UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: March 31, 2022
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 333-240161.
CREATIONS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 84-2054332 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
c/o Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 37th Floor
New York, NY 10036
(Address of principal executive offices, Zip Code)
212-930-9700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ |
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 ☒
As of May 12, 2022, there were shares of common stock, par value $0.0001 per share, issued and outstanding.
TABLE OF CONTENTS
| Page | ||
| PART I | ||
| Item 1. | Financial Statements. | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 6 |
| Item 4. | Controls and Procedures. | 6 |
| PART II | ||
| Item 1. | Legal Proceedings. | 7 |
| Item 1A. | Risk Factors. | 7 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 7 |
| Item 3. | Defaults Upon Senior Securities. | 7 |
| Item 4. | Mine Safety Disclosures. | 7 |
| Item 5. | Other Information. | 7 |
| Item 6. | Exhibits. | 7 |
| SIGNATURES | 8 | |
| i |
CREATIONS INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2022
| F-1 |
CREATIONS INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2022
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| F-2 |
CREATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(U.S. dollars in thousands except share data)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 541 | 503 | ||||||
| Marketable securities | 164 | 152 | ||||||
| Bank deposit | 21 | 47 | ||||||
| Accounts receivable | 103 | 102 | ||||||
| Other current assets | 28 | 28 | ||||||
| Operating right of use assets | 39 | - | ||||||
| Total current assets | 896 | 832 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 42 | 44 | ||||||
| Intangible assets, net | 283 | 309 | ||||||
| Goodwill | 636 | 649 | ||||||
| Loans granted to stockholders | 13 | 14 | ||||||
| Operating right of use assets | - | 55 | ||||||
| Total non-current asset | 974 | 1,071 | ||||||
| Total assets | 1,870 | 1,903 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | 117 | 92 | ||||||
| Related parties | 130 | 120 | ||||||
| Operating lease liability – current portion | 39 | 55 | ||||||
| Total current liabilities | 286 | 267 | ||||||
| Non-current liabilities | ||||||||
| Deferred taxes | 65 | 71 | ||||||
| Total non-current liabilities | 65 | 71 | ||||||
| Total liabilities | 351 | 338 | ||||||
| Stockholders’ Equity | ||||||||
| Common Stock of $ par value - Authorized: shares at March 31, 2022 and December 31, 2021; Issued and outstanding: shares at March 31, 2022 and December 31, 2021 | - | - | ||||||
| Additional paid-in capital | 3,162 | 3,162 | ||||||
| Accumulated other comprehensive income | 125 | 155 | ||||||
| Accumulated deficit | (1,768 | ) | (1,752 | ) | ||||
| Total stockholders’ equity | 1,519 | 1,565 | ||||||
| Total liabilities and stockholders’ equity | 1,870 | 1,903 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| F-3 |
CREATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(U.S. dollars in thousands except share data)
For the period of three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Unaudited | ||||||||
| Revenues | 538 | 376 | ||||||
| Cost of revenues | (304 | ) | (257 | ) | ||||
| Gross profit | 234 | 119 | ||||||
| Operating expenses: | ||||||||
| Marketing expenses | (58 | ) | (37 | ) | ||||
| General and administrative expenses (related parties of $125 and $73) | (211 | ) | (229 | ) | ||||
| Operating loss | (35 | ) | (147 | ) | ||||
| Other income – capital gain from marketable securities | 14 | - | ||||||
| Financial income, net | 1 | - | ||||||
| Income (loss) before income tax benefit | (20 | ) | (147 | ) | ||||
| Income tax benefit | 4 | 4 | ||||||
| Net loss for the period | (16 | ) | (143 | ) | ||||
| Other
comprehensive expenses: Foreign currency translation adjustments | (30 | ) | (46 | ) | ||||
| Comprehensive loss | (46 | ) | (189 | ) | ||||
