NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
1 – GENERAL
|
A.
|
Samsara
Luggage, Inc. (the “Company”) was incorporated on May 7, 2007 under the name, “Darkstar Ventures, Inc.”
under the laws of the State of Nevada. From the date of its formation until May 2011, the Company did not have any business
activity except for the development of its website and locating companies through which it could offer products. Once its
proprietary website was officially launched in July 2011, the Company engaged in the business of marketing eco-friendly health
and wellness products, such as air and water filtration systems, organic baby products, and eco-friendly beds and linens through
affiliate marketing arrangements. On May 14, 2015, the founder of the Company, Chizkiyau Lapin, sold all of his shares of
common stock of the Company, then constituting 51% of the issued and outstanding shares of common stock of the Company, to
Mr. Avraham Bengio. In April 2016, the Company began to focus, through its wholly-owned Israeli subsidiary, Bengio Urban Renewal
Ltd. (“Bengio Urban Renewal”), in the area of real estate development, particularly on the urban renewal market
in Israel.
|
On
November 12, 2019, the Company completed its merger with the Delaware corporation that was previously known as “Samsara
Luggage, Inc.” (“Samsara Delaware”) in accordance with the terms of the Merger Agreement and Plan of Merger,
dated as of May 10, 2019, (the “Merger Agreement”) by and among the Company, Samsara Delaware, and Avraham Bengio,
pursuant to which Samsara Delaware merged with and into the Company, with the Company being the surviving corporation (the “Merger”).
Following the completion of the Merger, the business of the Company going forward became the business of Samsara Delaware prior
to the Merger, namely, designing, manufacturing, and selling high quality luggage products to meet the evolving needs of frequent
travelers and also seeking to present new technologies within the aluminum luggage industry, including an aluminum “smart”
suitcase.
The
Company filed (1) Articles of Merger with the Secretary of State of the State of Nevada in which the Company amended its Articles
of Incorporation to change the Company’s name to “Samsara Luggage, Inc.” effective as of November 12, 2019;
and (2) a Certificate of Amendment with the Secretary of State of the State of Nevada in which the Company increased the number
of authorized shares of common stock of the Company from 2,000,000,000 shares of common stock to 5,000,000,000 shares of common
stock effective as of November 12, 2019.
In
connection with the Merger, the Company and Avraham Bengio entered into an Assignment and Assumption Agreement pursuant to which
the Company sold 100% of the issued and outstanding shares of the Company’s wholly-owned Israeli subsidiary, Bengio Urban
Renewal and all of the Company’s interest in Bengio Urban Renewal (including all debts and liabilities owed by the Company
to Bengio Urban Renewal and the debts of Bengio Urban Renewal to the Company) to Avraham Bengio, the former CEO and principal
shareholder of the Company (prior to the Merger).
At
the effective time of the Merger, each share of common stock of Samsara Delaware, $0.0001 par value, was converted into the right
to receive 458.124 shares of the Company’s common stock, such that the shareholders of Samsara Delaware were issued new
shares of the Company representing approximately 80% of the issued and outstanding shares of the Company’s common stock
following the completion of the Merger. The exchange rate was determined through arms’-length negotiations between the Company
and Samsara Delaware.
Immediately
after the Merger, assuming the issuance of all of the merger consideration, there were approximately 3,236,851,080 shares of Common
Stock outstanding, of which (i) the former stockholders of Samsara Delaware owned 2,589,506,080 shares, representing approximately
80% of the outstanding shares of Common Stock; and (ii) the Company’s stockholders immediately prior to the Merger owned
647,345,000 shares, representing approximately 20% of the outstanding shares of Common Stock.
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
1 – GENERAL (cont.)
The
transaction was accounted for as a reverse asset acquisition in accordance with generally accepted accounting principles in the
United States of America (“GAAP”). Under this method of accounting, Samsara Delaware was deemed to be the accounting
acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the
Merger: (i) Samsara Delaware’s stockholders owned a substantial majority of the voting rights in the combined company,
(ii) Samsara Delaware designated a majority of the members of the initial board of directors of the combined company, and
(iii) Samsara Delaware’s senior management holds all key positions in the senior management of the combined company.
