), chief information security officer (CISO) and chief operating officer (COO)? The answer is yes; every member of the C-suite is responsible for their domain and for ensuring the remainder of the enterprise or company benefits from their decisions and counsel for collective risk management.
Given the global nature of business today, it has become harder and harder to wrap your arms around risk management. How do you invest intelligently? How do we protect ourselves and our customers in the most effective way? Today’s risk management needs to go beyond just checking off boxes that are required by regulations. The only way you can truly protect the enterprise is by understanding the context and the landscape in which your business operates. If an organization can leverage that information and collect it and provide context, the organization will be more agile and adaptiveupdate these forward-looking statements whether as a result of new information, future events, or otherwise, other than as required by law. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this report might not occur and actual results and events may vary significantly from those discussed in the forward-looking statements. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Readers are also urged to carefully review and consider the various disclosures we have made in that report.
When used in this quarterly report, the terms “Seedo,” “the Company,” “we,” “our,” and “us” refer to SEEDO CORP., a Delaware corporation, unless otherwise indicated or as otherwise required by the context.
Company Overview
We are a global technology company focusing on producing cutting edge technology for the Agro-tech markets for home, industrial, commercial and medical use. We produce automated plant growing devices managed and controlled by an artificial intelligent algorithm, allowing customers to grow their own herbs and vegetables effortlessly from seed to harvest, while providing optimal conditions to assure premium quality produce year-round. Seedo delivers the future of automated plant growing technologies today. Our technology affords for pesticide free, soil free optimal growing in a self-regulating climate - allowing anyone to grow simply, from seed to harvest.
Sales, Marketing and the SEEDO “Community”
We are continuing our organic marketing efforts and have approximately:
● | 87,000 followers on Facebook | |
● | 63,000 followers on Instagram | |
● | More than 50 million views on Facebook | |
● | 1.3 million views on YouTube |
As of September 30, 2019, we have delivered 462 home cultivator units which amounts to approximately 17% of our pre-orders. We believe that following the delivery of the pre-order units combined with a marketing campaign and our community strength, we will be able to sell and deliver thousands of our “Home Cultivator” devices world-wide. At the moment, we have delivered to customers in Europe and North America, which are our target markets, though our devices are also being sold in Latin America, Asia, Australia, the Middle East and Africa.
In addition, we recently entered into an agreement with a company affiliated with Mr. Calvin Cordozar Broadus Jr., professionally known as “Snoop Dogg” (“Snoop Dogg”), with respect to services that Snoop Dogg will provide to the Company as its brand ambassador. In this role, Snoop Dogg will represent the Company on a variety of platforms and work closely with the Company to achieve maximum brand awareness and sales growth.
We also recently signed an agreement with a leading online cannabis retailer, Namaste Technologies, for marketing and distribution across Europe and Canada.
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 risk level goes down.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. |
AddFarm 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 challengeAgro-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 Internetmedical 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 of Software to Be Sold, Leased, or Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.
Based on our product development process, technological feasibility is established upon the completion of a working model.
We do not incur material costs between the completion of a working model and the explosionpoint at which the products are ready for general release. Therefore, R&D costs are charged to the consolidated statement of operations as incurred. We did not capitalize expenses during the three months ended September 30, 2019.
Stockholders’ Equity (Deficit)
Authorized Shares
The Company is authorized to issue up to 500,000,000 shares of common stock, par value $0.0001 par value. Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.
Commitments and Contingencies
On October 2017, Eroll entered into lease agreements for its office premises which lease will end on June 30, 2024.
On September 2017, Eroll entered into a vehicle operating lease agreement for a period of 32 months.
Subsequent Events
a. On October 15, 2019, the Company received a convertible loan from a third party (the “Lender”). The Loan has two years term, in digital information, risk managementthe principal amount of $1,100 that bears an annual 10% interest rate. Prior to the maturity date of the convertible loan, the Company, at its option, has the right to redeem, in cash in part or in whole, the amounts outstanding provided that as of the date of the redemption notice (i) the volume-weighted average price of the Company’s shares of common stock is less than $1.25 and information security touches every aspect(ii) there is no equity condition failures as defined therein. In the event that the Company wishes to redeem any amount under the convertible loan, the Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium equal to 20% of the outstanding amount being redeemed in addition to outstanding and accrued interest.