| Basic and diluted net loss per share | (0.00 | ) | (0.04 | ) | ||||
| Weighted average number of Common Stock used in computing basic and diluted loss per share | 3,544,242 | 3,544,242 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| F-4 |
CREATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(U.S. dollars in thousands except share data)
Common Stock |
Additional paid-in | Accumulated other comprehensive |
Accumulated |
Total stockholders’ | ||||||||||||||||||||
| Number | Amount | Capital | income | Deficit | equity | |||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||
| Balance as of January 1, 2021 | 3,544,242 | - | 3,162 | 106 | (1,649 | ) | 1,619 | |||||||||||||||||
| Other comprehensive loss | - | - | - | (46 | ) | - | (46 | ) | ||||||||||||||||
| Net loss for the period | - | - | - | - | (143 | ) | (143 | ) | ||||||||||||||||
| Balance as of March 31, 2021 | 3,544,242 | - | 3,162 | 60 | (1,792 | ) | 1,430 | |||||||||||||||||
Common Stock |
Additional paid-in | Accumulated other comprehensive |
Accumulated |
Total stockholders’ | ||||||||||||||||||||
| Number | Amount | Capital | Income | Deficit | equity | |||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||
| Balance as of January 1, 2022 | 3,544,242 | - | 3,162 | 155 | (1,752 | ) | 1,565 | |||||||||||||||||
| Other comprehensive loss | - | - | - | (30 | ) | - | (30 | ) | ||||||||||||||||
| Net loss for the period | - | - | - | - | (16 | ) | (16 | ) | ||||||||||||||||
| Balance as of March 31, 2022 | 3,544,242 | - | 3,162 | 125 | (1,768 | ) | 1,519 | |||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| F-5 |
CREATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
| For the period of three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Unaudited | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | (16 | ) | (143 | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 19 | 20 | ||||||
| Amortization of operating right of use asset | 16 | 14 | ||||||
| Other income – capital gain from marketable securities | (14 | ) | - | |||||
| Deferred taxes | (4 | ) | (4 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1 | ) | (24 | ) | ||||
| Other current assets | (3 | ) | (21 | ) | ||||
| Accounts payable | 2 | 79 | ||||||
| Operating right of use liability | (16 | ) | (14 | ) | ||||
| Related parties | 35 | - | ||||||
| Net cash provided by (used in) operating activities | 18 | (93 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Maturity of (investment in) bank deposit | 26 | (2 | ) | |||||
| Purchase of property and equipment | - | (3 | ) | |||||
| Net cash provided by (used in) investing activities | 26 | (5 | ) | |||||
| Foreign currency translation adjustments on cash and cash equivalents | (6 | ) | (9 | ) | ||||
| Change in cash and cash equivalents | 38 | (107 | ) | |||||
| Cash and cash equivalents at beginning of period | 503 | 625 | ||||||
| Cash and cash equivalents at end of the period | 541 | 518 | ||||||
| F-6 |
CREATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands)
NOTE 1 - GENERAL
| A. | Creations Inc. (hereinafter: the “Company”) was established as a private company under the laws of the State of Delaware on May 13, 2019. The Company’s core business is providing investment services for Israeli mutual funds. It operates as a portfolio manager through its wholly-owned subsidiaries. |
The Company has three wholly owned subsidiaries. Ocean Yetsira Ltd. (previously called Yestsira Holdings Ltd. (until April 28, 2021)) (hereinafter: “Ocean Yetsira”) which was established as a private Israeli corporation in December 2017, Yetsira Investment House Ltd. (hereinafter: “Yetsira”) which was established as a private Israeli corporation in November 2016 and Ocean Partners Y.O.D.M (hereinafter: “Ocean”) following its acquisition.
On January 29, 2018 Ocean Yetsira became the sole stockholder of Yetsira by means of a share exchange agreement (the “Yetsira Exchange”), under which the issued and outstanding shares of Yetsira were exchanged for shares of Ocean Yetsira on a one-to-one basis.
