SATIVUS TECH CORP. - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2020

or

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

For the transition period from _____________ to _____________

333-208814

Commission file number

SEEDO CORP.

(Exact name of registrant as specified in its charter)

(800) 608-6432

Registrant’s telephone number, including area code

Securities registered under Section 12(b) of the Exchange Act: None

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

Common Stock, par value $0.0001

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.

☒ Yes   ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐   No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of 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).

Yes ☐   No ☒

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can be based only on facts and factors of which we are currently aware. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These statements include, but are not limited to, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis or Plan of Operation” and “Description of Business,” as well as other sections in this report. Such forward-looking statements are based on our management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that may cause actual results to differ materially from those anticipated in the forward-looking statements. You should be aware that, as a result of any of these factors materializing, the trading price of our common stock may decline. These factors include, but are not limited to, the following:

The cautionary statements made in this annual report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.

We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.

TABLE OF CONTENTS

EXPLANATORY NOTE

Seedo, Corp. is filing this comprehensive annual report on Form 10-K for the three months ended December 31, 2018, the fiscal year ended December 31, 2019, the fiscal year ended December 31, 2020 and the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020 (the “Comprehensive Form 10-K”) as part of its effort to become current in its filing obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This Comprehensive Form 10-K is our first periodic filing with the Securities and Exchange Commission (the “SEC”) since the filing of our quarterly report on Form 10-Q for the quarterly period ended September 30, 2019 filed on November 14, 2019. Included in this Comprehensive 10-K are our audited financial statements for the three months ended December 31, 2018, the fiscal year ended December 31, 2019 and the fiscal year ended December 31, 2020, which have not been previously filed with the SEC. In addition, the Comprehensive 10-K also includes unaudited quarterly financial statements for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue”, negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Annual Report and include information concerning: possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results; and any other statements that are not historical facts.

From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all the forward-looking statements included in this Annual Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

For discussion of factors that we believe could cause our actual results to differ materially from expected and historical results see “Item 1A - Risk Factors” below.

PART I

Item 1. Business.

SEEDO CORP. (f/k/a GRCR Partners Inc.) (the “Company”, “Our” or “We”) was formed on January 16, 2015 under the laws of the State of Delaware. Prior to September 14^th, 2018, we were solely a provider of risk management and asset protection (“RAP”) services for businesses, individuals and families. On September 14^th, 2018, (“the Company”) executed an Acquisition and Share Exchange Agreement with Eroll Grow Tech Ltd. (“Eroll”), an Israeli Corporation that was formed on May 18^th, 2015 under the laws of the state of Israel. 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 changed its main business focus to Eroll’s business activities while continuing with some RAP activities.

Eroll was focused on producing automated plant growing devices managed and controlled by an artificial intelligent algorithm, allowing consumers to grow their own herbs and vegetables from seed to plant, while providing optimal conditions to assure premium quality produce year-round.

During the third quarter of 2019, Eroll was experiencing financial and operational difficulties and on December 10, 2019, Mr. Zohar Levy, the Company’s CEO at the time, on behalf of Eroll filed a petition (the “Petition”) for a debt settlement in the Nazareth District Court (the “Court”), in accordance with Section 321 of Chapter A of Part G of the Israeli Insolvency and Economic Rehabilitation Law, seeking a debt settlement and a suspension of proceedings in order to protect Eroll’s creditors from economic damages and other future damages and to allow the Eroll to maintain its business while seeking a proposal of an acquisition of the Eroll and/or its activities and assets.

In the petition, Eroll requested that the Court authorize its entering into a loan agreement with a potential buyer, as a temporary solution until a definitive agreement is signed, and to issue an order calling for a creditors’ meeting within 10 days and appointment of a trustee, who will negotiate a definitive agreement with the potential buyer.

The Company is not included in such proceedings and is not otherwise involved in any bankruptcy proceedings.

On December 11, 2019, Eroll received an offer to acquire Eroll and/or its assets and business from a potential buyer (the “Potential Buyer” and the “Acquisition Offer” respectively). As part of the Acquisition Offer, the Potential Buyer agreed to provide a bridge loan in the amount of $400,000 (the “Bridge Loan”) to be repaid within 20 days, which the Eroll will use for payroll, payment of debt to a certain Chinese manufacturer, and certain other enumerated urgent payments necessary to keep Eroll’s assets active.

To ensure the repayment of the loan within 20 days, if the Acquisition Offer is not approved and the loan is not repaid on time, the Potential Buyer was to receive the rights to all of the products in inventory and productions at the Chinese manufacture and Eroll’s warehouse. Additionally, the Potential Buyer was to receive an irrevocable power of attorney and authorization of Eroll to act directly with the Chinese manufacture.

On December 17, 2019, the Court approved Eroll’s entering into the Acquisition Offer, on condition that the Bridge Loan will be repaid by purchasing all of Eroll’s inventory in China, the United States, Canada and the Netherlands, and subject to the Court’s approval of any transfer of Eroll’s inventory. Additionally, the Court issued an order of suspension and stay of all legal proceedings against Eroll.

On December 19, 2019, the Court appointed a debt settlement manager, who will have the authority to determine if an alternative settlement is appropriate.

