Indicate by check
mark whether the registrant (1) has filed all reports required 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.
Indicate by check
mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
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.
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding
of each of the issuer’s classes of common equity, as of the latest practicable date.
When used in this quarterly report, the
terms “Seedo,” “the Company,” “we,” “our,” and “us” refer to SEEDO
CORP., a Delaware corporation.
PART I. Financial Information
SEEDO CORP.
CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
As of June 30, 2019
SEEDO CORP.
CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
As of June 30, 2019
IN THOUSANDS OF U.S. DOLLARS
INDEX
|
Page
|
|
|
Unaudited Condensed Consolidated Balance Sheets
|
F-2
|
|
|
Unaudited Condensed Consolidated Statements of
Operation
s
|
F-3
|
|
|
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Deficiency
|
F-4
|
|
|
Unaudited Condensed Consolidated Statements of Cash Flows
|
F-6
|
|
|
Notes to Unaudited Consolidated Financial Statements
|
F-7 - F-26
|
- - - - - - - - - - - -
SEEDO CORP.
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
|
U.S. dollars in thousands, except share and per share data
|
|
|
|
|
June 30
|
|
|
December 31
|
|
|
|
Note
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
1,122
|
|
|
$
|
921
|
|
Restricted bank deposit
|
|
|
|
|
151
|
|
|
|
87
|
|
Financial institute
|
|
|
|
|
356
|
|
|
|
830
|
|
Other accounts receivable
|
|
|
|
|
401
|
|
|
|
81
|
|
Advances to suppliers
|
|
|
|
|
1,319
|
|
|
|
328
|
|
Inventory
|
|
|
|
|
255
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
|
|
3,604
|
|
|
|
2,404
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
1,210
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
$
|
4,814
|
|
|
$
|
3,638
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Short-term loan
|
|
5
|
|
$
|
300
|
|
|
$
|
411
|
|
Trade payables
|
|
|
|
|
934
|
|
|
|
521
|
|
Convertible loans
|
|
7
|
|
|
-
|
|
|
|
771
|
|
Loan from related party
|
|
6
|
|
|
850
|
|
|
|
908
|
|
Advances from customers
|
|
|
|
|
2,406
|
|
|
|
3,016
|
|
Other accounts payable
|
|
|
|
|
1,278
|
|
|
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
5,768
|
|
|
|
6,748
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Convertible loan
|
|
7
|
|
|
201
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDER’S DEFICIENCY
|
|
8
|
|
|
|
|
|
|
|
|
Ordinary shares of $0.0001 par value
|
|
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 shares at June 30, 2019 and December 31, 2018; Issued and Outstanding: 20,007,144 and 16,198,578 shares at June 30, 2019 and December 31, 2018, respectively
|
|
|
|
|
2
|
|
|
|
2
|
|
Additional Paid in capital
|
|
|
|
|
14,555
|
|
|
|
5,410
|
|
Accumulated deficit
|
|
|
|
|
(15,712
|
)
|
|
|
(8,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’
deficiency
|
|
|
|
|
(1,155
|
)
|
|
|
(3,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ deficiency
|
|
|
|
$
|
4,814
|
|
|
$
|
3,638
|
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
SEEDO CORP.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
U.S. dollars in thousands, except share and per share data
|
|
|
|
|
Three months ended
June 30
|
|
|
Six months ended
June 30
|
|
|
|
Note
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
$
|
383
|
|
|
$
|
-
|
|
|
$
|
393
|
|
|
$
|
-
|
|
Cost of revenues
|
|
|
|
|
566
|
|
|
|
-
|
|
|
|
580
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loss
|
|
|
|
|
183
|
|
|
|
-
|
|
|
|
187
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
$
|
1,109
|
|
|
$
|
582
|
|
|
$
|
1,939
|
|
|
$
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
|
|
228
|
|
|
|
174
|
|
|
|
462
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
|
|
1,507
|
|
|
|
174
|
|
|
|
2,123
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
3,027
|
|
|
|
930
|
|
|
|
4,711
|
|
|
|
2,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses
|
|
9
|
|
|
572
|
|
|
|
20
|
|
|
|
2,479
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
$
|
3,599
|
|
|
$
|
950
|
|
|
$
|
7,190
|
|
|
$
|
2,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
|
$
|
(0.18
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.20
|
)
|
Weighted average number of ordinary shares used in computing basic and diluted loss per share
|
|
|
|
|
19,774,022
|
|
|
|
10,572,078
|
|
|
|
18,403,800
|
|
|
|
10,572,078
|
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
SEEDO CORP.
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY (Unaudited)
|
U.S. dollars in thousands, except share and per share data
|
|
|
Ordinary shares
|
|
|
Additional
Paid in
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 1, 2018
|
|
|
10,525,587
|
|
|
$
|
1
|
|
|
$
|
1,534
|
|
|
$
|
(3,590
|
)
|
|
$
|
(2,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(950
|
)
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2018
|
|
|
10,525,587
|
|
|
$
|
1
|
|
|
$
|
1,534
|
|
|
$
|
(4,540
|
)
|
|
$
|
(3,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 1, 2019
|
|
|
17,518,975
|
|
|
$
|
2
|
|
|
$
|
10,620
|
|
|
$
|
(12,113
|
)
|
|
$
|
(1,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares
|
|
|
1,820,575
|
|
|
|
*
|
|
|
|
1,900
|
|
|
|
-
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible loans
|
|
|
623,025
|
|
|
|
*
|
|
|
|
269
|
|
|
|
-
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Based Compensation to employees and non-employees
|
|
|
-
|
|
|
|
-
|
|
|
|
979
|
|
|
|
-
|
|
|
|
979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares upon Shares Based Compensation to non-employees
|
|
|
44,569
|
|
|
|
*
|
|
|
|
87
|
|
|
|
-
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
700
|
|
|
|
-
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,599
|
)
|
|
|
(3,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
|
|
20,007,144
|
|
|
$
|
2
|
|
|
$
|
14,555
|
|
|
$
|
(15,712
|
)
|
|
$
|
(1,155
|
)
|
SEEDO CORP.