On July 3, 2019 the Company entered into a share exchange agreement (the “Holdings Exchange”) pursuant to which all of the outstanding shares of Ocean Yetsira were exchanged for shares of the Company at a rate of 1:809 (the “Exchange Ratio”), with Ocean Yetsira stockholders each receiving the same proportional ownership in the Company as they had held in Ocean Yetsira immediately prior to the agreement. On the execution of the agreement and exchange of shares, Ocean Yetsira became a wholly owned subsidiary of the Company.
| B. | On August 19, 2020, Ocean Yetsira entered into share purchase agreement with certain shareholders of Ocean, an Israeli corporation that provides mutual funds investment management services for several mutual funds, under which upon consummation of certain conditions Ocean Yetsira would purchase 7.5% of the outstanding and issued shares of Ocean for total cash consideration of NIS 300 (approximately $87) (the “Cash Consideration”). |
On September 7, 2020, Ocean Yetsira entered into a share exchange agreement (the “Share Exchange Agreement”) by and among Ocean Yetsira, Ocean, and certain shareholders of Ocean (“Ocean Shareholders”), under which upon the consummation of certain conditions, Ocean Yetsira would purchase the remaining % of the shares of Ocean for a total equity consideration which represents % of the issued share capital of the Company on a fully diluted basis as of the Closing Date (as defined below) (the “Equity Consideration”), which comprised of the following:
| 1. | shares of common stock of the Company. |
| 2. | warrants to purchase the same number of shares of common stock of the Company (the “Warrants”). The Warrants are convertible into shares of Common Stock over a period of -years at an exercise price of $ per share, with the price per share subject to standard anti-dilution adjustments. |
| F-7 |
CREATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands)
NOTE 1 - GENERAL (CONT.)
Ocean Yetsira consummated the aforesaid acquisition at September 28, 2020 (the “Closing Date”). The financial position and results of operation relating to periods following the Closing Date include the financial position and results of operations of Ocean.
| C. | On August 31, 2020, the Company’s registration statement on Form S-1 was declared effective by the U.S. Securities and Exchange Commission. As at the date of filing this report, the Company’s shares have not begun to be quoted on the OTCQB. |
| D. | The figures in the financial statements are stated in U.S. Dollars in thousands unless otherwise mentioned. |
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). for interim financial information and with Rule 8-03 of Regulation S-X. The interim financial statements do not include a full disclosure as required in annual financial statements and should be read with the annual financial statements of the Company as of December 31, 2021 2021 from which the accompanying condensed consolidated statement of financial position dated was derived. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operation results for the three months ended March 31, 2022, are not necessary indicative of the results that may be expected for the year ending December 31, 2022. The accounting policies implemented in the interim financial statements is consistent with the accounting policies implemented in the annual financial statements as of December 31, 2021, except of the following accounting pronouncement adopted by the company.
Recently Issued Accounting Pronouncements, not yet adopted
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stocks, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal years, and interim periods in those fiscal years, beginning after December 15, 2023 (effective January 1, 2024) for smaller reporting companies. The Company is determining the adoption of this new accounting guidance and the effect on its consolidated financial statements throughout the period until implementation.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)” (“ASU 2016-13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022, for smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.
A. Use of Estimates in Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates 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.
| F-8 |
B. Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
C. Functional currency
The functional currency of the Company is the U.S. dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, “Foreign Currency Matters” (ASC 830), monetary balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions and from the remeasurement of monetary balance sheet items are carried as financing income or expenses.
The functional currency of Ocean Yetsira, Yetsira and Ocean is the New Israeli Shekel (“NIS”) and their financial statements are included in the consolidation based on translation into US dollars. Accordingly, assets and liabilities were translated from NIS to US dollars using year-end exchange rates, and income and expense items were translated at average exchange rates during the year. Gains or losses resulting from translation adjustments are reflected in stockholders’ equity, under “Accumulated Other Comprehensive Income”.
| March 31, | March 31, | |||||||
| 2022 | 2021 | |||||||
| Official exchange rate of NIS 1 to US dollar | 0.315 | 0.299 | ||||||
| Exchange rate change in the quarter | (2.1 | )% | (3.6 | )% | ||||
D. Revenue recognition
The Company accounts for revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under the guidance, the Company determines revenue recognition through the following five steps:
| ■ | Identification of the contract, or contracts, with a customer; |
| ■ | Identification of the performance obligations in the contract; |
| ■ | Determination of the transaction price; |
| ■ | Allocation of the transaction price to the performance obligations in the contract; and |
| ■ | Recognition of revenue when, or as, the Company satisfies a performance obligation. |
| F-9 |
Asset Management and Investments Fees (Gross): The Company earns Asset management and investment fees from its contracts with its clients. These fees are primarily earned over time on a daily basis and are generally assessed based on fixed percentage of the Assets Under Management (AUM). Other related services provided include investment banking and consulting for which the Company’s fees, which are based on a fixed fee schedule, are recognized when the services are rendered.