Due to the fact that Eroll was not able to secure the Bridge Loan under the conditions determined by the Court, on January 2, 2020, the Settlement Manager filed a request to the Court for entering into an interim funding agreement with the Potential Buyer (the “Interim Funding Agreement”). As part of the Interim Funding Agreement, the Potential Buyer agreed to provide a loan in the amount of $294,000 (the “Loan”), which the Eroll was to use for payroll, and certain other enumerated urgent payments necessary to keep Eroll’s assets active, until a creditors meeting is convened in order to approve a debt settlement based on a final acquisition offer from the Potential Buyer. To ensure the repayment of the Loan, the Potential Buyer was to receive a lien over certain intellectual property of Eroll, future payments to Eroll from PayPal and Eroll’s property.

On January 5, 2020, the Court approved the Settlement Managers’ request to enter into the Interim Funding Agreement.

Additionally, on January 8, 2020, the Court issued an order of stay of all legal proceedings against Eroll, and an order prohibiting any disposition of the Eroll’s property. Any transfer of any of Eroll’s property and rights, including patents, shall be done subject to the Courts approval. In addition, the Court ordered that Eroll will continue its activities temporarily, and appointed the Settlement Manager as Eroll’s trustee, who will, among others, convene a creditor’s meeting to approve a debt settlement based on a final acquisition offer from the Potential Buyer, to be convened no later than January 19, 2020.

On March 25, 2020, the Nazareth District Court of the State of Israel (the “Court”) approved the purchase of all of Eroll Grow Tech Ltd.’s (“Eroll”) assets by a non-related third-party entity named Seedo Agriculture Ltd. Therefore, from the closing of such purchase, the Company no longer has any legal ties nor privity with Eroll. The Company is focusing on its in-house research and development of agriculture technology products, among others, in the fields of exotic plants and mushrooms.

On July 19, 2020, the Company formed a new wholly-owned subsidiary in Israel, Hachevra Legiduley Pkaot Beisrael Ltd. (the “New Subsidiary”), to develop a fully automated and remotely managed system for growing saffron and other vegetables. On November 5, 2020, the New Subsidiary changed its name to Saffron-Tech Ltd. (or “Saffron”).

The Company, through Saffron, plans to roll out its proof of concept in the coming months. This technology will provide turnkey automated growing containers for high-quality, high-yield saffron all year round. The Company is in advanced stages of developing and testing a fully automated and remotely managed system for growing high-quality, high-yield saffron anywhere and anytime.

The Company’s technology offers a controlled environment based on the Company’s deep knowledge in plant biology. The technology provides optimal conditions for each stage of the plant’s development to reach optimal product quality.

The Company’s proof of concept utilizes the “Grow Next to Consumer” policy and is therefore sustainable and fit the COVID-19 restrictions on transport. It is also environmentally friendly, using economic levels of water, space, fertilizer, and energy. Accounting to the Company’s calculations, we believe that the controlled indoor growing area will produce ten times more yield compared to the same land area using traditional methods. The sealed environment eliminates the need for harmful pesticides and herbicides, producing a clean and safe product that is easy to control from anywhere. The Company’s solution is easily scalable and pre-designed to quickly grow operations.

Saffron is used in many industries, such as the food industry, particularly by famous chefs and Michelin starred restaurants, the natural cosmetics industry and the natural medicine industry and as a dye in the textile industry. Medicinal claims as an anti-depressant, antioxidant, and antiseptic are constantly increasing.

The global saffron market size was valued at $1 Billion in 2019 and is anticipated to attain a revenue based CAGR of 7.3% from 2020 to 2027. The market is expected to grow over the next few years on account of demand from the pharmaceutical sector, particularly in countries with rapid population expansion.

Since the incorporation Saffron Tech, Saffron Tech has hired one employee and several consultants to commence the roll out of our proof of concept. Saffron Tech has signed several agreements with Israeli companies, including Growin Ltd (“Growin”) and the Israeli Ministry of Agricultures research organization – The Volcani Center (“Volcani”). Growin is an owner of proprietary systems for indoor agriculture and Saffron Tech has acquired the exclusive right to market, sell and commercialize our product based on the Growin’s hydroponic machines. Volcani will assist Saffron Tech in writing the protocols required to grow saffron in a controlled and automated way, including the use of robotics and AI.

On August 7 and 11, 2020, the Company executed Securities Purchase Agreement of convertible debentures (“Convertible Debentures”), and ancillary agreements with YAII PN, Ltd., and Mr. Shmuel Yannay (collectively, the “Investors”) in the aggregate amount of $300,000 (the “Agreements”). Per the terms of the Agreements, the Convertible Debentures have a maturity date of August 7, 2022 (“Maturity Date”) and accrue annual interest at a rate of 10%.

The Convertible Debentures are convertible by the Investors into common stock of the Company, at their discretion, at the lower of a fixed price of $0.102 (the “Fixed Conversion Price”) or 80% of the lowest volume weighted average price (“VWAP”) of the Company’s common stock during the 10 trading days immediately preceding the conversion date (the “Market Conversion Price”).

