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CEAI Creations

Filed: 17 May 21, 6:14am

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED: March 31, 2021

 

[  ] 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 [X] 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 [X] 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[X]Smaller reporting company[X]
  Emerging growth company[X]

 

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 [X]

 

As of May 12, 2021, there were 3,544,242 shares of common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I 
   
Item 1.Financial Statements.3
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.14
Item 3.Quantitative and Qualitative Disclosures About Market Risk.18
Item 4.Controls and Procedures.18
   
PART II 
   
Item 1.Legal Proceedings.19
Item 1A.Risk Factors.19
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.19
Item 3.Defaults Upon Senior Securities.19
Item 4.Mine Safety Disclosures.19
Item 5.Other Information.19
Item 6.Exhibits.19
   
SIGNATURES20

 

i

 

 

CREATIONS INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2021

 

 

 

 

CREATIONS INC. AND ITS SUBSIDIARIES

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2021

 

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 Page
  
Condensed Consolidated Balance Sheets3
  
Condensed Consolidated Statements of Operations and Comprehensive Loss4
  
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)5
  
Condensed Consolidated Statements of Cash Flows6
  
Notes to the Condensed Consolidated Financial Statements7 - 13

 

 - 2 - 
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CREATIONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands except share data)

 

  March 31,  December 31, 
  2021  2020 
  Unaudited    
ASSETS        
Current assets        
Cash and cash equivalents  518   625 
Bank deposit  35   33 
Accounts receivable  72   51 
Other current assets  86   68 
Total current assets  711   777 
         
Non-current assets        
Property and equipment, net  42   45 
Intangible assets  342   371 
Goodwill  606   627 
Loans granted to stockholders  25   26 
Operating right of use assets  92   109 
Total non-current asset  1,107   1,178 
Total assets  1,818   1,955 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

        
Accounts payable (related parties of $43 and $26)  217   141 
Operating lease liability – current portion  56   58 
Total current liabilities  273   199 
         
Non-current liabilities        
Operating lease Liability – net of current portion  36   51 
Deferred taxes  79   86 
Total non-current liabilities  115   137 
         
Total liabilities  388   336 
         
COMMITMENT AND CONTINGENCIES        

 

STOCKHOLDERS’ EQUITY

        
Common Stock of $0.0001 par value -        
Authorized: 100,000,000 at March 31, 2021 and December 31, 2020; Issued and outstanding: 3,544,242 shares at March 31, 2021 and December 31, 2020  -   - 
Additional paid-in capital  3,162   3,162 
Accumulated other comprehensive income  60   106 
Accumulated deficit  (1,792)  (1,649)
Total stockholders’ equity  1,430   1,619 
         
Total liabilities and stockholders’ equity  1,818   1,955 

 

The accompanying notes are an integral part of the financial statements

 

 - 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, 
  2021 2020 
  Unaudited 
Revenues  376   91 
Cost of revenues  (257)  (91)
Gross profit  119   - 
         
Operating expenses:        
Marketing expenses  (37)  (2)
General and administrative expenses (related parties of $73 and $25)  (229)  (196)
         
Operating loss  (147)  (198)
         
Financial income, net  -   12 
Loss before taxes on income  (147)  (186)
         

Income tax benefit

  4   - 
         
Net loss for the period  (143)  (186)
Other comprehensive loss:        
Foreign currency translation adjustments  (46)  (12)
Comprehensive loss  (189)  (198)
         
Basic and diluted net loss per share  (0.04)  (0.08)
         
Weighted average number of Common Stock used in computing basic and diluted loss per share  3,544,242   2,289,744 

 

The accompanying notes are an integral part of the financial statements

 

 - 4 - 
 

 

CREATIONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(U.S. dollars in thousands except share data)

(Unaudited)

 

  Common Stock  

Additional paid-in

  

Accumulated other comprehensive

  

Accumulated

  

Total stockholders’