The Lender shall be entitled to convert the principal loan and the outstanding interest (the “Conversion Amount”) into shares of common stock, the number of issuable shares upon conversion of any shall be determined by dividing (x) such Conversion Amount by (y) the Fixed Conversion Price of $1.25 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.
b. On November 11, 2019, Eroll received a loan from a related party in the principal amount of approximately $286 (NIS 1,000). The principal amount shall bear no interest.
Eroll shall repay the loan amount in full at the lapse of 90 days from the loan date.
Financing Needs
We will require additional financing to implement our business today.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 Strategyability to obtain needed financing may be impaired by such factors as the capital markets, both generally and Planspecifically 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.
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Results of Operations
We planNine months ended September 30, 2019, compared to establish a broad customer base through traditional offline marketing as well as through social media which would include; email campaigns, building a Facebook presence and developing our own blog for subject matter experts in the legal, governance, compliance and reporting industry.
Over the next twelvenine months we plan to;
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Build out awareness to our “bSecure” workshop series and procure additional corporate sponsors and educational partners Through the Free or Corporate/Community Sponsored workshops, attendees learn about risk management planning and can work through the development of their custom plan. Inended September 30, 2018 we delivered our first workshop. The workshops have been purposely built to be progressive and include;
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Workshop 1 – Basics to business owner, individual and family risk management planning
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Workshop 2 – Introduction to software tools and processes to build risk management plans
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Workshop 3 – Interactive session that includes assistance with developing the plan (only open to attendees from workshops 1 and 2)
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Workshop 4 – By invite only, interactive session where attendees complete their first draft of a risk management plan
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Expand our socials media efforts, including, launching a Facebook for business page. We plan to do more internet marketing that might include, search engine marketing, blogging, organic and paid for search engine optimization. In 2018 we launched our new website. From the website, visitors may now download our CEO’s new white paper entitled “Defining Risk – Roles and Metrics.” A version is available for both business owners and individuals In 2018 we commenced testing of our industry targeting social media plans through the distribution of information to over 1500 broker dealers and registered investment advisors in the northeastern United States.
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Further explore the use of “For-Cause Alliance Partnerships” whereby we partner up with non-profit educational-like mission based organizations to further both business plans and reputation with the local community.
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Complete the development of our Risk Management Health Checkup to be used with 1 on 1 risk management planning session
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Producing a survey related to risk management for both individuals and businesses which will be used to complete a report as a follow-up to our CEO’s whitepaper – Defining Risk: Roles and Metrics.
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Results of Operations
Summary of Key Results
For the unaudited three months ending June 30, 2018 and 2017
Revenues and Cost of Revenues
Total revenue for the three months ended June 30, 2018 and 2017, was $14,485 versus $16,000, respectively. Revenues are from professional services.
Cost of revenue for the three months ended June 30, 2018 and 2017, was $8,500 versus $7,500, respectively. Cost of revenue included payments to third party independent contractors and $1,500, and $2,000 paid to a related party for the three months ended June 30, 2018 and 2017, respectively.
Operating Expenses
Total operating expenses for the three months ended June 30, 2018 and 2017, was $13,657 versus $6,493, respectively. The increase was primarily due to increased marketing professional service fees. Operating expenses included payments of $500 and $1,000 to a related party for the three months ended June 30, 2018 and 2017, respectively.
For the unaudited nine months ending June 30, 2018 and 2017
Revenues and Cost of Revenues
Total revenue for the nine months ended JuneSeptember 30, 2018 and 2017, was $60,912 versus $25,000, respectively. Revenues are from professional services and expense reimbursements.2019 were $703 thousand compared to $0 for the same period in 2018. The increase in revenue wasresulted due to new clientsinitial sales our home devices to customers in Europe and the United States that started during the 1st Quarterfirst nine months of 2018. fiscal year 2019. The Company delivered 462 devices to its pre-order customers, with an average selling price of $1.5 thousand.
Cost of revenuesales for the nine months ended JuneSeptember 30, 2018 and 2017, was $31,800 versus $12,000, respectively. Cost of revenue included payments2019 were $1,142 thousand compared to third party independent contractors and $3,250, and $2,000 paid to a related party$0 for the nine months ended June 30, 2018same period in 2018. The increase mainly consists of direct costs in the amount of $561 thousand, sub-contractors costs related to customer service and 2017, respectively.customer support in the amount of $342 thousand, share based compensation expenses in the amount of $34 thousand, allowance for warranty cost in the amount of $35 thousand, an increase of $137 thousand in shipment and warehouse costs and an increase of $33 thousand in miscellaneous costs.