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY (Unaudited)
|
U.S. dollars in thousands, except share and per share data
|
|
|
Ordinary shares
|
|
|
Additional
Paid in
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2018
|
|
|
10,525,587
|
|
|
$
|
1
|
|
|
$
|
1,534
|
|
|
$
|
(2,385
|
)
|
|
$
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,155
|
)
|
|
|
(2,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2018
|
|
|
10,525,587
|
|
|
$
|
1
|
|
|
$
|
1,534
|
|
|
$
|
(4,540
|
)
|
|
$
|
(3,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019
|
|
|
16,198,578
|
|
|
$
|
2
|
|
|
$
|
5,410
|
|
|
$
|
(8,522
|
)
|
|
$
|
(3,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
979
|
|
|
|
-
|
|
|
|
979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares upon Shares Based Compensation to non-employees
|
|
|
94,569
|
|
|
|
*
|
|
|
|
134
|
|
|
|
-
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature related to convertible loan
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
-
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt on account of shares and exercise
warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1,214
|
|
|
|
-
|
|
|
|
1,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,190
|
)
|
|
|
(7,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
|
|
20,007,144
|
|
|
$
|
2
|
|
|
$
|
14,555
|
|
|
$
|
(15,712
|
)
|
|
$
|
(1,155
|
)
|
*) Represents an amount less than $1.
The accompanying notes are an integral
part of these condensed consolidated financial statements.
SEEDO CORP.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
U.S. dollars in thousands
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(7,190
|
)
|
|
$
|
(2,155
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
86
|
|
|
|
18
|
|
Financial expenses related to convertible loans
|
|
|
622
|
|
|
|
8
|
|
Financial expenses related to short-term loans
|
|
|
800
|
|
|
|
-
|
|
Financial expenses related to loans from related party
|
|
|
942
|
|
|
|
-
|
|
Share based compensation expenses to employees and non-employees
|
|
|
1,011
|
|
|
|
-
|
|
Other
|
|
|
1
|
|
|
|
(6
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in other accounts receivable
|
|
|
(1,312
|
)
|
|
|
(658
|
)
|
Increase in inventory
|
|
|
(98
|
)
|
|
|
(29
|
)
|
Increase (Decrease) in advances from customers
|
|
|
(136
|
)
|
|
|
1,626
|
|
Increase in trade payables
|
|
|
413
|
|
|
|
197
|
|
Increase in other accounts payable
|
|
|
12
|
|
|
|
358
|
|
Net cash used in operating activities
|
|
|
(4,849
|
)
|
|
|
(641
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(62
|
)
|
|
|
(355
|
)
|
Net cash used in investing activities
|
|
|
(62
|
)
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from convertible loans
|
|
|
258
|
|
|
|
500
|
|
Proceeds from issuances of Ordinary Shares
|
|
|
4,404
|
|
|
|
-
|
|
Issuance of warrants
|
|
|
514
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
5,176
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and cash equivalents and restricted cash
|
|
|
265
|
|
|
|
(496
|
)
|
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
|
|
$
|
1,273
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,122
|
|
|
$
|
53
|
|
Restricted bank deposits included in short term assets
|
|
|
151
|
|
|
|
58
|
|
|
|
$
|
1,273
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
35
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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.
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
|
a.
|
Seedo Corp. (the “Company,” “Our” or “We”), was incorporated
on January 16, 2015, as GRCR Partners Inc., under the laws of Delaware. Prior to September 14, 2018, we were solely a provider
of risk management and asset protection (“RAP”) services for businesses, individuals and families. On September 14,
2018, we acquired Eroll Grow Tech Ltd. (“Eroll”), an Israeli company and now the wholly owned subsidiary of the Company.
On September 17, 2018, the Company’s name was changed to Seedo Corp. Since the acquisition of Eroll, we produce the world’s
first fully-automated plant growing device managed and controlled by an artificial intelligent algorithm, allowing consumers to
grow their own herbs and vegetables effortlessly from seed to plant, while providing optimal conditions to assure premium quality
produce year-round.
|
Reverse merger
On September 14, 2018, the
Company and Eroll completed a merger transaction. Eroll survived the merger as a wholly-owned subsidiary of the Company.
Immediately following the merger,
Eroll shareholders held approximately 87.4% of the outstanding ordinary shares of the Company in exchange of 1,137 ordinary shares
of Eroll on a fully diluted basis while the pre-merger Company shareholders retained the remaining approximate 12.6%. The pre-merger
Eroll shareholders hold their existing shares of the Company’s Ordinary stock.
Pursuant to the terms and conditions
of the Agreement, at the time of the Transaction, the Company issued 12,073,500 nonassessable shares of their ordinary shares.
Each of the holders of the pre-acquisition issued and outstanding ordinary shares of Eroll received their pro-rata allotment of
these shares according to their then current shareholding in the Eroll. At the closing of this transaction, there were 15,000,000
ordinary shares 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.
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
Eroll was incorporated pursuant
to the laws of the state of Israel on May 18, 2015.
Eroll has seven subsidiaries
as followings:
Seedo Us Inc. (Seedo Inc.)
incorporated pursuant to the laws of the state of Colorado U.S in November 2016. To this date the subsidiary has no activities.
Seedo USA LLC (Seedo USA) incorporated
pursuant to the laws of the state of Nevada U.S on March 2017. To this date the subsidiary has no activities.
Urban Auto Grow 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.
|
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 $15,712 as of June 30, 2019, the
Company has negative operating cash flow in the total amount of $4,849 for the period of six months ended June 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.
|
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
The Company intends to finance operating costs over the next twelve months with existing cash on hand,
reducing operating spend, and future issuances of equity and debt securities, or through a combination of the foregoing. However,
the Company will need to seek additional sources of financing if the Company requires more funds than anticipated during the next
12 months or in later periods.
The accompanying condensed
consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates
the realization of assets and liabilities and commitments in the normal course of business.