 
  Number  Amount  Capital  income  Deficit  equity 
  Unaudited 
                   
Balance as of January 1, 2020  2,289,744   -   2,205   6   (877)  1,334 
                         
Other comprehensive loss  -   -   -   (12)  -   (12)
Net loss  -        -   -            -   (186)  (186)
Balance as of March 31, 2020    2,289,744   -   2,205   (6)  (1,063)  1,136 

 

  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  -       -   -           -   (143)  (143)
Balance as of March 31, 2021    3,544,242   -   3,162   60   (1,792)  1,430 

 

The accompanying notes are an integral part of the financial statements

 

 - 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, 
  2021  2020 
  Unaudited 
Cash flows from operating activities:        
Net loss  (143)  (186)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  20   - 
Amortization of operating right of use asset  14     
Other income – capital gain from marketable securities  -   (3)
Deferred taxes  (4)  - 
Changes in operating assets and liabilities:        
Accounts receivable  (24)  - 
Other current assets  (21)  (19)
Accounts payable  79   13 
Operating right of use liability  (14)  - 
Net cash used in operating activities  (93)  (195)
         

Cash flows from investing activities:

        
Maturity of (investment in) bank deposit  (2)  - 
Investment in marketable securities  -   (24)
Purchase of property and equipment  (3)  - 
Net cash used in investing activities  (5)  (24)
         
Foreign currency translation adjustments on cash and cash equivalents  (9)  (12)
         
Change in cash and cash equivalents  (107)  (231)
Cash and cash equivalents at beginning of year  625   1,366 
Cash and cash equivalents at end of year  518   1,135 

 

The accompanying notes are an integral part of the financial statements

 

 - 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 mutual funds and portfolio management services for individuals and institutions. It operates as a portfolio manager through its wholly owned subsidiaries.

 

The Company has three wholly owned subsidiaries. Yetsira Holdings Ltd. (hereinafter: “Holdings”) which was established as a private Israeli corporation in December 2017. Yetsira Investment House Ltd. which was established as a private Israeli corporation in November 2016. and Ocean Partners Y.O.D.M following its acquisition (See note 1B)

 

On January 29, 2018 Holdings 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 Holdings 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 Holdings were exchanged for shares of the Company at a rate of 1:809 (the “Exchange Ratio”), with Holdings stockholders each receiving the same proportional ownership in the Company as they had held in Holdings immediately prior to the agreement. On the execution of the agreement and exchange of shares, Holdings became a wholly owned subsidiary of the Company.

 

B.       On August 19, 2020, the Company 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 the Company will 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, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) by and among Yetsira, Ocean , and certain shareholders of Ocean (“Ocean Shareholders”), under which upon consummation of certain conditions the Company will purchase the remaining 92.5% of the shares of Ocean for a total equity consideration which represents 35.4% 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:

 

 1.1,254,498 shares of common stock of the Company.
   
 2.1,254,498 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 three-years at an exercise price of $1.00 per share, with the price per share subject to standard anti-dilution adjustments. The Company 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 result of operation of Ocean.

 

C.       Beginning in early 2020, there has been an outbreak of coronavirus (COVID-19), initially in China and which has spread to other jurisdictions, including locations in which the Company operates. The full extent of the outbreak, related business and travel restrictions and changes to behavior intended to reduce its spread are uncertain as of the signing date of these financial statements as this continues to evolve globally although many countries around the world started actively vaccinating population which gradually reduces infection and mortality by the pandemic.

 

 - 7 - 
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 1 - GENERAL (CONT.)

 

C.        (Continued)

 

As a result, similarly to other companies in the capital market industry, the Company’s assets under management (AUM) declined in the beginning of the outbreak. In the second half of 2020 and the first quarter of 2021, the results were significantly improving due to governments and central banks actions the support the economies and due to superior investments results in our products which resulted in accelerated growth in AUM. The Company’s management continues to follow the publications and guidelines on the matter. Nevertheless, future outcomes of the pandemic are uncertain and could be different than the Company’s estimations.