As a result of the Merger, the shareholders of Samsara Delaware received the largest ownership interest in the Company, and Samsara
Delaware was determined to be the “accounting acquirer” in the Merger. As a result, the historical financial statements
of the Company were replaced with the historical financial statements of Samsara Delaware. The number of shares prior to the reverse
capitalization have been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in
the Merger.
The
Common Stock listed on the OTC Pink Marketplace, previously trading through the close of business on November 11, 2019 under the
ticker symbol “DAVC,” commenced trading on the OTC Pink Marketplace under the ticker symbol “SAML” on
November 12, 2019. The Common Stock has a new CUSIP number, 79589J101.
On
November 13, 2019, the Board of Directors of the Company amended Section 3 of Article VII of the bylaws of the Company to change
the fiscal year end-date of the Company from July 31 to December 31.
|
C.
|
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has spread throughout China
and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the
outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January
31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States
to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized
the outbreak as a “pandemic”. A significant outbreak of COVID-19 and other infectious diseases could result in
a widespread health crisis that could adversely affect the economies and financial markets worldwide, as well as the Company’s
business and operations. The extent to which COVID-19 impacts our business and results of operations will depend on future
developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the
severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19
or other matters of global concern continue for an extensive period of time, the Company’s business and results of operations
may be materially adversely affected.
|
D.
GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as going concern. As of June 30,
2020, the Company had approximately $156,000 in cash and cash equivalents, approximately $1,070,000 in deficit of working capital,
a stockholders’ deficiency of approximately $1,066,000 and an accumulated deficit of approximately $5,461,000. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. Company’s ability to continue
as a going concern is dependent upon raising capital from financing transactions and revenue from operations. Management anticipates
their business will require substantial additional investments that have not yet been secured. Management is continuing in the
process of fund raising in the private equity and capital markets as the Company will need to finance future activities. These
financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going
concern.
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Unaudited
Interim Financial Statements
The
accompanying unaudited financial statements include the accounts of the Company, prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10
of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial
statements presented herein have not been audited by an independent registered public accounting firm but include all material
adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement
of the financial condition, results of operations and cash flows for the for six-months ended June 30, 2020. However, these results
are not necessarily indicative of results for any other interim period or for the year ended December 31, 2020. The preparation
of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting
periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities,
revenues and expenses. Actual amounts could differ from these estimates.
Certain
information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (“SEC”). The accompanying
unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 3, 2020 (the “Annual
Report”). For further information, reference is made to the financial statements and footnotes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019.
Use
of Estimates
The
preparation of unaudited condensed financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain
revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual
results could differ from those estimates. Estimates are used when accounting for Warrants and Convertible Note and Going Concern.
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.)
Derivative
and Fair Value of Financial Instruments
Fair
value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity
instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will
continue its evaluation process of these instruments as derivative financial instruments under ASC 815.
Once
determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease
in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Fair
value of certain of the Company’s financial instruments including cash, accounts receivable, accounts payable, accrued expenses,
notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports
fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair
value measurements.
Fair
value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best
use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair
value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit
risk.
Valuation
techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The
selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the
characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair
value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides
fair value hierarchy for inputs and resulting measurement as follows:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level
2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that
are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities;
and
Level
3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant
to the fair values.
Fair
value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements
in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to
expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes
during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating
those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported
in the statement of income.
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.)