As of June 30, 2019, the condensed
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s
ability to continue as a going concern.
|
NOTE 2:-
|
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
The accompanying unaudited interim
condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
and standards of the Public Company Accounting Oversight Board for interim financial information. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting principles in the United States for complete financial
statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the Company’s (i) consolidated financial position as of June 30, 2019,
(ii) consolidated results of operations for the three and six months ended June 30, 2019 and (iii) consolidated cash flows for
the six months ended June 30, 2019. The results for the three and six months periods ended June 30, 2019, as applicable, are not
necessarily indicative of the results that may be expected for the year ending December 31, 2019.
|
NOTE 3:-
|
SIGNIFICANT ACCOUNTING POLICIES
|
The consolidated financial statements
have been prepared in accordance with U.S Generally Accepted Accounting Principles in the United States of America.
|
a.
|
The significant accounting policies applied in the audited consolidated financial statements of
the Company as disclosed in the Company’s annual report on Form 10-K for the year ended September 30, 2018 filed with the
SEC on January 15, 2019, are applied consistently in these unaudited interim condensed consolidated financial statements, except
as discussed below.
|
The Company generates revenues
from sales of products. The Company sells its products directly to end customers.
In accordance with Topic 606,
revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with
the transfer of control of our products. Revenue is measured as the amount of consideration to which we expect to be entitled.
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 exchange for transferring
products or providing services. To achieve this core principle, the Company applies the following five steps:
|
1.
|
Identify the contract with a customer
|
A contract
with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding
the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties
to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the
Company determines that collection of substantially all consideration for products or services that are transferred is probable
based on the customer’s intent and ability to pay the promised consideration.
|
2.
|
Identify the performance obligations in the contract
|
Performance obligations promised
in a contract are identified based on the products or services that will be transferred to the customer that are both capable of
being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources
that are readily available from the Company, and are distinct in the context of the contract, whereby the transfer of the products
or services is separately identifiable from other promises in the contract.
|
3.
|
Determine the transaction price
|
The transaction price is determined
based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer.
To the extent the transaction price is variable, revenue is recognized at an amount equal the consideration to which the Company
expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and
estimated using either the expected value method or the most likely amount method, depending on the nature of the program.
|
4.
|
Allocate the transaction price to performance obligations in the contract
|
If the contract contains a
single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines
standalone selling price based on the price at which the performance obligation is sold separately.
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
|
NOTE 3:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
b.
|
Revenue Recognition (Cont.):
|
|
5.
|
Recognize revenue when or as the Company satisfies a performance obligation.
|
The Company generally satisfies
performance obligations at a point in time, once the customer has obtained the legal title to the items purchased. Revenue is recognized
based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or
service to a customer.
Typical timing of payment
The Company offers several
payment methods that includes but not limited to full advance payment and partial amount in advanced while collecting the remaining
amount before delivery.
Revenue
expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts
that have an original expected duration of one year or less
.
The Company’s unfilled
performance obligations as of June 30, 2019 is $2,406 and the estimated revenue expected to be recognized in the future related
to the sales of our Home Growing Devices amounted to $4,422.
The Company recognized revenues
of $393 for the six month ended June 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 June 30, 2019, the Company recorded a provision for warranty in a
total amount of $20.
|
c.
|
Accounting for share-based Compensation:
|
The Company accounts for share-based
compensation in accordance with ASC No. 718, “Compensation-Stock Compensation” (“ASC No. 718”). ASC
No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing
Model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite
service periods in the Company’s consolidated statements of operations. The Company recognizes compensation expenses for
the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.
The Company selected the
Black-Scholes-Merton option pricing model as the most appropriate fair value method for its share-option awards. The
option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the
underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated
based upon certain peer companies that the Company considered to be comparable. The expected option term represents the
period of time that options granted are expected to be outstanding. The expected option term is determined based on the
simplified method in accordance with Staff Accounting Bulletin No. 110, as adequate historical experience is not
available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience
is available to provide a reasonable estimate of the expected term. The risk-free interest rate is based on the yield from
U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to
pay dividends.
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):
|
As of June 30, 2019, the outstanding
options measured according to the above mentioned method.
The fair value of Restricted
Stock Units (“RSUs”) granted is determined based on the price of the Company’s ordinary shares 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:
|
|
June 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 six months ended
June 30, 2019, the non-cash compensation expenses related to nonemployees were $404 thousand.
|
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.
|
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
|
NOTE 3:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
d.
|
New Accounting Pronouncements (Cont.):
|
The Company
early adopted ASU 2014-09 as of the January 1, 2019. The adoption did not have a significant impact on the Company’s net
income.
Recently
Implemented Accounting Pronouncements :
|
2.
|
Cash Flow - On November 17, 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic
230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” This ASU requires the statement of cash flows
to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash
or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are to
be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement
of cash flows. The Company adopted ASU 2016-18 on October 1, 2018, and it did not have a material impact on its accounting and
disclosures.
|
In July 2017, the FASB issued
ASU 2017-11, “Earnings per share: I. Accounting for Certain Financial Instruments with Down Round Features,” which
allows companies to exclude a down round feature when determining whether a financial instrument is considered indexed to the entity’s
own stock. As a result, financial instruments with down round features may no longer be required to be accounted classified as
liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been
adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of
the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing
basic earnings per share. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective
approach. The Company early adopted this guidance in connection with the down round feature within the embedded optional conversion
feature of the warrants, as discussed in Note 7d.
|
3.
|
In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of
Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include
share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to
nonemployees and employees will be substantially 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.
|
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 June 30, 2019, are as following:
2019
|
|
$
|
87
|
|
2020
|
|
|
244
|
|
2021
|
|
|
262
|
|
2022
|
|
|
202
|
|
And thereafter
|
|
|
213
|
|
|
|
$
|
1,008
|
|
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 June 30, 2019, are as following:
2019
|
|
$
|
52
|
|
2020
|
|
|
89
|
|
2021
|
|
|
30
|
|
|
|
$
|
171
|
|
|
NOTE 5:-
|
SHORT TERM LOANS
|
On December
11, 2018, the Company received a loan from a lender in the principal amount of $1,000 (out of which $50 was directly transferred
as finder fee). The loan is to be repaid in full at the end of 180 days, the principal amount shall bear interest at the rate of
17.5% calculated per the commencing of the date of the actual provision of the principal amount and ending on the maturity date,
on a linear daily basis, up to a maximum amount of approximately $175. The interest shall be accrued but not compounded.