Operating Expenses
Total operatingR&D expenses for the nine months ended JuneSeptember 30, 2018 and 2017, was $42,058 versus $35,945, respectively.2019 were $3,160 thousand compared to $1,633 thousand for the same period in 2018. This increase was primarily due to increased R&D efforts for progressing the Home Cultivator from a prototype version into mass production, and from developing our commercial scale containers, which resulted in increased salary and related costs of $101 thousand, increased R&D material costs of $563 thousand, increased depreciation expenses related to R&D of $100 thousand and increased share based compensation expenses of $302 thousand increase of $432 thousand in expense to subcontractors, an increase of $29 thousand in miscellaneous costs.
Total marketing and sales efforts and professional service fees. Operating expenses included payments of 850 and $1,000 to a related party for the nine months ended JuneSeptember 30, 20182019, were $715 thousand compared to $704 thousand for the same period in 2018. This was primarily due to an increase of $17 in share based compensation expenses.
Total general and 2017, respectively.administrative (“G&A”) expenses for the nine months ended September 30, 2019, were $3,422 thousand compared to $1,841 thousand, for the same period in 2018. This was primarily due to increases of $409 thousand in expenses for salary and related costs, increase of $63 thousand in travel expenses, increase of $1,534 thousand in shared based compensation expenses, increase of $50 thousand in insurance expenses and of $46 in miscellaneous G&A expenses. The increase was offset with a decrease of $521 thousand in expenses for external advisors and professional services due to the Reversed merger took place on September 14, 2018.
Total financial expenses for the nine months ended September 30, 2019, were $2,579 thousands, compared to $251 thousand for the same period in 2018. The increase of $2,328 thousand was primarily due to an increase of $2,424 in expenses of convertible loans in accordance with ASC 470-20, “Debt” with Conversion and Other Options with a Beneficial Conversion Feature.
Liquidity and Capital Resources
As of June 30, 2018Overview
Since inception (Januaryon January 16, 2015)2015, the Company hadhas a cumulative net lossdeficit of $104,118$18,837 thousand and we have a working capital deficit of $48,742 at June$4,301thousand as of September 30, 2018. Although we are generating recurring revenue, and had a profit for the most recent quarter end, our2019. Our future growth inis dependent upon achieving further sales growth,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. The company may also explore other grow opportunities, including, but not limited to, a merger or acquisitions.
Since our inception (January 16, 2015) through June 30, 2018,Historically, we have generated total revenuesfinanced our cash flow and operations from the initial contribution of $330,374. our majority shareholder and by raising equity and convertible loans. Since incorporation and as of September 30, 2019, the Company has raised approximately $13.1 millions, and raised $6.6 millions during the nine months ended September 30, 2019.
As of JuneSeptember 30, 2018,2019, our cash balance was $251 and we had accounts receivable of $5,000.$94 thousand. We believe we will require a minimum of $50,000$7,000 thousand in additional cashworking capital over the next 12 months to pay forgrow the remainderCompany as currently planned, which is inclusive of cost of sales, covering our total offeringoperation costs maintainand maintaining our regulatory reporting and filings and cover our operations costs.filings. Should our revenues not increase as expected, andor 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,expenses; we may need funds in excess of the depletion of our working capital would be accelerated. In the event that our revenues from operations are insufficient to meet our working capital needs, our major shareholder, Sean Conrad, has indicated that he may be willing to provide funds required to maintain the reporting status in the form of a non-secured loan for the next twelve months as the expenses are incurred if no other proceeds are obtained by the Company or sell ownership in the Company. However,amounts currently contemplated,we depend on loans and equity raises and there is no contractassurance that we may be able to obtain such funding in place or written agreement securing this agreement. Management believes if the Company cannot maintain its reporting status with the SEC it will have to cease all efforts directed towards the Company. As such, any investment previously made would be lost in its entirety.
