Item 2.  Management’s Discussion and Analysis or Plan of Operation.

 

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.

Implications of Being an Emerging Growth Company

Emerging Growth Company - We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act. We will continue to be an emerging growth company until: (i) the last day of our fiscal year during which we had total annual gross revenues of at least $1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act; (iii) the date on which we have, during the previous 3-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a large accelerated filer, as defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30.

 

As an emerging growth company, we are exempt from:

·

Sections 14A(a) and (b) of the Exchange Act, which require companies to hold stockholder advisory votes on executive compensation and golden parachute compensation;

·

The requirement to provide, in any registration statement, periodic report or other report to be filed with the Securities and Exchange Commission, or the “Commission” or “SEC”, certain modified executive compensation disclosure under Item 402 of Regulation S-K or selected financial data under Item 301 of Regulation S-K for any period before the earliest audited period presented in our initial registration statement;

·

Compliance with new or revised accounting standards until those standards are applicable to private companies;

·

The requirement under Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act,   to provide auditor attestation of our internal controls and procedures; and

·

Any Public Company Accounting Oversight Board, or “PCAOB”, rules regarding mandatory audit firm rotation or an expanded auditor report, and any other PCAOB rules subsequently adopted unless the Commission determines the new rules are necessary for protecting the public.

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart Our Business Startups Act.

We are also a smaller reporting company as defined in Rule 12b-2 of the Exchange Act. As a smaller reporting company, we are not required to provide selected financial data pursuant to Item 301 of Regulation S-K, nor are we required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. We are also permitted to provide certain modified executive compensation disclosure under Item 402 of Regulation S-K.

Organization

 

SEEDO CORP.  (the “Company”, “Our” or “We”) was formed on January 16, 2015, under the laws of the State 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, the Company, then under its previous name, GRCR Partners Inc., executed an Acquisition and Share Exchange Agreement with Eroll Grow Tech Ltd., (“Eroll”) an Israeli Corporation that was incorporated on May 18, 2015 under the laws of the state of Israel. Immediately following the transaction, Eroll shareholders held approximately 87.4% of the outstanding Ordinary stock of the Company on a fully diluted basis, in exchange of 100% of the share capital of Eroll, while the pre-merger Company shareholders retained the remaining approximate 12.6%. Following the Transaction, GRCR Partners Inc. issued an aggregate of 12,073,500 shares of its common stock, par value $0.0001 per share (the “Common Stock”), on a pro-rata basis to each of the holders of Eroll, so the total shares of the Company ended up with 15,000,000 shares. As a result of the transaction, Eroll became a wholly-owned subsidiary of GRCR Partners Inc. While GRCR Partners Inc. was the legal acquirer in the transaction, Eroll was deemed the accounting acquirer.

On September 17, 2018, the Board of Directors adopted an Amendment to its Articles, changing the name of the Corporation to SEEDO CORP. The State of Delaware effectuated said change on September 21, 2018; and on November 5, 2018, FINRA granted effectiveness for said change and the new ticker Symbol “SEDO”. Post-Acquisition, SEEDO CORP has changed its main business focus to Eroll’s business activities while continuing with some RAP activities.  The quarterly unaudited condensed consolidated financial statements of the Company reflect the operations of Eroll as the acquirer for accounting purposes, together with a deemed issuance of shares, equivalent to the shares held by the stockholders of the legal acquirer, GRCR Partners Inc. prior to the transaction, and a recapitalization of the equity of the accounting acquirer. The quarterly unaudited condensed consolidated financial statements include the accounts of the Company since the effective date of the reverse merger transaction and the accounts of Eroll since inception.

Company Overview

We are a global technology company focusing on producing cutting edge technology for the agro-tech markets for home, 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 in a self-regulating climate - allowing anyone to grow simply, from seed to harvest.

 Our telephone number is +972 546 642 228 and our website is www.Seedolab.com

 

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.

Going Concern

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

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

 

Research and Development Costs

 

Research and development 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 March 31, 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 rental agreements for its office premises which will end on April 30, 2022.

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

 

Subsequent Events

The Company has evaluated subsequent events through the date the unaudited condensed financial statements were issued and filed with the Securities and Exchange Commission and has determined that there are no other such events that warrant disclosure or recognition in the financial statements.

 

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.

 

Marketing and the SEEDO “Community”

We are investing in organic marketing and have approximately:

As of March 31, 2019, we received Pre orders for more than 3,000 units in a pre-order campaign. 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” devises world-wide.

 

The Home cultivator opportunity

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 to grow its own, from seed to harvest. Our cutting-edge technology addresses cannabis customers market for adults and medical needs as well as any other need.

 

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

 

Farms Establishment and Commercial Containers Opportunity

During the last Quarter, the Company has now entered its much-anticipated commercial container phase and has begun with two current 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 enables industrial farmers full control and automation of all plant feeding and environmental parameters, better unified standardized yields suitable for medical pharma 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 businesses:

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.

 

 

Three months ended March 31, 2019 compared to the three months ended March 31, 2018

Operating Expenses

R&D Expenses for the 3 months ended March 31, 2019 and 2018, were $830 thousand versus $562 thousand respectively from the main activity of the Company. This was primarily due to increased R&D efforts for progressing the Home Cultivator from a prototype version into mass production, which resulted mainly due to increased HC costs of $24 thousand, increased R&D material costs of $214 thousand, an increase of $30 thousand in depreciation expenses related to R&D.

Total marketing expenses for the 3 months ended March 31, 2019 and 2018, were $234 thousand versus $212 thousand, respectively. This was primarily due to increased marketing campaign efforts, which resulted mainly due to increased Marketing material costs of $69, the increase was offset with decrease of $12 thousand in HC costs and $35 thousands in other expenses and payment providers.

Total General and Administrative expenses for the 3 months ended March 31, 2019 and 2018, were $616 versus $381 thousand, respectively. This was primarily due to an increase of $47 thousand in expenses for HC, increase of $37 thousand in travel expenses, increase of $144 thousands in expenses for external advisors and professional services and increase of $7 thousands in depreciation expenses.

Liquidity and Capital Resources

Overview

 

Since inception on January 16, 2015, the Company had a cumulative deficit of $12,113 thousand and we have a working capital deficit of $2,559 thousand as of March 31, 2019. Our future growth is dependent upon achieving further purchase orders and execution, management of operating expenses and ability of the Company to obtain the necessary financing to fund future obligations, and upon profitable operations.

 

Historically, we have financed our cash flow and operations from the initial contribution of our majority shareholder and by raising equity and convertible loans. Since incorporation and as of March 31, 2019 The Company has raised approximately $11.7 million, during the 3 months ended March 31, 2019 the Company raised $5.2 million.

As of March 31, 2019, our cash balance was $2,373 thousand, we believe we will require a minimum of $6 million 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 that currently planned.

 

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

 

Off Balance Sheet Arrangements

 

As of March 31, 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 of SEEDO CORP. 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.