The Company
also granted the foregoing lender warrants to purchase 333,333 and 100,000 Ordinary shares of the Company at an exercise price
of $1.5 and $2 per share, respectively. The warrants were classified as shareholders’ equity.
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 ordinary shares of the Company which were issued on April 12, 2019.
The Company
accounted for the loan in accordance with ASC 470,
Debt
. The Company allocated the consideration of the loan, the related
warrants and the ordinary shares based on their relative fair value at the date of issuance, which is also the commitment date.
On June 19,
2019 the Company executed an amendment to the loan agreement. Total debt was $1,175 according to the amendment the lender will
exercise its 433,333 warrants pursuant to the original agreement for a total amount of $700. The remaining debt
of $475 will be paid in three separate monthly payments of $158.333 each for the next three months.
Since the
shares weren’t issued as of June 30, 2019 the amount were recorded as receipt on account of shares.
During the
six months period ended June 30, 2019 the Company recorded interest and financial expenses related to the loan in the amount of
$800.
|
a.
|
As of June 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.
|
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
|
NOTE 6:-
|
RELATED PARTIES (Cont.)
|
According to the August Loan Agreement, the Company shall issue Cannabics ordinary shares of the Company
representing 7.5% of the outstanding shares on a fully-diluted basis of the Company at the time of conversion. Following the Second
Loan, Cannabics shall hold 15% of the outstanding shares on a fully-diluted basis of the Company. In addition, according to the
agreement Cannabics shall issue to the Company 1,000,000 warrants with an exercise price of $2 per share, of the Cannabics shares,
for a period of 12 months. The warrants were issued on August 14, 2018. The warrants were classified as an asset and are evaluated
every report date. During the six months period ended June 30, 2019 the Company recorded expenses due to the warrant in the amount
of $1. As of June 30, 2019, and December 31, 2018 the warrants fair value amount was $0 and $1, respectively.
On September
12, 2018, Eroll and Cannabics executed an amendment to the August Loan Agreement, solely amending the mechanics of the percentage
of the Company shares Cannabics may convert for its investment, though the finite amount remains unchanged. The amendment to the
August Loan was as follows: Cannabics is to receive 10% of the ordinary shares, 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 ordinary shares.
On September
26, 2018, pursuant to the August Loan Agreement with Cannabics, the Company received its second installment of $500.
In addition,
under the agreement the Company shall pay to Cannabics royalties in an amount equal to a percentage of the Company’s revenues
starting of January 2019 sales as follows:
|
(a)
|
Until the conversion or repayment of the third tranche (which is the Second Loan) in the amount
of an additional $1,000, an amount equal to 2.5% of revenues.
|
|
(b)
|
Following the conversion or repayment of the Second Loan, an amount equal to 5% of revenues.
|
Notwithstanding the above,
for the first year following the Second Loan closing date, The Company shall pay Cannabics minimum royalties of not less than $500.
In the event the Second Loan
is converted into shares, the aggregate royalties to be paid hereunder will be capped at max $8,000.
On November
6, 2018, pursuant to the August Loan Agreement with Cannabics the Company received $300 towards the Second Loan, and on December
10, 2018, pursuant to the August Loan Agreement the Company received the remaining $700 out of the Second Loan.
As part of
the completion of the August Loan Agreement the Company recorded a provision for royalties in a total amount of $500.
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
|
NOTE 6:-
|
RELATED PARTIES (Cont.)
|
The Company
allocated the remaining consideration ($500) of the second convertible loan and issuance of shares based on their relative fair
value at the date of issuance. As such the Company recorded issuance of the shares in a total amount of $250.
The Company
accounted for the convertible loan in accordance with ASC 470-20, Debt with conversion and other Options. According to ASC 470-20-30-8,
since the intrinsic value of the beneficial conversion feature (“BCF”) exceeds the entire proceeds of the loan, the
Company allocated the entire proceeds of $250 related to the convertible loan to the BCF as additional paid in capital.
On January
15, 2019 according to the original agreement and the amendment stated above the Company converted the Second Loan, in the amount
of $1,000 and issued Cannabics 770,397 ordinary shares with $0.0001 par value. As a result, the Company recorded financial expenses
related to the loan in the amount of $942. The total holding as of June 30, 2019, for Cannabics is 17.89% of the Company’s
ordinary shares.
|
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 ordinary shares, in return to services provided as part the acquisition.
|
As a result
on September 27, 2018, the Company issued 540,000 Ordinary shares with 0.0001 par value 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
.
|
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 ordinary shares with $0.0001 par value.
During the
six months period ended June 30, 2019, the Company recorded an interest expenses in the total amount of $10.
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.)
|
|
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
six months period ended June 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 ordinary shares with $0.0001 par value.
|
c.
|
On December 3, 2018, the Company received a convertible loan from third party (the “December
Lender”) the loan has two year term, in the principal amount of $550 which bears 10% annual interest rate (out of which $50
was directly transferred as finder fee).
|
The Company
at its option shall have the right to redeem, in part or in whole, outstanding principal and interest under the December Loan agreement
prior to the maturity date. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium
equal to 20% of the outstanding principal amount being redeemed plus outstanding and accrued interest
.
The December
Lender shall be entitled to convert at its option any portion of the outstanding and unpaid conversion amount into fully paid and
nonassessable Ordinary shares, at the lower of the fixed conversion price then in effect or the market conversion price. The number
of ordinary shares 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 ordinary
shares 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.
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands, except exercise price per warrant
|
|
NOTE 7:-
|
CONVERTIBLE LOANS (Cont.)
|
On April 3,
2019, the loan and the accrued interest in the amount of $568 were converted to 473,025 ordinary shares with $0.0001 par value.