 

D.       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.

 

E.       The figures in the financial statements are stated in U.S. Dollars in thousands unless otherwise mentioned.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated financial statements have been prepared from the books and records of the Company and include all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Rule 8-03 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Interim results are not necessarily indicative of the results that may be expected for the full year. The interim condensed consolidated 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, 2020 from which the accompanying condensed consolidated balance sheet was derived. 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, 2020, except of the following accounting pronouncement adopted by the Company.

 

Recently Issued Accounting Pronouncements

 

On January 1, the company adopted ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”) which reduces the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of U.S. GAAP. Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

 - 8 - 
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

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).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

A.       Use of Estimates in Preparation of Financial Statements

 

The preparation of consolidated financial statements in conformity with U.S. GAAP accounting principles 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.

 

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 Yetsira, Holdings 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, 
  2021  2020 
Official exchange rate of NIS 1 to US dollar  0.299   0.281 
Exchange rate change in the quarter  (3.6%)  (3.1%)

 

 - 9 - 
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

C.       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.

 

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.

 

D.       Income taxes

 

The Company recorded no income tax expense for the three months ended March 31, 2021 and 2020 because the estimated annual effective tax rate was zero. As of March 31, 2021, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized. The $4 thousands income tax benefit recorded in the Condensed consolidated statements of operations and comprehensive loss is related to amortization of intangible assets allocated to the acquisition of ocean during 2020, (decrease of the $4 thousands in the deferred tax liability related to customer relationship).

 

E.       Basic and diluted net loss per share

 

The Company computes net loss per share in accordance with ASC 260, “Earnings per share.” Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, net of the weighted average number of treasury shares (if any).

 

Diluted loss per common share is computed similarly to basic loss per share, except that the denominator is increased to include the number of additional potential common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Potential common shares are excluded from the computation for a period in which a net loss is reported or if their effect is anti-dilutive. The Company’s potential common shares consist of stock warrants issued to certain investors and their potential dilutive effect is considered using the treasury method.

 

The total numbers of shares related to outstanding stock warrants that have been excluded from the calculation of the diluted net loss per share due to their anti-dilutive effect was 3,544,242 and 2,289,744 for the three months ended March 31, 2021 and 2020 respectively.

 

 - 10 - 
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

F.       Intangible assets

 

Intangible assets consist of existing customer relationships from the acquisition of Ocean in 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 first quarter of 2021 amounted to $17 thousands. Impairments, if any, are based on excess of the carrying amount over the fair value of the asset. There were no impairment charge for the three months ended March 31, 2021.

 

G.       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 $606 on March 31, 2021 and $627 December 31, 2020 relates to the acquisition of Ocean. This difference of the amounts for this dates is from 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 on March 31, 2021.

 

NOTE 3 - RELATED PARTIES BALANCES AND TRANSACTIONS

 

A.       Balances with related parties

 

  March 31,  December 31, 
  2021  2020 
       
Assets:        
Loans granted to stockholders $25  $    26 
         
Liabilities:        
Management fee payable to related parties $43  $26 

 

 - 11 - 
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 3 - RELATED PARTIES BALANCES AND TRANSACTIONS (CONT.)

 

B.       Transactions with related parties

 

  

Three months ended

March 31,

 
  2021  2020 
       
Income:        
Interest income in respect to loans granted to stockholders $-* $-*
         
Expenses:        
Management fee $73** $25 

 

*Less than $1 thousand.

**Includes $18 thousands related to 2020 (See note 4B).

 

NOTE 4 - MATERIAL EVENTS DURING THE PERIOD

 

A.       On February 22, 2021, the Board of directors approved an amendment to the employment agreement with Guy Nissensohn (the “Executive”) which deemed effective as of May 1, 2020. According to the amendment, the Executive will be entitled to monthly salary as follows:

 

Managed Capital of Creations (outside of Israel) in millions Monthly salary 
Up to $200M $0 
$200M to $500M $10,000 
$500M to $1,000M $30,000 
$1,000 and above $50,000 

 

Managed Capital of Creations (in Israel) in millions Monthly salary 
Up to $286M $5,714 
$286M to $571M $8,571 
$571M to $857M $12,857 
$857M to $1,143M $18,571 
$1,143M and above $24,286 

 

B.       On February 22, 2021, the Board of directors approved the agreement between the Company and Yaniv Aharon (the service provider) for the provision of management services (the “Agreement”) with Yetsira Holdings Ltd., effective July 1, 2020. The service provider will provide investment house services in a consideration ranging between the amounts as detailed in the agreement depending on the volume of managed assets as follows:

 

 - 12 - 
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 4 - MATERIAL EVENTS DURING THE PERIOD (CONT.)