Prior to the Maturity Date of the Convertible Debentures, provided that the VWAP of the Company’s common stock is below the Fixed Conversion Price and there is no Equity Conditions Failures as defined in the Agreements, the Company at its option, has the right to redeem in cash in part or in whole, the amounts outstanding under the Convertible Debentures plus a redemption premium equal to 10% of the amount being redeemed plus outstanding and accrued interest.

Pursuant to the Agreements we also issued to the Investors warrants to purchase 750,000 Shares’s common stock at an exercise price of $0.20 for a period of 5 years.

Pursuant to the Agreements, we shall use the net proceeds for immediate cash infusion for ordinary working capital purposes. The Agreement does not contain any right of first refusal, participation rights or penalties. YAII PN Ltd. has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our Common Stock during any time.

During November 2020 through to February 2021, the Company continued to raise funds to support its operations and received $855,000 from third party investors and issued convertible promissory notes in respect thereof (“Promissory Notes”). The Promissory Notes bear no interest, are convertible into Shares based on a fixed conversion price of $0.10 per share and mature between 12 and 24 months from the issuance date. Pursuant to Promissory Notes one of the investors received warrants to purchase 660,000 Shares’s common stock at an exercise price of $0.15 for a period of 1 year.

On December 24, 2020, Saffron Tech, announced its intention to raise up to 5 million New Israeli Shekels (“NIS”) (approximately $1.6 million) at a pre-money valuation of NIS 20 million (approximately $6.225 million) through the Israeli crowd funding platform – Pipelbiz “Crowd Funding Round”). Assuming the maximum amount is raised, the Company will own approximately 80% of the Saffron Tech. The Crowd Funding Round was closed on February 16, 2021 having raised the full amount

Item 1A. Risk Factors.

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 1B. Unresolved Staff Comments

None.

Item 2. Properties

None.

Item 3. Legal Proceedings

There are no legal proceedings involving the Company.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We have one class of securities, Common Voting Equity Shares (“Common Stock”). The holders of our common stock have equal ratable rights to dividends from funds legally available if and when declared by our Board of Directors and are entitled to share pro-rata in all of our available assets for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs.

Our common stock is quoted on the NASDAQ OTC Bulletin Board (“OTCBB”) under the symbol “SEDO”. As of December 31, 2020, the Company’s common stock was held by 67 shareholders of record, which does not include shares that are held in street or nominee name.

The closing share prices presented below represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commission to the dealer.

Shareholders

Our shares of common stock are issued in registered form. The registrar and transfer agent for our shares of common stock is Worldwide Stock Transfer LLC; 1 University Plaza, Suite 505, Hackensack, NJ 07601

On December 31, 2020, the shareholders’ list of our shares of common stock showed 67 registered holders of our shares of common stock and 31,665,566 shares of common stock outstanding. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of shares of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.

On December 31, 2019, the shareholders’ list of our shares of common stock showed 56 registered holders of our shares of common stock and 20,535,354 shares of common stock outstanding. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of shares of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.

On December 31, 2018, the shareholders’ list of our shares of common stock showed 56 registered holders of our shares of common stock and 16,198,578 shares of common stock outstanding. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of shares of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.

Dividend Policy

Our board of directors may declare and pay dividends on outstanding shares of common stock out of funds legally available there for in our sole discretion; however, to date no dividends have been declared or paid on common stock.

Indemnification of Directors and Officers

Delaware Corporation Law allows for the indemnification of officers, directors, and any corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities, including reimbursement for expenses, incurred arising under the 1933 Act. The Bylaws of the Company provide that the Company will indemnify its directors and officers to the fullest extent authorized or permitted by law and such right to indemnification will continue as to a person who has ceased to be a director or officer of the Company and will inure to the benefit of his or her heirs, executors and Consultants; provided, however, that, except for proceedings to enforce rights to indemnification, the Company will not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred will include the right to be paid by the Company the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition.

The Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Company similar to those conferred to directors and officers of the Company. The rights to indemnification and to the advancement of expenses are subject to the requirements of the 1940 Act to the extent applicable.

Furthermore, the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another company against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

Unregistered Sales of Equity Securities.

During the last quarter of 2020, three directors exercised 675,000 Restricted Share Units (“RSU’s”) and the Company issued 675,000 shares. During the first quarter of 2021, two former employees exercised 130,250 RSU’s and two directors exercised 250,000 RSU’s and the Company issues 270,250 shares.

Penny Stock Regulation

Our shares must comply with the Penny Stock Reform Act of 1990, which may potentially decrease our shareholders’ ability to easily transfer their shares. Broker-dealer practices in connection with transactions in “penny stocks” are regulated. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that must comply with the penny stock rules. Since our shares must comply with such penny stock rules, our shareholders will in all likelihood find it more difficult to sell their securities.

Item 6. Selected Financial Data

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 7. 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 ANNUAL 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 ANNUAL REPORT.

FORWARD-LOOKING STATEMENTS

Certain statements made in this report may constitute “forward-looking statements on our current expectations and projections about future events”. 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. 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.

Emerging Growth Company - We are an emerging growth company as defined in Section 2(a)(19) of 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 $1,000,000,000 or more; (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 $1,000,000,000 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 Exchange Act.

As an emerging growth company, we are exempt from:

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.