During the
six months period ended June 30, 2019, the Company recorded interest and financial expenses related to the convertible loan in
the amount of $543.
|
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 Ordinary shares, at the lower of the fixed conversion price then in effect or the market conversion
price. The number of of ordinary shares 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
ordinary shares during the 10 trading days immediately preceding the conversion date.
The Company also granted the
February Lender a warrant to purchase 137,500 Ordinary shares of the Company at an exercise price of $2 per share, such exercise
price is subject to any future price-based anti-dilution adjustments. As the Company early adopted ASU 2017-11 the warrants were
classified in shareholders equity.
The Company
estimated the fair value of warrants using the Black-Scholes-Merton option pricing model using the following weighted average assumptions:
|
|
2019
|
|
|
|
|
|
Dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
2.49
|
%
|
Expected term (in years)
|
|
|
3
|
|
Volatility
|
|
|
123.90
|
%
|
The fair value
of the warrants granted was $242.
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands, except share and per share data
|
|
NOTE 7:-
|
CONVERTIBLE LOANS (Cont.)
|
The Company
accounted for the convertible loan in accordance with ASC 470-20, Debt with conversion and other Options. The intrinsic value of
the BCF was calculated and the Company allocated $96 to the BCF as additional paid in capital. The remaining consideration of $162
was allocated to convertible loan.
During the
six months period ended June 30, 2019, the Company recorded interest and financial expenses related to convertible loan in the
amount of $60.
|
NOTE 8:-
|
SHAREHOLDERS’ DEFICIENCY
|
|
a.
|
As of June 30, 2019, and December 31, 2018, the Company’s share capital is composed as follows:
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
Authorized
|
|
|
Issued and
outstanding
|
|
|
Authorized
|
|
|
Issued and
outstanding
|
|
|
|
Number of shares
|
|
Ordinary shares of $0.0001 par value each
|
|
|
500,000,000
|
|
|
|
20,007,144
|
|
|
|
500,000,000
|
|
|
|
16,198,578
|
|
Each Ordinary
share is entitled to receive dividend, participate in the distribution of the Company’s net assets upon liquidation and to
receive notices of participate and vote (at one vote per share) at the general meetings of the Company on any matter upon which
the general meeting is authorized.
|
1.
|
On January 15, 2019 the Company converted a loan in the amount of $1,000 to 770,397 ordinary shares
with a par value of $0.0001. (See note 6-b).
|
|
2.
|
On January 28, 2019 the Company issued 50,000 ordinary shares with $0.0001 par value to one of
its consultants, the fair value of the services received are $47.
|
|
3.
|
On March 5, 2019 the Company converted a loan in the amount of $500 to 500,000 ordinary shares
with a par value 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 ordinary
shares with a par value of $0.0001. (See note 7-c).
|
|
5.
|
On April 10, 2019, the Company converted a loan received on July 18, 2018, to 150,000 ordinary
shares with $0.0001 par value. (See note 7-b).
|
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 ordinary shares with a par value of $0.0001 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 ordinary shares with a par value of $0.0001
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 ordinary shares with $0.0001 par value. (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 ordinary shares 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 ordinary shares with $0.0001 par value. (See note 8-c-5).
|
|
10.
|
On April 10, 2019, the Company converted a loan received on July 18, 2018, to 150,000 ordinary
shares with $0.0001 par value. (See note 7-b).
|
|
11.
|
On April 12, 2019, the Company issued 33,333 ordinary shares with $0.0001 par value, which were
granted as part of a loan agreement received on December 11, 2018. (See note 5).
|
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 ordinary shares with 0.0001 par value.
Eroll also granted the lender a warrant to purchase 100,000 ordinary shares of the Company at an exercise price of $2 per share.
The warrants were classified as shareholders’ equity.
|
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 ordinary shares 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
is obligated to issue 120,000 ordinary shares with a par value of $0.0001, for a total consideration of $216. The Company also
granted the investor warrants to purchase 70,000 Ordinary Shares 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
is obligated to issue 66,667 ordinary shares with a par value of $0.0001, for a total consideration of $100.
|
Also as part
of the agreement the investor may, in its sole determination, from the closing date until the 24-month anniversary of the closing
date, elect to purchase in one or more purchases, additional ordinary shares of the Company with an aggregate
Subscription
amount thereof equal to up to $500, at the price per share of $1.5 (such securities, the “Greenshoe Securities” and
such right to receive the Greenshoe Securities).
|
5.
|
On March 12, 2019, the Company signed agreement with a new investor, accordingly, the Company is
obligated to issue 140,000 ordinary shares with a par value of $0.0001, for a total consideration of $252. The Company also granted
the investor warrants to purchase 70,000 Ordinary Shares at a price of $3 per share for a period of 24 months.
|
As of
June 30, 2019, the Company recorded a receipt on account of shares in total amount of $700 as part of the amendment signed with
Ontario, exercising the warrants from the original agreement. (See also note 5).
|
e.
|
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 June 30, 2019, the Company had reserved 3,019,330 ordinary shares 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.
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.
|
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.