All of the Company’s revenues is from contracts with customers. Customers are invoiced at the end of the month.
E. Intangible assets
Intangible assets consist of existing customer relationships from the acquisition of Ocean in August and September 2020 for the cost amount of $364. The Company accounts for intangible assets at their historical cost and records amortization utilizing the straight-line method based upon their estimated useful lives. The estimated useful life of customer relationships was determined internally by the management at 5.25-years period. Amortization expense in the three months ended March 31, 2022 and 2021 amounted to $17 thousand. Impairments, if any, are based on excess of the carrying amount over the fair value of the asset. There was no impairment charge for the three months ended March 31, 2022 and 2021.
F. Goodwill
Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $636 on March 31, 2022 and $649 on December 31, 2021 relates to the acquisition of Ocean. The difference of the amounts for these dates is due to foreign currency adjustments only.
Goodwill is not amortized, but is tested at least annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount.
The Company has determined that there has been no impairment of goodwill as of both March 31, 2022 and December 31, 2021.
| F-10 |
CREATIONS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands)
NOTE 3 - RELATED PARTIES BALANCES AND TRANSACTIONS
| A. | Balances with related parties |
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets: | ||||||||
| Loans granted to stockholders | $ | 13 | $ | 14 | ||||
| Liabilities: | ||||||||
| Management fee payable to related parties | $ | 161 | $ | 120 | ||||
| B. | Transactions with related parties |
Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Income: | ||||||||
| Interest income in respect to loans granted to stockholders | $ | * | $ | * | ||||
| Expenses: | ||||||||
| Management fee | $ | 125 | $ | 73 | ||||
| * | Less than $1 thousand. |
NOTE 4 - MATERIAL EVENTS AFTER THE BALANCE SHEET DATE
On April 17, 2022, the board of directors approved a resolution as to matters of ongoing conduct such as signatory rights, voting etc. In addition, compensation of officers was updated. Also, non-commital guidelines for future transactions regarding sale of main activity to related parties and sale of holdings by those parties were discussed, these guidelines are pursuant to completion of legal structuring, compliance issues and more.
| F-11 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our:
| ● | business strategy; | |
| ● | financial strategy; | |
| ● | intellectual property; | |
| ● | production; | |
| ● | future operating results; and | |
| ● | plans, objectives, expectations and intentions contained in this report that are not historical. |
All statements, other than statements of historical fact included in this report, regarding our strategy, intellectual property, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.
Organizational History
Creations, Inc. was incorporated in May 2019. On July 1, 2019, Creations, Inc, acquired a 100% interest in Ocean-Yetsira Ltd (.former- Yetsira Holdings Ltd) through a share swap agreement. Ocean Yetsira is an Israeli Corporation incorporated in December 2017 which in turn owns 100% of Yetsira Investment House (“Yetsira”), which was incorporated in November 2016.
On August 19, 2020, the Company purchased 7.5% of the outstanding and issued shares of Ocean Partners Y.O.D.M Ltd., an Israeli corporation (“Ocean”) for total cash consideration of approximately $87,000. On September 7, 2020, the Company entered into a share exchange agreement by and among Yetsira, Ocean, and certain shareholders of Ocean, pursuant to which the Company acquired the remaining 92.5% of the capital stock of Ocean in exchange for an aggregate of 1,254,498 shares of common stock of the Company, $0.001 par value, and 1,254,498 warrants to purchase shares of common stock of the Company (the “Warrants”) issued to the certain Ocean shareholders by the Company. The Warrants are convertible into shares of our common stock over a period of three-years at an exercise price of $1.00 per share. The Company completed the acquisition on September 28, 2020.
| 3 |
Following the acquisition of Ocean, all the investment management business of the group is managed through Ocean.