This form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

This discussion summarizes the significant factors affecting the consolidated financial statements, financial condition, liquidity, and cash flows of Seedo, Corp, for the fiscal year ended December 31, 2020 and 2019 and the interim periods included herein. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes included elsewhere in this Form 10-K.

Executive Overview

SEEDO CORP. (f/k/a GRCR Partners Inc.) (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^th, 2018, (“the Company”) executed an Acquisition and Share Exchange Agreement with Eroll Grow Tech Ltd. (“Eroll”), an Israeli Corporation that was formed on May 18, 2015 under the laws of the state of Israel. 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 changed its main business focus to Eroll’s business activities while continuing with some RAP activities.

Eroll was focused on producing automated plant growing devices managed and controlled by an artificial intelligent algorithm, allowing consumers to grow their own herbs and vegetables from seed to plant, while providing optimal conditions to assure premium quality produce year-round.

During the third quarter of 2019, Eroll was experiencing financial and operational difficulties and on December 10, 2019, Mr. Zohar Levy, the Company’s CEO at the time, on behalf of Eroll filed a petition (the “Petition”) for a debt settlement in the Nazareth District Court (the “Court”), in accordance with Section 321 of Chapter A of Part G of the Israeli Insolvency and Economic Rehabilitation Law, seeking a debt settlement and a suspension of proceedings in order to protect Eroll’s creditors from economic damages and other future damages and to allow the Eroll to maintain its business while seeking a proposal of an acquisition of the Eroll and/or its activities and assets.

On March 25, 2020, the Nazareth District Court of the State of Israel (the “Court”) approved the purchase of all of Eroll Grow Tech Ltd.’s (“Eroll”) assets by a non-related third party entity named Seedo Agriculture Ltd. Therefore, from the closing of such purchase, the Company no longer has any legal ties nor privity with Eroll. The Company is focusing on its in-house research and development of agriculture technology products, among others, in the fields of exotic plants and mushrooms.

On July 19, 2020, the Company formed a new wholly-owned subsidiary in Israel, Hachevra Legiduley Pkaot Beisrael Ltd. (the “New Subco”), to develop a fully automated and remotely managed system for growing saffron and other vegetables. On November 5, 2020, the New Subco changed its name to Saffron-Tech Ltd (or “Saffron”).

The Company, through Saffron, plans to roll out its proof of concept in the coming months. This technology will provide turnkey automated growing containers for high-quality, high-yield saffron all year round. The Company is in advanced stages of developing and testing a fully automated and remotely managed system for growing high-quality, high-yield saffron anywhere and anytime.

The Company’s technology offers a controlled environment based on the Company’s deep knowledge in plant biology. The technology provides optimal conditions for each stage of the plant’s development to reach optimal product quality.

Our Business Operations during 2020

On July 19, 2020, the Company formed a new wholly-owned subsidiary in Israel, Hachevra Legiduley Pkaot Beisrael Ltd. (the “New Subsidiary”), to develop a fully automated and remotely managed system for growing saffron and other vegetables. On November 5, 2020, the New Subsidiary changed its name to Saffron-Tech Ltd. (or “Saffron Tech”).

The Company, through Saffron Tech, plans to roll out its proof of concept in the coming months. This technology will provide turnkey automated growing containers for high-quality, high-yield saffron all year round. The Company is in advanced stages of developing and testing a fully automated and remotely managed system for growing high-quality, high-yield saffron anywhere and anytime.

The Company’s technology offers a controlled environment based on the Company’s deep knowledge in plant biology. The technology provides optimal conditions for each stage of the plant’s development to reach optimal product quality.

The Company’s proof of concept utilizes the “Grow Next to Consumer” policy and is therefore sustainable and fit the COVID-19 restrictions on transport. It is also environmentally friendly, using economic levels of water, space, fertilizer, and energy. Accounting to the Company’s calculations, we believe that the controlled indoor growing area will produce ten times more yield compared to the same land area using traditional methods. The sealed environment eliminates the need for harmful pesticides and herbicides, producing a clean and safe product that is easy to control from anywhere. The Company’s solution is easily scalable and pre-designed to quickly grow operations.

Saffron is used in many industries, such as the food industry, particularly by famous chefs and Michelin starred restaurants, the natural cosmetics industry and the natural medicine industry and as a dye in the textile industry. Medicinal claims as an anti-depressant, antioxidant, and antiseptic are constantly increasing.

The global saffron market size was valued at USD 1 Billion in 2019 and is anticipated to attain a revenue based CAGR of 7.3% from 2020 to 2027. The market is expected to grow over the next few years on account of demand from the pharmaceutical sector, particularly in countries with rapid population expansion.

Since the incorporation Saffron Tech, Saffron Tech has hired one employee and several consultants to commence the roll out of our proof of concept. Saffron Tech has signed several agreements with Israeli companies, including Growin Ltd (“Growin”) and the Israeli Ministry of Agricultures research organization – The Volcani Center (“Volcani”). Growin is an owner of proprietary systems for indoor agriculture and Saffron Tech has acquired the exclusive right to market, sell and commercialize our product based on the Growin’s hydroponic machines. Volcani will assist Saffron Tech in writing the protocols required to grow saffron in a controlled and automated way, including the use of robotics and AI.