 

B.        (Continued)

 

Gradation of the volume of managed assets in NIS millions*  Monthly salary (NIS)* 
Up to NIS1,000M (up to $297M)  NIS20,000 ($5,938) 
NIS1,001M to NIS2,000M ($297M to $594M)  NIS30,000 ($8,907) 
NIS2,001M to NIS3,000M ($594M to $891M)  NIS45,000 ($13,361) 
NIS3,001M to NIS4,000M ($891M to $1,188M)  NIS65,000 ($19,299) 
NIS4,001M and above ($1,188 and above)  NIS85,000 ($25,237) 

 

*The amounts in dollars are translated from NIS and subject to changes in the exchange rates.

 

In addition, the service provider will be entitled to an annual compensation, starting in 2022, for the year 2021 onwards, calculated as follows:

 

2.5% of the EBITDA between NIS2M to NIS6M (between $0.6M to $1.78M)

2% of the EBITDA above NIS6M (above $1.78M)

1% of the EBITDA above NIS10M (above $2.97M)

The bonus is limited to NIS500 thousand a year ($148 thousand)

 

In the quarter ended March 31, 2021, the Company recognized an additional management fee expense to the service provider in the amount of $18 thousand related to 2020.

 

 - 13 - 
 

 

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 Yetsira Holdings Ltd., through a share swap agreement. Yetsira Holdings (“Holdings”) 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.

 

Following the acquisition of Ocean, all the investment management business of the group is managed through Ocean.

 

The acquisition implements the Company’s vision of becoming a leading investment company in Israel and delivering high quality asset management and value to its clients and shareholders. By combining the two businesses, Yetsira and Ocean, the Company will be able to expand its variety of mutual funds and more than double its AUM. Moreover, Ocean has a large base of private clients with a high degree of customer loyalty which can be used as a platform to grow the Company’s private client’s portfolio management business. Furthermore, the acquisition is intended to diversify the experience, skills, and abilities of the Company’s investment managers’ team, including marketing expertise that can be used to advance the Company forward.

 

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The Company continues to focus on its mutual fund management business, while increasing our number of managed funds and private portfolio which resulted in accelerated growth of our AUM. Part of our growth depends on the strength of our brand, which the Company intends to continue to strengthen by increasing our exposure to the general public, especially through investment advisors in the commercial banks, and by other public relations activities and advertising.

 

The board of directors examines from time to time expanding the Company’s’ areas of activities by 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. Ocean is licensed by the Israel Securities Authority (“ISA”). Ocean currently offers and manages ten mutual funds branded as Ocean-Yetsira funds, and 85 private clients’ portfolios with approximately $209M 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 under management. Our expenses are mainly comprised of payments for distribution commissions to banks, third-party platform user fees, salaries, employees and third parties commissions and expenses, and ISA and the Israeli Stock Exchange fees. We conduct our business exclusively through Yetsira holdings 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.

 

In May 2021, the name of Yetsira Holding ltd. was changed to Ocean Yetsira Ltd in accordance with our brand name.

 

Recently Issued Accounting Pronouncements

 

Management reviewed currently issued pronouncements during the three months ended March 31, 2021, 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 Months Ended March 31, 2021 compared to Three month Ended March 31, 2020. (In Thousands)

 

Revenue

 

For the three months ended March 31, 2021 and 2020, the Company generated revenues in the amount of $376 and $91 respectively. The last quarter revenue growth attributable to AUM growth due to organic growth and due to ocean acquisition in the last quarter of 2020 that added $95.3 to the Company’s AUM, which led to an increase in investment management fees.