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.)
|
A summary
of employee share options activity during the six months ended June 30, 2019 is as follows:
Six months ended June 30, 2019
|
|
|
Number
|
|
|
Average
exercise
price
|
|
|
Average
remaining
contractual
life (in years)
|
|
|
Aggregate
intrinsic
value (in
thousands
|
|
Options outstanding at the beginning of the period
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Options granted
|
|
|
1,635,880
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the end of the period
|
|
|
1,635,880
|
|
|
$
|
1
|
|
|
|
6.7
|
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at the end of the period
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
A summary
of employee RSUs activity during the six months ended June 30, 2019 is as follows:
|
|
Six Months ended June 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
|
|
|
37,500
|
|
|
|
4.01
|
|
RSUs forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
112,500
|
|
|
|
4.01
|
|
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.)
|
The number of employee’s options
and RSUs outstanding as of June 30, 2019, is set forth below, with options separated by range of exercise price:
Range of exercise price
|
|
Options and RSUs
outstanding as of
June 30,
2019
|
|
|
Weighted
average
remaining
contractual
life (years) (1)
|
|
|
Options an RSUs
outstanding and
exercisable as of
June 30,
2019
|
|
|
Weighted
average
remaining
contractual
life (years) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs only
|
|
|
150,000
|
|
|
|
—
|
|
|
|
37,500
|
|
|
|
-
|
|
$1
|
|
|
1,635,880
|
|
|
|
6.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,785,880
|
|
|
|
6.7
|
|
|
|
37,500
|
|
|
|
-
|
|
|
(1)
|
Calculation of weighted average remaining contractual term does not include the RSUs that were
granted, which have an indefinite contractual term.
|
|
f.
|
Share-based awards to non-employee
:
|
The Company granted 360,000 options
and 873,450 RSU’s units during the six months ended June 30, 2019 to a non-employee consultant and directors.
|
g.
|
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 six months period ended June 30, 2019 in the condensed
consolidated statements of operations as follows:
|
|
Six Months Ended
June 30,
2019
|
|
|
|
|
|
Cost of revenues
|
|
$
|
24
|
|
Research and development, net
|
|
|
154
|
|
Sales and marketing
|
|
|
13
|
|
General and administrative
|
|
|
788
|
|
Total
|
|
$
|
979
|
|
SEEDO CORP
.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
U.S. dollars in thousands
|
|
NOTE 9:-
|
FINANCIAL EXPENSES
|
|
|
three months ended
June 30,
|
|
|
six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank commissions
|
|
$
|
18
|
|
|
$
|
8
|
|
|
$
|
26
|
|
|
$
|
17
|
|
Financial expenses related to revaluation of investment in warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Financial expenses related to loans
|
|
|
474
|
|
|
|
8
|
|
|
|
2,364
|
|
|
|
8
|
|
Foreign currency transactions and other
|
|
|
80
|
|
|
|
4
|
|
|
|
88
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
572
|
|
|
$
|
20
|
|
|
$
|
2,479
|
|
|
$
|
70
|
|
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
THE FOLLOWING DISCUSSION SHOULD BE READ
IN CONJUNCTION WITH OUR AUDITED FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS QUARTERLY REPORT. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS QUARTERLY REPORT.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains
certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal
securities laws, and is subject to the safe-harbor created by such Act and laws. Forward-looking statements may include
statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future
financial conditions, results or projections or current expectations These forward-looking statements involve known or unknown
risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,”
“continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions
and are subject to a number of risks and uncertainties. Although we believe that the expectations reflected-in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our actual results
may differ materially from those anticipated in these forward-looking statements. These forward-looking statements are made as
of the date of this report, and we assume no obligation to update these forward-looking statements whether as a result of new
information, future events, or otherwise, other than as required by law. In light of these assumptions, risks, and uncertainties,
the forward-looking events discussed in this report might not occur and actual results and events may vary significantly from
those discussed in the forward-looking statements. Further information on potential factors that could affect our business is
described under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year
ended September 30, 2018. Readers are also urged to carefully review and consider the various disclosures we have made in that
report.
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 plant, 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.
Marketing and the SEEDO “Community”
We are investing in organic marketing 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 June 30, 2019, we have delivered
268 home cultivator units which amounts to approximately 8% 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 started delivering to Europe and North America which are our target
markets, though our units are being sold in Latin America, Asia, Australia, the Middle East and Africa.
Our Opportunity
Since September 14, 2018, our main business
is operated by our wholly owned subsidiary 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 have qualified for the ISO
9001:2015 certification. This quality management system certification from the International Organization for Standardization
demonstrates that we are consistently providing products and services that meet customer and regulatory requirements by
continuously enhancing customer satisfaction.
We believe that the following advantages
afford us a unique market penetration opportunity:
|
●
|
Automated
home growing device.
|
|
●
|
Simplifying
the seed to harvest process with seamless technology.
|
|
●
|
Growth
cycle operated and monitored by mobile app.
|
|
●
|
Self-regulating
climate control system.
|
|
●
|
No
prior knowledge needed.
|
|
●
|
Simple
installment – water, electricity and Wi-Fi.
|
|
●
|
100%
pesticide free.
|
Farm Establishments and Commercial Containers
During the last fiscal quarter, we launched
our commercial container product and began with two signed agreements for industrial projects in Israel, on Kibbutz Dan and Moshav
Brosh for government licensed pharmaceutical-grade medical cannabis, verifying our technology and expertise to the agro-commercial
world. Our implemented technology now provides industrial farmers full control and automation of all plant feeding and environmental
parameters, better unified standardized yields suitable for the medical pharmaceutical industry in a hermetically sealed system
- full isolation, with no need for pesticides at all. This affords dramatic space savings as well as water consumption and human
resources. 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 herbs cultivation
|
|
2)
|
Containers
specifically designs for medical cannabis cultivation
|
For each type of business, we are targeting two types of agreements:
|
1)
|
Partnerships,
accordingly we will become partners in new established farms and manage its establishment and operations.
|
|
2)
|
Supplying
commercial containers to farms, research institutions, etc.
|
Risk Management and Asset Protection
Operations
We also maintain some of the previous
risk management and asset protection (“RAP”) services for businesses, individuals and families. We were engaged in
RAP services prior to September 14, 2018, and while we do not focus on these activities currently, we may decide to in the future.
We also maintain a corporate governance, risk management, compliance and regulatory reporting business, which existed prior to
September 14, 2018. 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. We believe that every member of a company 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. Bringing the Chief Risk Officer to the forefront allows risk management to be consolidated and uniform
throughout the enterprise. We believe enterprise risk management needs to be a cross-functional phenomenon.
Given the global nature of business today,
risk management needs to truly protect the enterprise by understanding the context and the landscape in which the business operates.
If an organization can leverage that information and collect it and provide context, the organization will be more agile and adaptive
as a result of the lower risk level.