Our Business Operations during 2018 and 2019

We were a global Technology Company focusing on producing cutting edge technology for the agriculture markets for home, Commercial and medical use. We produced automated plant growing devices 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. As discussed above, Errol was placed into liquidation in December 2019 and the assets were sold in March 2020.

Results of Operations during the year ended December 31, 2020 as compared to the year ended December 31, 2019

Operating Expenses

Research and Development Expenses for the year ended December 31, 2020 amounted to $107 thousand as compared to $nil for the year ended December 31, 2019. During 2020, the Saffron Tech began its research and development expenses in Israel.

General and Administrative expenses for the year ended December 31, 2020 amounted to $466 thousand as compared to $273 thousand for the year ended December 31, 2019.

Financing expenses for the year ended December 31, 2020 amounted to $1,377 thousand as compared to $3,004 thousand for the year ended December 31, 2019. Financing expenses include interest on loans and convertibles loans, amortization of BCF and adjustments to the fair value of certain convertible loans.

Gain on liquation of subsidiary for the year ended December 31, 2020 amount to $9,593 thousand as compared to nil for the year ended December 31, 2019. The increase related to Eroll being liquidated by the Israeli court thereby removing the liability form the Company’s balance sheet.

Liquidity and Capital Resources

Overview

Since inception on January 16, 2015, the Company had a cumulative deficit as of December 31, 2020 of $17,704 thousand and we have a working capital deficit of $2,013 thousand as of December 31, 2020. 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, convertible loans and warrants.

As of December 31, 2020, our cash balance was $411 thousand.

During November and December 2020 and January 2021, the Company continued to raise funds to support its operations and received $855 thousand from third party investors and issued convertible promissory notes in respect thereof (“Promissory Notes”). The Promissory Notes bear no interest, are convertible into Shares based on a fixed conversion price of $0.10 per share and mature between 12 and 24 months from the issuance date. On December 24, 2020, Saffron Tech, announced its intention to raise up to 5 million New Israeli Shekels (“NIS”) (approximately $1.6 million) at a pre-money valuation of NIS 20 million (approximately $6.225 million) through the Israeli crowd funding platform – Pipelbiz “Crowd Funding Round”). The Crowd Funding Round was closed on February 16, 2021 having raised the full amount.

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 the board 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.

Year ended December 31, 2020

During the year ended December 31, 2020, the Company’s overall position of cash and cash equivalents increased by $409 thousand. This increase in cash can be attributed to the following:

The Company’s net cash used in operating activities during the year ended December 31, 2020 was $316 thousand as compared to $7,040 for the year ended December 31, 2019. This decrease is mostly due to a significant decrease in the operations of the Company.

Cash provided by financing activities for the year ended December 31, 2020 was $725 thousand as compared to $7,032 thousand for the year ended December 31, 2019. Cash provided in 2020 was from the receipt of convertible loans as compared to the receipt of convertible loans and the issuance of shares in 2019.

Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. We had no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Recently Issued Accounting Pronouncements

For information with respect to recent accounting pronouncements, see Note 2 to the audited consolidated financial statements of SEEDO CORP. included elsewhere in this Form 10-K

Critical Accounting Policies

Our discussion and analysis of the financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“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 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 are fair value of convertible loans and going concern.

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.

Item 7A. 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 8. Financial Statements and Supplementary Data.

SEEDO CORP.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

IN THOUSANDS OF U.S. DOLLARS

INDEX

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of SEEDO CORP.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Seedo Corp. (the “Company”) as of December 31, 2020, 2019 and 2018, and the related consolidated statements of comprehensive income (loss), changes in shareholders’ deficit and cash flows for each of the two years in the period ended December 31, 2020 and for the three months ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 and for the three months ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1D to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1D. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Halperin Ilanit

Certified Public Accountants (Isr.)

Tel Aviv, Israel

March 17, 2021

We have served as the Company’s auditor since 2020

SEEDO CORP.

CONSOLIDATED BALANCE SHEETS

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

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

SEEDO CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

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

SEEDO CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

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

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

SEEDO CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

On July 19, 2020, the Company formed a new wholly-owned subsidiary in Israel, Hachevra Legiduley Pkaot Beisrael Ltd. (the “New Subsidiary”), to develop a fully automated and remotely managed system for growing saffron and other vegetables. On November 5, 2020, the New Subsidiary changed its name to Saffron-Tech Ltd. (“Saffron Tech”).

The Company, through Saffron Tech, is focusing on its in-house research and development of agriculture technology products, among others, in the fields of exotic plants and mushrooms. Saffron Tech plans to roll out its proof of concept in the coming months. This technology will provide turnkey automated growing containers for high-quality, high-yield saffron all year round. The Company is in advanced stages of developing and testing a fully automated and remotely managed system for growing high-quality, high-yield saffron anywhere and anytime.

Immediately following the transaction, Eroll shareholders held approximately 87.4% of the outstanding Ordinary Shares 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’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.

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.