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:
|
|
Balance as of June 30, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(U.S. dollars in thousands)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of convertible component in convertible loan, net of discounts and debt issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
789
|
|
|
|
789
|
|
Fair value of warrants issued in convertible loan
|
|
|
-
|
|
|
|
-
|
|
|
|
92
|
|
|
|
92
|
|
Total liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
881
|
|
|
|
881
|
|
|
|
Balance as of December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(U.S. dollars in thousands)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of convertible component in convertible loan, net of discounts and debt issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
1,053
|
|
|
|
1,053
|
|
Fair value of warrants issued in convertible loan
|
|
|
-
|
|
|
|
-
|
|
|
|
319
|
|
|
|
319
|
|
Total liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,372
|
|
|
|
1,372
|
|
Recent
Accounting Standards announced
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial
Instruments. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition
and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses
expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable
and supportable forecasts. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments
- Credit Losses. ASU 2018-19 clarifies that receivables from operating leases are accounted for using the lease guidance and not
as financial instruments.
The
guidance became effective on January 1, 2020, including interim periods within that year and requires a modified retrospective
transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.
Under the modified retrospective method of adoption, prior year reported results are not restated. The Company has performed its
analysis of the impact on its financial instruments that are within the scope of this guidance and has concluded that there is
no material impact to its consolidated financial statements.
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
3 – CONVERTIBLE NOTES
|
A.
|
On
June 5, 2019, the Company entered into a Securities Purchase Agreement (“SPA”)
with YAII PN, Ltd. (the “Investor”), pursuant to which the Investor agreed
to provide the Company with a convertible loan in the aggregate amount of $1,100,000
in three tranches, and the Company agreed to issue convertible debentures and a warrant
to the Investor.
|
The
first tranche of the convertible debentures in the amount of $210,000 was provided upon execution of the SPA. The second tranche
in the amount of $300,000 was provided on October 23, 2019 upon the Company filing of a Registration Statement on Form S-4 in
connection with the Merger with Samsara Delaware. The third tranche in the amount of $600,000 was provided on November 18, 2019
upon consummation of the Merger with Samsara Delaware and the fulfillment of all conditions required for the Merger. The Company
incurred issuance cost of $100,000 with connection to those convertible debentures.
Each
tranche of the loan will bear interest at an annual rate of ten percent (10%). The principal amount together with the accrued
and unpaid interest will be repayable after two years. Each tranche of the loan together with the accrued and unpaid interest
(or any portion at the discretion of the Investor) will be convertible at any time six months following the issuance date, into
shares of Company’s common stock at a conversion price equal to the lower of $0.003 per share or 80% of the lowest volume-weighted
average price (VWAP) of Company’s share during the period of 10 days preceding the conversion date.
On
December 9, 2019 and pursuant to the SPA, YAII exercised its option to convert the first Convertible Promissory Note in the amount
of $210,000 into 69,917,807 shares of Common Stock of the Company.
In
accordance with ASC 815-15-25 the conversion feature was considered embedded derivative instruments, and is to be recorded at
their fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying
note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess
amount of the convertible component fair value over the face loan amount. The conversion liability is then marked to market each
reporting period with the resulting gains or losses shown in the statements of operations.
The
fair value of the convertible component was estimated by third party appraiser using the Monte Carlo Simulation Model to compute
the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The
following are the data and assumptions used as of the balance sheet date:
|
|
June 30,
2020
|
|
Common stock price
|
|
|
0.0016
|
|
Expected volatility
|
|
|
180.97
|
%
|
Expected term
|
|
|
0.93 years
|
|
Risk free rate
|
|
|
0.16
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
In
addition, the Company issued to the Investor a warrant to purchase 91,666,666 shares of common stock, at an exercise price equal
to $0.003. The warrants may be exercised within 5 years from the issuance date by cash payment or through cashless exercise by
the surrender of warrants shares having a value equal to the exercise price of the portion of the warrant being exercised.
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
3 – CONVERTIBLE NOTES (cont.)
The
Company considered the provisions of ASC 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity”,
with respect to the detachable Warrants that were issued to the Convertible loan, and determined that as a result of the “cashless
exercise” and variable exercise price that would adjust the number of Warrants and the exercise price of the Warrants based
on the price at which the Company subsequently issues shares or other equity-linked financial instruments, such Warrants cannot
be considered as indexed to the Company’s own stock. Accordingly, the Warrants were recognized as derivative liability at
their fair value on initial recognition. In subsequent periods, the Warrants were marked to market with the changes in fair value
recognized as financing expense or income in the consolidated statement of operations.