On April 17, 2022, the board of directors approved a resolution as to matters of ongoing conduct such as signatory rights, voting etc. In addition, compensation of officers was updated. Also, non-committal guidelines for future transactions regarding sale of main activity to related parties and sale of holdings by those parties were discussed, these guidelines are pursuant to completion of legal structuring, compliance issues and more.
Our continued focus is on our core business of mutual fund management, while increasing our number of managed funds and private portfolio and increasing of our AUM. Part of our growth depends on the strength of our brand, which the Company intends to strengthen by increasing our exposure to the general public, especially through investment advisors in the commercial banks, which constitute the main channel for funds distribution in Israel. We also plan to increase public relations activities and advertising. We also continue to examine the expansion of our areas of activity, through cooperation, locating synergistic opportunities for our existing areas of activity and establishing additional parallel investment opportunities. In addition, we may pursue the acquisition of other unrelated businesses in the financial sector.
Through our wholly owned subsidiary, Ocean, we operate as a portfolio manager, licensed by the Israel Securities Authority (“ISA”). Ocean currently offers and manages nine mutual funds branded as Ocean-Yetsira funds, and 99 private portfolios with approximately $297M in assets, currently under management (“AUM”).
We generate revenue primarily from management fees paid by our unitholders or clients, which fees are based upon a certain percentage of their assets in the funds. Our expenses are mainly comprised of payments for distribution, commissions to banks, third-party platform user fees, salary commissions and expenses, and commissions to the ISA and the Israeli Stock Exchange. We conduct our business exclusively through Ocean Yetsira and exercise effective control over the operations of Ocean and Yetsira pursuant to a series of contractual arrangements, under which we are entitled to receive substantially all of its economic benefits.
On May 2021, the name of Yetsira Holdings Ltd was changed to Ocean Yetsira Ltd.
Recently Issued Accounting Pronouncements
Management reviewed currently issued pronouncements during the three month ended March 31, 2022, and does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.
Results of Operations for the Three Month Ended March 31, 2022 compared to Three Month Ended March 31, 2021. (In Thousands)
Revenue
For the three month ended March 31, 2022 and 2021, the Company generated revenues in the amount of $538 and $376 respectively. The increase was attributable to an increase in our AUM.
| 4 |
Assets Under Management and Investment Performance
The following table reflects the changes in our AUM for the three month ended March 31, 2022 and 2021.
(In millions)
| For the three month ended march 31, 2022 | For the three month ended march 31, 2021 | |||||||
| Beginning Balance | $ | 282.72 | $ | 174.5 | ||||
| Gross inflows/ outflows, net | 16.01 | 22.73 | ||||||
| Market appreciation (depreciation)(1) | (2.07 | ) | 11.79 | |||||
| Additional AUM from acquisitions | - | |||||||
| End Balance | $ | 296.66 | $ | 209.02 | ||||
| (1) | Market appreciation (depreciation) includes investment gains (losses) on assets under management, the impact of foreign exchange rates and net reinvested dividends. |
Our total AUM increased by $13.94 million during the three month ended March 31, 2022, from $282.72 million as of December 31, 2021 to $296.66 million as of March 31, 2022, or a 4.93% increase on our total AUM. The increase was a result of net AUM inflows of $16.01 million, market depreciation of $2.07 million.
Cost of Revenues
For the three month ended March 31, 2022 and 2021, cost of revenues was $304 and $257, respectively. The increase in these expenses was mainly attributable to an increase in the AUM.
Marketing Expenses
For the three month ended march 31, 2022, our marketing expenses were $58 compared to $37 for the prior-year period. The increase in these expenses was mainly attributable to a management decision to accelerate marketing efforts.
General and Administrative Expenses
For the three month ended March 31, 2022, our general and administrative expenses were $211, compared to $229 for the period ended march 31, 2021, an approximate 7.86% decrease. These expenses are mainly attributed to service and professional fees, payments to the management and employees as shown in the table below.