Immediate Strategy
Over the upcoming twelve months we plan to:
|
●
|
Deliver
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.
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.
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.
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 costs are charged
to the consolidated statement of operations as incurred. ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed,”
requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.
Based on our product development process,
technological feasibility is established upon the completion of a working model.
We do not incur material costs between
the completion of a working model and the point at which the products are ready for general release. Therefore, research and development
costs are charged to the consolidated statement of operations as incurred. We did not capitalize expenses during the three months
ended June 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 April 30, 2022. On June 20, 2019, we signed an amendment to this agreement
in which it increased its rental space to a total of 1,103 square meters for its office premises which will end on June 30, 2022.
On September 2017, Eroll entered into
a vehicle operating lease agreement for a period of 32 months.
Financing
We will require additional financing to
implement our business plan, which may include joint venture projects and debt or equity financings. The nature of this enterprise
and constraint of positive cash flow places debt financing beyond the credit-worthiness required by most banks or typical investors
of corporate debt until such time as an economically viable profits and losses can be demonstrated. Therefore, any debt financing
of our activities may be costly and result in substantial dilution to our stockholders.
Future financing through equity investments
is likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may
be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance
of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs
in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, and other costs. We
may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes
and warrants, which will adversely impact our financial condition.
Our ability to obtain needed financing
may be impaired by such factors as the capital markets, both generally and specifically in the Agro-tech industry, which could
impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities,
together with our revenue from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our
operations accordingly, we may be required to cease operations.
There is no assurance that we will be
able to obtain financing on terms satisfactory to us, or at all. We do not have any arrangements in place for any future financing.
If we are unable to secure additional funding, we may cease or suspend operations. We have no plans, arrangements or contingencies
in place in the event that we cease operations.
Results of Operations
Six months ended June 30, 2019 compared
to the six months ended June 30, 2018
Operating Expenses
Revenues for the six months ended June
30, 2019 were $393 thousand compared to $0 for the same period in 2018. The increase resulted due to initial sales our home devices
to customers in Europe and the United States that started during the first half of fiscal year 2019. The Company delivered 268
devices to its pre-orders customers with an average selling price of $1,466.
Cost of sales for the six months
ended June 30, 2019 were $580 thousand compared to $0 for the same period in 2018. The increase mainly consists of direct
cost in the amount of $324, sub-contractors costs related to customer service and customer support in the amount of $82,
share based compensation expenses in the amount of $24, salary cost in the amount of $8, allowance for warranty cost in the
amount of $20, an increase of $84 in shipment and warehouse costs, and an increase of $38 in miscellaneous costs.
Research and development (R&D)
expenses for the six months ended June 30, 2019 were $1,939 thousand compared to $1,144 thousand for the same period in 2018.
This increase was primarily due to increased R&D efforts for progressing the Home Cultivator from a prototype version
into mass production, and from developing our commercial scale containers, which resulted mainly due to increased salary and
related costs of $295 thousand, increased R&D material costs of $281 thousand, an increase of $65 thousand in
depreciation expenses related to R&D, and increase of $154 in shared based compensation expenses.
Total marketing expenses for the six months
ended June 30, 2019, were $462 thousand compared to $386 thousand for the same period in 2018. This was primarily due to increased
marketing campaign efforts, which resulted mainly due to increased marketing material costs of $92, and an increase of $13 in share
based compensation expenses. The increase was offset by a decrease of $29 thousand in salary and related costs.
Total general and administrative (G&A)
expenses for the six months ended June 30, 2019, were $2,123 compared to $555 thousand, for the same period in 2018. This was primarily
due to an increase of $270 thousand in expenses for salary and related expenses, an increase of $63 thousand in travel expenses,
an increase of $387 thousand in expenses for external advisors and professional services, an increase of $788 thousand in shared
based compensation expenses, and an increase of $60 in miscellaneous G&A expenses.
Total financial expenses for the six months
ended June 30, 2019, were $2,479 compared to $70 thousand for the same period in 2018. The increase of $2,409 thousand was primarily
due to an increase of $2,364 in expenses of convertible loans in accordance with ASC 470-20, Debt with conversion and other Options
Beneficial Conversion Feature.
Liquidity and Capital Resources
Overview
Since inception on January 16, 2015, the Company had a cumulative deficit of $15,712 thousand and we have
a working capital deficit of $2,164 thousand as of June 30, 2019. Our future growth is dependent upon achieving further purchase
orders and execution, management of operating expenses and ability of the Company to obtain the necessary financing to fund future
obligations, and upon profitable operations.
Historically, we have financed our
cash flow and operations from the initial contribution of our majority shareholder and by raising equity and convertible
loans. Since incorporation and as of June 30, 2019, the Company has raised approximately $11,700 thousand, and has raised
$5,200 thousand during the six months ended June 30, 2019.
As of June 30, 2019, our cash balance
was $1,122 thousand. We believe we will require a minimum of $5,000 thousand in working capital over the next 12 months to grow
the Company as currently planned, which is inclusive of cost of sales, covering our operation costs and maintaining our regulatory
reporting and filings. Should our revenues not increase as expected, or if our costs and expenses prove to be greater than we
currently anticipate, or should we change our current business plan in a manner that will increase or accelerate our anticipated
costs and expenses; we may need funds in excess of the amounts currently contemplated.
Consistent with Section 144 of the Delaware
General Corporation Law, it is our current policy that all transactions between the Company and our officers, directors and their
affiliates will be entered into only if such transactions are approved by a majority of the existing directors, are approved by
vote of the stockholders, or are fair to us as a corporation as approved or ratified by our Board of Directors or authorized officer.
We will conduct an appropriate review of all related party transactions on an ongoing basis, and, where appropriate, we review
the potential of conflicts of interest.
Off Balance Sheet Arrangements
As of June 30, 2019, we did not have any
off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Recently Issued Accounting Pronouncements
For information with respect to recent
accounting pronouncements, see Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this
Form 10-Q.