The
warrants were estimated by third party appraiser using the Black-Scholes option-pricing model to compute the fair value of the
derivative and to mark to market the fair value of the derivative at each balance sheet date. The following are the data
and assumptions used as of the balance sheet date:
|
|
June 30,
2020
|
|
Common stock price
|
|
|
0.0016
|
|
Expected volatility
|
|
|
108.99
|
%
|
Expected term
|
|
|
3.93 years
|
|
Risk free rate
|
|
|
0.23
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
The
following table presents the changes in fair value of the level 3 liabilities for the year ended December 31, 2019 and as of June
30, 2020:
|
|
Warrants
|
|
|
Convertible
component
|
|
|
|
(U.S. dollars
in thousands)
|
|
Outstanding at December 31, 2019
|
|
|
319
|
|
|
|
1,053
|
|
Changes in fair value
|
|
|
(227
|
)
|
|
|
(318
|
)
|
Outstanding at June 30, 2020
|
|
|
92
|
|
|
|
735
|
|
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
3 – CONVERTIBLE NOTES (cont.)
|
B.
|
On
June 26, 2020, the Company entered into a Securities Purchase Agreement (“SPA”)
with Power Up Lending Group Ltd. (the “Investor”), pursuant to which the
Investor agreed to provide the Company with an initial investment in the form of a convertible
loan in the principal amount of $67,000 (the “Initial Investment”). The SPA
contemplates additional financing of up to $925,000 in the aggregate, subject to the
agreement of both parties. The funds are expected to be used to finance the Company’s
working capital needs.
|
The
convertible loan will bear interest at an annual rate of eight percent (8%) with a maturity date of June 25, 2021 (the “Maturity
Date”). The loan will be convertible after six months into shares of the Company’s common stock at a conversion price
equal to seventy-five percent (75%) of the average of the lowest trading price for the Company’s common stock during the
twenty (20) trading day period prior to the conversion date. The Company agreed to an original issue discount of $8,700 and to
reimburse the Investor for its costs in the amount of $3,000. Accordingly, the net proceeds to the Company from the Initial Investment
amounted to $55,000.
The
SPA and the convertible note contain events of default, including, among other things, failure to repay the loan amount by the
Maturity Date, and bankruptcy and insolvency events, that could result in the acceleration of the Investor’s right to convert
the loan amount into shares of common stock.
The
fair value of the convertible component was estimated by third party appraiser using the Monte Carlo Simulation Model to compute
the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The
following are the data and assumptions used as of the balance sheet date:
|
|
June 30,
2020
|
|
Common stock price
|
|
|
0.0016
|
|
Expected volatility
|
|
|
180.97
|
%
|
Expected term
|
|
|
0.99 years
|
|
Risk free rate
|
|
|
0.17
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
The
following table presents the changes in fair value of the level 3 liabilities for the year ended December 31, 2019 and as of June
30, 2020:
|
|
Convertible
component
|
|
|
|
(U.S. dollars in
thousands)
|
|
Outstanding at December 31, 2019
|
|
|
-
|
|
Fair value of issued level 3 liability
|
|
|
54
|
|
Outstanding at June 30, 2020
|
|
|
54
|
|
SAMSARA
LUGGAGE, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE
4 – RELATED PARTY TRANSACTIONS
Related
party balances at June 30, 2020 and December 31, 2019 consisted of the following:
Related
Parties Payable
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(U.S. dollars in thousands)
|
|
Related Parties Payable due to management fee
|
|
|
112
|
|
|
|
105
|
|
General
and Administrative Expenses
|
|
For the six months
Period Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(U.S. dollars in thousands)
|
|
Management Fee
|
|
|
50
|
|
|
|
50
|
|
|
|
For the three months
Period Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(U.S. dollars in thousands)
|
|
Management Fee
|
|
|
25
|
|
|
|
25
|
|