On December 10, 2019, Mr. Zohar Levy, on behalf of Eroll filed a petition (the “Petition”) for a debt settlement in the Nazareth District Court (the “Court”), in accordance with Section 321 of Chapter A of Part G of the Israeli Insolvency and Economic Rehabilitation Law, seeking a debt settlement and a suspension of proceedings in order to protect Eroll’s creditors from economic damages and other future damages and to allow the Eroll to maintain its business while seeking a proposal of an acquisition of the Eroll and/or its activities and assets.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

In the petition, Eroll requested that the Court authorize its entering into a loan agreement with a potential buyer, as a temporary solution until a definitive agreement is signed, and to issue an order calling for a creditors’ meeting within 10 days and appointment of a trustee, who will negotiate a definitive agreement with the potential buyer.

During the year ended December 31, 2020, following the Eroll Purchase Agreement, the Company recorded a gain on the liquidation of Errol in the amount of $9,593 thousand.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

Following the cessation of Eroll’s operations, the Company classified to discontinued operations its 2019 and 2018 results of operation and balances relating to the Eroll operation.

Liabilities held for sale:

Loss from discontinued operations:

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.

The consolidated financial statements for the year ended December 31, 2020, 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.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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

The preparation of the financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

The costs of the Company are denominated in United States dollars (“dollars”). Some of the costs are incurred in New Israeli Shekels (NIS), however the selling prices are linked to the Company’s price list which is determined in dollars, the budget is managed in dollars, financing activities including loans and cash investments, are made in U.S. dollars and the Company’s management believes that the dollar is the primary currency of the economic environment in which the Company and each of its subsidiaries operate. Thus, the dollar is the Company’s and its subsidiaries’ functional and reporting currency.

Accordingly, transactions denominated in currencies other than the functional currency are re-measured to the functional currency in accordance with Accounting Standards Codification (“ASC”) No. 830, “Foreign Currency Matters” at the exchange rate at the date of the transaction or the average exchange rate in the relevant reporting period. At the end of each reporting period, financial assets and liabilities are re-measured to the functional currency using exchange rates in effect at the balance sheet date. Non-financial assets and liabilities are re-measured at historical exchange rates. Gains and losses related to re-measurement are recorded as financial income (expense) in the consolidated statements of operations as appropriate.

The consolidated financial statements include the financial statements of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less, at the date acquired.

Restricted bank deposit includes a deposit with maturities of more than three months and up to one year. The restricted bank deposit is presented at its cost, including accrued interest and is composed of guarantees in respect of the Company’s credit card and manufacturing commitments.

Inventories are stated at the lower of cost or net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the Ordinary course of business less estimated costs of completion and estimated selling costs.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:

The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets (or asset group) to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2020, 2019, and for the three months ended 2018, no impairment losses have been recorded.

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and restricted bank deposit. Cash and cash equivalents and restricted bank deposit are invested in major banks in Israel and the United States. Such funds in the Israel may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company and its subsidiary’ cash and cash equivalents have high credit ratings.

The Company, have no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

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 the Company’s product development process, technological feasibility is established upon the completion of a working model. The Company does 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. The Company did not capitalized expenses as of December 31, 2020.

Eroll and Saffron Tech’s liability for severance pay is pursuant to Section 14 of the Severance Compensation Act, 1963 (“Section 14”), pursuant to which all the Company’s employees are included under Section 14, and are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in the employee’s name with insurance companies. Under Israeli employment law, payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of cause of termination. The severance pay liabilities and deposits under Section 14 are not reflected in the consolidated balance sheets as the severance pay risks have been irrevocably transferred to the severance funds.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

Advances from customers include primarily unearned amounts received in respect of sale and service contracts, but not yet recognized as revenues and therefore are classified as a liability.

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the inputs as follows:

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The carrying amounts of cash and cash equivalents, short term deposits, trade receivables, trade payables and short-term loan approximate their fair value due to the short-term maturity of such instruments.

The Company elected to measure some of the convertible loans under the fair value option (see note 4). Under the fair value option the convertible loans will be measured at fair value in each reporting period until they will be converted, with changes in the fair values being recognized in the Company’s consolidated statement of operations as financial income or expense. The proceeds received for the issuance of the convertible loans were allocated at fair value conducted on an arm’s-length basis.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows:

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

The Company account for income taxes in accordance with ASC 740, “Income Taxes” which prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it not is more likely than not that a portion or all of the deferred tax assets will be realized. Based on ASC 740, a two-step approach is used to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. As of December 31, 2020,2019 and 2018, no liability for unrecognized tax positions has been recorded. Accordingly, no interest or penalties related to uncertain tax positions are recorded, either. It is the Company’s policy that any interest or penalties associated with unrecognized tax positions would be reflected in income tax expense.

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of Ordinary shares outstanding during the period.

Diluted net loss per share is computed by giving effect to all potential shares of Ordinary shares, to the extent dilutive, all in accordance with ASC No. 260, “Earning Per Share”.

For the years ended December 31, 2020, 2019 and for the three months ended December 31, 2018, all outstanding shares warrants have been excluded from the calculation of the diluted net loss per share as all such securities are anti-dilutive for all years presented.