Critical Accounting Policies
Our discussion and analysis of the financial
condition and results of operations are based upon the Company’s unaudited condensed financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have
the greatest potential impact on our unaudited condensed financial statements, so we consider these to be our critical accounting
policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying
the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including
the policies for revenue recognition, allowance for doubtful accounts and income taxes. These policies require that we make estimates
in the preparation of our unaudited condensed financial statements as of a given date.
Within the context of these critical accounting
policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different
amounts being reported.
Revenue Recognition:
The Company generates revenues from sales of products. The Company
sells its products directly to end customers.
In accordance with Topic 606, revenue is recognized when obligations
under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products.
Revenue is measured as the amount of consideration to which we expect to be entitled
In exchange for transferring products or providing services.
To achieve this core principle, the Company applies the following five steps:
|
1.
|
Identify the contract with a customer
|
A contract with a customer exists when (i) the Company
enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be transferred
and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform
their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially
all consideration for products or services that are transferred is probable based on the customer's intent and ability to pay the
promised consideration.
|
2.
|
Identify the performance obligations in the contract
|
Performance obligations promised in a contract are
identified based on the products or services that will be transferred to the customer that are both capable of being distinct,
whereby the customer can benefit from the product or service either on its own or together with other resources that are readily
available from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is
separately identifiable from other promises in the contract.
|
3.
|
Determine the transaction price
|
The transaction price is determined based on the
consideration to which the Company will be entitled in exchange for transferring products or services to the customer. To the extent
the transaction price is variable, revenue is recognized at an amount equal the consideration to which the Company expects to be
entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and estimated using
either the expected value method or the most likely amount method, depending on the nature of the program.
|
4.
|
Allocate the transaction price to performance obligations in the contract
|
If the contract contains a single performance obligation,
the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price
based on the price at which the performance obligation is sold separately.
|
5.
|
Recognize revenue when or as the Company satisfies a performance obligation.
|
The Company generally satisfies performance obligations
at a point in time, once the customer has obtained the legal title to the items purchased. Revenue is recognized based on the transaction
price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.
Typical timing of payment
The Company offers several payment methods that includes
but not limited to full advance payment and partial amount in advanced while collecting the remaining amount before delivery.
Revenue expected to be recognized in any future year
related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration
of one year or less.
The Company’s unfilled performance obligations
as of June 30, 2019 is $2,406 and the estimated revenue expected to be recognized in the future related to the sales of our Home
Growing Devices amounted to $4,422.
The Company recognized revenues of $393 for the six
month ended June 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 June 30, 2019, the Company recorded a provision for warranty in a total amount of $20.
Accounting for share-based Compensation:
The Company accounts for share-based compensation
in accordance with ASC No. 718, “Compensation-Stock Compensation” (“ASC No. 718”). ASC No. 718 requires
companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model. The value
of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods
in the Company’s consolidated statements of operations. The Company recognizes compensation expenses for the value of its
awards granted based on the straight-line method over the requisite service period of each of the awards.
The Company selected the
Black-Scholes-Merton option pricing model as the most appropriate fair value method for its share-option awards. The
option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the
underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated
based upon certain peer companies that the Company considered to be comparable. The expected option term represents the
period of time that options granted are expected to be outstanding. The expected option term is determined based on the
simplified method in accordance with Staff Accounting Bulletin No. 110, as adequate historical experience is not
available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience
is available to provide a reasonable estimate of the expected term. The risk-free interest rate is based on the yield from
U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to
pay dividends.
As of June 30, 2019, the outstanding options measured
according to the above mentioned method.
The fair value of Restricted Stock Units (“RSUs”)
granted is determined based on the price of the Company’s ordinary shares 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:
|
|
June 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 six months ended June 30, 2019, the
non-cash compensation expenses related to nonemployees were $404 thousand.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
We are a smaller reporting company as
defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of
our Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) as of June 30, 2019. Disclosure controls and procedures
are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated
to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosure.
During evaluation of disclosure controls
and procedures as of June 30, 2019 conducted as part of our preparation of the quarterly unaudited condensed financial statements,
management 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.,
Management’s Report on Internal Control over Financial
Reporting
In June 2019, the Company established
an Audit Committee. The Company’s Audit Committee is currently comprised of the three independent directors on the Company’s
Board of Directors.
Management is responsible for the preparation
and fair presentation of the unaudited condensed financial statements included in this quarterly report. The unaudited condensed
financial statements have been prepared in conformity with accounting principles generally accepted in the United States and reflect
management’s judgment and estimates concerning effects of events and transactions that are accounted for or disclosed.
Management is also responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control over financial reporting includes those
policies and procedures that pertain to our ability to record, process, summarize and report reliable data.
Management recognizes
that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility
of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial
reporting can provide only reasonable assurance with respect to unaudited condensed financial statements presentation. Further,
because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In order to ensure that our internal control
over financial reporting is effective, management regularly assesses controls and did so most recently for its financial reporting
as of June 30, 2019.
A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of the Company’s annual or interim unaudited condensed financial statements will not be prevented
or detected on a timely basis.
The material weaknesses identified are
described below.
Procedures for Control Evaluation.
Management has not established with appropriate rigor the procedures for evaluating internal controls over financial reporting.
Due to limited resources and lack of segregation of duties, documentation of the limited control structure has not been accomplished.
Insufficient Documentation of Review
Procedures
We employ policies and procedures for reconciliation of the unaudited condensed financial statements and note
disclosures.
Insufficient Information Technology
Procedures.
Management has not established methodical and consistent data back-up procedures to ensure loss of data will
not occur.
As a result of the management evaluation
of company internal control over financial reporting described above, the Company’s management has concluded that, as of
June 30, 2019, the Company’s internal control over financial reporting was not based on the criteria in Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
This quarterly report does not include
an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal
control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only
management’s report in this quarterly report.
Changes in Internal Control Over Financial
Reporting
As of the end of the period covered by
this report, there have been no changes in internal control over financial reporting other than the establishment of the Audit
Committee (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended June 30, 2019, that materially affected,
or are reasonably likely to materially affect, the Company’s internal control over financial reporting.