As a matter of practice, we don’t intend to hire our independent consultants. Consultants will be engaged as independent contractors and will be paid on either a fixed or hourly basis per engagement as clients are retained. We believe this approach will allow us to keep our fixed operating costs low.near future.
Consistent with Section 144 of the Delaware General Corporation Law, it is our current policy that all transactions between usthe Company and our officers, directors and their affiliates will be entered into only if such transactions are approved by a majority of the then existing directors, are approved by vote of the stockholders, or are fair to us as a corporation as approved or ratified by the boardour 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 arrangementsOff Balance Sheet Arrangements
The Company has noAs of September 30, 2019, we did not have any off-balance sheet arrangements that have or are reasonably likelyas defined in Item 303(a)(4) of Regulation S-K.
Recently Issued Accounting Pronouncements
For information with respect to have a current or future effect or change onrecent accounting pronouncements, see Note 3 to the Company’sunaudited condensed consolidated financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent intereststatements included elsewhere in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.this Form 10-Q.
Critical Accounting Policies
Our discussion and analysis of the financial condition and results of operations are based upon the Company’s unaudited condensed financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).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 RecognitionRecognition:
The Company derives its revenuegenerates revenues from the salesales of compliance, legal, risk management and management and public reporting consulting services.products. The Company utilizes written contracts as the meanssells its products directly to establish the terms and condition services are sold toend customers.
Consulting Services
BecauseIn 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 provides its applications as services, it follows the provisions of Accounting Standards Codification No.605,Revenue Recognition. The Company recognizes revenue when all ofapplies the following conditions are met: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.
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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.
| Determine the | |
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.
| Allocate the |
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.
| Recognize revenue when or as the |
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 revenuecompensation 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 servicesthe 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 performed or monthlythe fair market value of the underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated based upon contract terms. Contracts may eithercertain peer companies that the Company considered to be forcomparable. 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 specific project, or,reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a monthly recurring fee.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.
Off-Balance Sheet ArrangementsThe 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.
We had no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engageThe fair value for options granted in trading activities involving non-exchange traded contracts. April 2019, is estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following assumptions:
September 30, 2019 | ||||
Expected volatility | 131.93 | % | ||
Risk-free rate | 2.29 | % | ||
Expected term (in years) | 4.66-4.75 | |||
Share price | $ | 4.01 |
The Company accounts for options granted to consultants and other service providers under ASC No. 718 and ASC No. 505, “Equity-based payments to non-employees.” The fair value of these options was estimated using a Black-Scholes-Merton option-pricing model.
In the nine months ended September 30, 2019, the non-cash compensation expenses related to nonemployees were $766 thousand.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable toWe are a “smallersmaller reporting company”company as defined in Item 10(f)(1)Rule 12b-2 of SEC Regulation S-Kthe Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company.
(a)Evaluation of Disclosure Controls and Procedures
Based on their evaluation asIn connection with the preparation of the end of the period covered by thisour 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, have concluded thatof the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of 1934,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 amended (the “Exchange Act”) are notof September 30, 2019 conducted as part of our preparation of the quarterly unaudited condensed financial statements, management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by usthe Company in the reports that we fileit files or submitsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SECs”)SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.forms.
(b)Changes in the Company’s Internal ControlsControl Over Financial Reporting
ThereAs of the end of the period covered by this report, there have been no changes in the Company’s 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 most recently completed fiscal quarterthree months ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 5. Other
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Part II- Other Information
Item 1. Legal Proceedings
We areOn November 11, 2019, Mr. Jendayi Frazer, one of the Company’s directors, provided the Company notice of his immediate resignation. Mr. Frazer’s departure was not a party to any legal proceedings. Management is not awareresult of any legal proceedings proposed to be initiated against us. However, from time to time, we may become subject to claims and litigation generally associateddisagreement with any business venture operating in the ordinary course.Company.
Item 1A. Risk Factors
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K
Item 2. Recent Sale of Unregistered Securities
None.
Exhibit Number | Description | |||
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31.1* | ||||
| Rule 13a-14(a) Certification of the Chief Executive | |||
31.2* | Rule 13a-14(a) Certification of the Chief Financial Officer | |||
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32.2** | Section 1350 Certification of Chief Financial Officer | |||
101.1* | The following materials from Seedo Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. |
* Filed along with this document
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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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: November 14, 2019 | By: | /s/ Zohar Levy | |
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