 

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Assets Under Management and Investment Performance

 

The following table reflects the changes in our AUM for the three Months ended March 31, 2021 and 2020.

 

(In millions)

 

  For the three months ended
March 31, 2021
  For the three months ended
March 31, 2021
 
Beginning Balance $174.50  $60.60 
Gross inflows  41.36   7.46 
Gross outflows  (18.63)  (22.86)
Market appreciation (depreciation)(1)  11.79   (3.8)
         
End Balance $209.01  $41.40 
Average AUM for the Period $191.76  $57.30 

 

 (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 $34.51 million during the three months ended March 31, 2021, from $174.50 million as of January 1, 2021 to $209.01 million as of March 31, 2021, or a 19.78% increase on our total AUM. The increase was a result of net AUM inflows of $22.73 million and market appreciation of $11.79 million.

 

Cost of Revenues

 

For the three months ended March 31, 2021 and 2020, cost of revenues was $257 and $91, respectively. The increase in these expenses was mainly attributable to an increase in the number of managed funds and increase in the AUM.

 

Marketing Expenses

 

For the three months ended March 31, 2021, our marketing expenses were $37, compared to $2, respectively. The Increase in these expenses was mainly attributable to increase in sales employees and marketing activities.

 

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General and Administrative Expenses

 

For the three-months ended March 31, 2021, our general and administrative expenses were $229, compared to $196 for the period ended March 31, 2020, an approximate 16.8% increase. The increase in these expenses was 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 year three months ended March 31, 2021

(in thousands)

  

For year three months ended March 31, 2020

(in thousands)

 
Components of G&A Expenses: $  $ 
Wages  49   11 
Travel and vehicle expenses  4   11 
Communication and office expenses  19   6 
Services and professional fees (1)       127           117 
One off expense (2)  

0

   

35

 
Office rent  14   7 
Other expenses  16   9 
         
Total G&A expenses $229  $196 

 

(1) The increase in services and professional fees is primarily due to the following event:

 

On September 28, 2020, the share swap agreement between Ocean and Creations was consummated and contributed to an increase in professional services, management fees, wages, and other expenses.

 

(2) Three months ended March 31, 2020 include one-off expenses of $35 thousand for services fee for the S1 process, 

 

Net Loss

 

The Company realized a net loss of $143 for the Three months ended March 31, 2021, compared to a net loss of $186 for the Three months ended March 31, 2020. The decrease in net loss was attributed to the increase in revenue.

 

After taking into account foreign currency translation adjustments, which resulted in other comprehensive expense of $46 and expense of $12 for the three months ended March 31, 2021 and 2020, respectively, the Company realized a net loss after other comprehensive expenses of $189 and $198 for the three months ended March 31, 2021 and 2020, respectively.

 

Liquidity and capital resources

 

As of March 31, 2021, the Company had cash in the amount of $518 compared to cash in the amount of $625 as of December 31, 2020.

 

Stockholders’ equity as of March 31, 2021 was $1,430, as compared to stockholders’ equity of $1,619 as of December 31, 2020.

 

The Company’s accumulated deficit was $1,792 and $1,063 on March 31, 2021 and March 31, 2020, respectively.

 

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Liquidity and capital resources

 

The Company’s operating activities resulted in net cash used of $93 for the three-month ended March 31, 2021, compared to net cash used of $195 for the year three months ended March 31, 2020. The decrease in net cash used was mainly attributable to an increase of our AUM and revenue.

 

The Company’s investing activities used net cash of $5 for the year three months ended March 31, 2021, compared to $24 of investing activities used for the three months ended March 31, 2020.

 

The Company’s financing activities did not provide cash during the three months ended March 31, 2021 and 2020.

 

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.

 

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, 2021 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.

 

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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, 2021, 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.

 

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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 17, 2021CREATIONS, INC.
  
 /s/ Guy Nissenson
 Guy Nissenson
 Chief Executive Officer
 (Principal Executive Officer) and
 Acting Chief Financial Officer
 (Principal Accounting and Financial Officer)

 

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