The Company accounts for its contingent liabilities in accordance with ASC 450 “Contingencies”. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2020, 2019 and 2018, the Company is not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. Legal costs incurred in connection with loss contingencies are expensed as incurred.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

Share-based compensation arrangements with non-employee service providers are accounted for in accordance ASC 505-50 Equity-Based Payments to Non-Employees, using a fair value approach. For the years ended December 31, 2020, December 31, 2019 and the three months ended December 31, 2018 the Company recorded $43, $134 and $37 in share-based compensation, respectively.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. Topic 326 was adopted by the Company on January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature and a beneficial conversion feature (“BCF”), and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS). ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

Certain financial statement data for prior years has been reclassified to conform to current year financial statement presentation.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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

The Company estimated the fair value of warrants in the amount of $581 using the Black-Scholes-Merton option pricing model using the following weighted average assumptions:

The Company accounted for the December 2018 Loan in accordance with ASC 470, Debt. The Company allocated the consideration of the loan, the related warrants and the shares of common stock based on their relative fair value at the date of issuance, which is also the commitment date.

On June 19, 2019 the Company executed an amendment to the December 2018 Loan, according to which total debt was $1,175. The lender will exercise its 433,333 warrants pursuant to the original agreement for a total amount of $700, and the remaining debt of $475 will be paid in three equal monthly payments of $158,333 over the following three months. As of December 31, 2019, the loan was repaid in full.

On August 15, 2019 the Company issued 433,333 Shares in respect of exercise of 433,333 warrants granted.

During the year ended December 31, 2019 the Company recorded interest and financial expenses related to the loan in the amount of $800.

As of December 31, 2019, Errol did not repay the August 2019 Loan but gave the lender a 7 days notice therefore entered the 5% interest period. Accordingly, the liability and related interest for the year ended December 31, 2019 in the amount of $388 is included in Liabilities held for sale.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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 2018 Loan was converted into 500,000 Shares.

During the year ended December 31, 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.

During the year ended December 31, 2019, the Company recorded an interest expenses in the total amount of $4.

On April 10, 2019, the July 2018 Loan was converted into 150,000 Shares.

(i) Convertible Loan (“Cannabics Convertible Loan”)

Cannabics was obligated to invest up to $2,000 in Eroll as follows: (i) $500 upon execution of the Cannabics Loan Agreement (“First Tranche”), (ii) $500 within 90 days and (iii) $1,000 (the “Third Tranche”), 90 days following that.

Following the investment of the Third Tranche, the Company shall issue Cannabics an amount of shares such that Cannabics shall hold 10% of the outstanding shares on a fully-diluted basis of the Company.

On August 13, 2018, the Company received $500 and on September 26, 2018, the Company received the Second $500. On November 6, 2018 and December 10, 2018, the Company received the Third Tranche ($1,000).

The Company accounted for the Cannabics 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 of $250 related to the convertible loan to the BCF as additional paid in capital.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

On September 27, 2018 the First Tranche was converted into 1,500,000 Shares.

On January 15, 2019, the Third Tranche was converted into 770,397 Shares. As a result, the Company recorded financial expenses related to the loan in the amount of $942 which are included in discontinued operations.

(ii) Warrants

In addition, according to the Cannabics Loan 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 year ended December 31, 2019 the Company recorded expenses due to the change in fair value of the warrant in the amount of $1. As of December 31, 2020, December 31, 2019, and December 31, 2018 the warrants fair value amount was $nil and $1, respectively.

(iii) Royalties

Eroll shall pay to Cannabics royalties in an amount equal to a percentage of the Eroll’s revenues commencing from January 2019 of between 2.5% - 5%, subject to certain conditions.

Notwithstanding the above, for the first year following the Cannabics Loan Agreement closing date, Eroll shall pay Cannabics minimum royalties of not less than $500. In the event the Cannabics Loan is converted into shares, the aggregate royalties to be paid will not be greater than $8,000.

Eroll recorded a provision for royalties in a total amount of $500 which is included in the ended December 31, 2019, included Liabilities held for Sale.

The Company at its option shall have the right to redeem, in part or in whole, outstanding principal and interest under 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 2018 Lender shall be entitled to convert at its option any portion of the outstanding and unpaid conversion amount into fully paid and nonassessable shares of common stock, at the lower of the fixed conversion price then in effect or the market conversion price. The number shares of common stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such conversion amount by (y) the fixed conversion price of $1.2 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.

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

On April 3, 2019, the December 2018 Loan and the accrued interest in the amount of $568 were converted to 473,025 Shares.

During the year ended December 31, 2019, the Company recorded interest and financial expenses related to the December 2018 Loan in the amount of $543.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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 2019 Lender shall be entitled to convert at its option any portion of the outstanding and unpaid principal or accrued interest into fully paid and nonassessable of shares of common stock, at the lower of the fixed conversion price then in effect or the market conversion price. The number of shares of common stock issuable upon conversion of any conversion amount shall be determined by dividing (x) such conversion amount by (y) the fixed conversion price of $2 or (z) 80% of the lowest the volume-weighted average price of the Company’s shares of common stock during the 10 trading days immediately preceding the conversion date.

The Company also granted the February 2019 Lender a warrant to purchase 137,500 shares of common stock of the Company at an exercise price of $2 per share, such exercise price is subject to any future price-based anti-dilution adjustments. As the Company early adopted ASU 2017-11 the warrants were classified in shareholders equity.