The following table provides a year-over-year breakout of the material components of our general and administrative expenses:
| For the three month ended March 31, 2022 (in thousands) | For the three month ended March 31, 2021 (in thousands) | |||||||
| Components of G&A Expenses: | $ | $ | ||||||
| Wages | 8 | 49 | ||||||
| Travel and vehicle expenses | 4 | 4 | ||||||
| Communication and office expenses | 20 | 19 | ||||||
| Services and professional fees | 156 | 127 | ||||||
| Office rent | 16 | 14 | ||||||
| Other expenses | 7 | 16 | ||||||
| Total G&A expenses | $ | 211 | $ | 229 | ||||
The changes in General and Administrative Expenses is primarily due to the following event:
| ● | Expenses that emerged from the merger in 2020 between Ocean and Yetsira was reduced, and a moderate increase in expanses is attributed to a gradual increase in the company growing operations and increased AUM. |
| 5 |
Net Loss
The Company realized a net loss of $16 for the three month ended March 31, 2022, compared to a net loss of $143 for the three month ended 31, 2021. The decrease in net loss attributed to increased revenue following the grows of our AUM.
After taking into account foreign currency translation adjustments, which resulted in other comprehensive expense of $30 and expense of $46 for the three month ended march 31, 2022 and 2021, respectively, the Company realized a net loss after other comprehensive expenses of $46 and $189 for the three month ended March 31, 2022 and 2021, respectively.
Liquidity and capital resources
As of March 31, 2022, the Company had cash in the amount of $541compared to cash in the amount of $503 as of December 31, 2021.
Stockholders’ equity as of March 31, 2021 was $1,519, as compared to stockholders’ equity of $1,565 as of December 31, 2021.
The Company’s accumulated deficit was $1,768 and $1,752 at March 31, 2022 and December 31, 2020, respectively.
Liquidity and capital resources
The Company’s operating activities resulted in net cash provided of $18 for the three month ended march 31, 2022, compared to net cash used of $93 for the three month ended march 31, 2021. The decrease in net cash used was mainly attributable to an increase of revenue, due to increase in AUM.
The Company’s investing activities net cash provided of $26 for the three month ended March 31, 2022, compared to $5 investing activities used for the year three month ended march 31, 2021.
The Company’s financing activities did not provide cash during the three month ended March 31, 2022, and the three month ended march 2021. No loans were received or provided during the three month ending March 31, 2022.
Off- Balance Sheet Arrangements
The Company currently does not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
| 6 |
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15f of the Exchange Act) that occurred during the fiscal quarter ended March 31, 2022 that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Internal Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
There are no legal proceedings to which we are presently a party, and we are not aware of any legal proceedings threatened or contemplated against us.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ended March 31, 2022, the Company did not issue any unregistered securities.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
| Exhibit Number |
Description of Exhibit | |
| 31 | Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.* | |
| 32 | Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
| 101.INS | XBRL Instance Document.* | |
| 101.SCH | XBRL Taxonomy Extension Schema.* | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase.* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase.* | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase.* | |
| 101.PRE | XBRL Extension Presentation Linkbase.* | |
| * | Filed herewith. |
| ** | Furnished herewith. |
| 7 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| May 13, 2022 | CREATIONS, INC. |
| /s/ Shmuel Yelsevich | |
Shmuel Yelshevich | |
| Interim Chief Executive Officer, Chief Financial Officer, President, Treasurer, and Secretary |
| 8 |
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND ACTING CHIEF FINANCIAL OFFICER
I, Shmuel Yelshevich, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Creations, Inc. for the quarter ended March 31, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the registrant’s audit committee of the board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 13, 2022
| /s/ Shmuel Yelshevich | |
| Shmuel Yelshevich |
Interim Chief Executive Officer, Chief Financial Officer,
President, Treasurer, and Secretary
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND ACTING CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Creations, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shmuel Yelshevich, Interim Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
Date: May 13, 2022
| /s/ Shmuel Yelsevich | |
| Shmuel Yelshevich |
Interim Chief Executive Officer, Chief Financial Officer,
President, Treasurer, and Secretary