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

The fair value of the warrants granted was $242.

The Company accounted for the February 2019 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 $550 to the BCF as additional paid in capital.

During the year ended December 31, 2020, a portion of the February 2019 Loan in the amount of $190 and $87 accrued interest was converted into 10,455,212 Shares.

During the year ended December 31, 2020 and 2019, the Company recorded interest and financial expenses related to February 2019 Loan in the amount of $343 and $527, respectively.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

The October 2019 Lender shall be entitled to convert the principal loan and the outstanding interest (the “Conversion Amount”) into such number of ordinary shares determined by dividing (x) such Conversion Amount by (y) the fixed conversion price of $1.25 or (z) 80% of the lowest the volume-weighted average price of the Company’s ordinary shares during the 10 trading days immediately preceding the conversion date.

The Company also granted the October 2019 Lender a warrant to purchase 440,000 shares of common stock of the Company at an exercise price of $1.25 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:

The fair value of the warrants granted was $414.

The Company accounted for the October 2019 Loan in accordance with ASC 470-20, Debt with conversion and other Options. The intrinsic value of the BCF was calculated and valued at $1,322, and the Company allocated $1,322 to the BCF as a liability. As of December 31, 2020 and December 31, 2019, the BCF was revalued at $610 and $676, accordingly.

The Company estimated the fair value of BCF using the Monte Carlo option pricing model using the following weighted average assumptions:

During the year ended December 31, 2020 and 2019, the Company recorded interest and financial expenses related to October 2019 Loan in the amount of $594 and $127, respectively.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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

The First MOU Debenture was issued upon signing that MOU and recorded as a short-term loan as of December 31, 2019. In addition, during the year ended December 31, 2019, the Company paid $550 of the $1,000.

During the second quarter of 2020, the First MOU Debenture expired without being converted to Shares and the Company recorded a gain on liquidation of subsidiary of debt in the Consolidated Statement of Operations in the amount of $700 during the year ended December 31, 2020. As of the date of this report, there are no further obligations of the Company under the MOU.

The August 2020 Loans are convertible by the August 2020 Lenders into Shares, at their discretion, at the lower of a fixed price of $0.102 (the “Fixed Conversion Price”) or 80% of the lowest volume weighted average price (“VWAP”) of the Company’s common stock during the 10 trading days immediately preceding the conversion date (the “Market Conversion Price”).

The Company also granted the August 2020 Investors warrants to purchase 750,000 shares of common stock of the Company at an exercise price of $0.20 per share, such exercise price is subject to any future price-based anti-dilution adjustments. Accordance with ASU 2017-11 the warrants were classified in shareholders equity.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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

The fair value of the warrants granted was $53.

The Company accounted for the August 2020 Loan in accordance with ASC 470-20, Debt with conversion and other Options. The combined intrinsic value of the BCF for the August 2020 Loan was calculated and valued at $378, and the Company allocated $378 to the BCF as a liability. As of December 31, 2020, the BCF was revalued at $502.

The Company estimated the fair value of BCF using the Monte Carlo option pricing model using the following weighted average assumptions:

During the year ended December 31, 2020, the Company recorded interest and financial expenses related to August 2020 Lenders in the amount of $327.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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

The fair value of the warrants granted was $41, is included in the warrants as additional paid in capital.

The Company accounted for the Promissory Notes in accordance with ASC 470-20, Debt with conversion and other Options. The intrinsic value of the BCF was calculated and the Company allocated $425 to the BCF as additional paid in capital.

During the year ended December 31, 2020, the Company recorded interest and financial expenses related to Promissory Notes in the amount of $65.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

A summary of warrant activity during the years ended December 31, 2020, 2019 and for the three months ended 2018 is as follows:

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

The following warrant issues took place during the years ended December 31, 2020, 2019 and the three months ended December 31, 2018 and are outstanding as of December 31, 2020:

On April 1, 2019, the Company’s board of directors adopted the Seedo Corp. 2018 Share Options Plan (the “2018 Plan”).

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.

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.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

(i) A summary of employee share options activity during the years ended December 31, 2020, 2019 and the three months ended December 31, 2018 is as follows:

The following option issues took place during the years ended December 31, 2020 and 2019:

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

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.

A summary of RSU activity during the years ended December 31, 2020, 2019 and the three months ended December 31, 2018 is as follows:

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

The Company’s subsidiaries are separately taxed under the domestic tax laws of the jurisdiction of incorporation of each entity.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (“the TCJA”) was signed into law, permanently lowering the corporate federal income tax rate from 35% to 21%, effective January 1, 2018. The company is subject to U.S. income tax laws. There are no significant provisions for U.S. federal, state or other taxes for any period.

The Israeli statutory corporate tax rate and real capital gains were 23% in 2018-2020.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance at December 31, 2020, 2019 and 2018.

As of December 31, 2020, the carry-forward losses amounting to approximately $5,600, which can be carried forward for an indefinite period.

SEEDO CORP.

NOTES TO FINANCIAL STATEMENTS

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

SEEDO CORP.

INTERIM CONSOLIDATED BALANCE SHEETS

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