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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended: December 31, 2022

 

or

 

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

 

For the transition period from ________ to ________

 

Commission file number 001-36763

 

CREATIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   84-2054332
(State or Other Jurisdiction of   (IRS Employer
Incorporation or Organization)   Identification Number)

 

c/o Sichenzia Ross Ference LLP, 1185 Avenue of the Americas, 31st Floor, New York, NY 10036
(Address of Principal Executive Offices) (Zip Code)

 

212-930-9700

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered under section 12(b) of the Exchange Act: Common stock, par value $0.001 per share

 

Securities registered under section 12(g) of the Exchange Act: Not applicable

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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

 

  Large accelerated filer ☐ Accelerated filer ☐
  Non-accelerated filer ☒ Smaller Reporting Company ☒
  (Do not check if 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

There was no market for the common stock and accordingly the aggregate market value of the voting and non-voting common stock of the issuer held by non-affiliates, computed by reference to the price at which the common stock was sold on June 30, 2022 can’t be calculated.

 

As of April 12, 2023, 3,544,242 shares  of the registrant’s common stock were outstanding.

 

Documents incorporated by reference: None.

 

 

 

 
 

 

TABLE OF CONTENTS

 

   

Page

No.

  PART I  
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 5
ITEM 1B. UNRESOLVED STAFF COMMENTS 5
ITEM 2. PROPERTIES 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. MINE SAFETY DISCLOSURE 5
     
  PART II  
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 6
ITEM 6. SELECTED FINANCIAL DATA 6
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 10
ITEM 9A CONTROLS AND PROCEDURES 10
ITEM 9B. OTHER INFORMATION 10
     
  PART III  
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 10
ITEM 11. EXECUTIVE COMPENSATION 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 14
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 15
     
  SIGNATURES AND POWER OF ATTORNEY 17

 

2
 

 

FORWARD-LOOKING INFORMATION

 

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by using terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “ “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our expectations are as of the date this Annual Report is filed, and we do not intend to update any of the forward-looking statements after the date this Annual Report is filed to confirm these statements to actual results, unless required by law.

 

This Annual Report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves several assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Annual Report and, accordingly, we cannot guarantee their accuracy or completeness, though we do generally believe the data to be reliable. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including, but not limited to, the possibility that we may fail to preserve our expertise in medical therapy and product research and development; that existing and potential partners may opt to work with, or favor the products of, competitors if our competitors offer more favorable products or pricing terms; that we may be unable to maintain or grow sources of revenue; that we may be unable to attain and maintain profitability; that we may be unable to attract and retain key personnel; that we may not be able to effectively manage, or to increase, our relationships with customers; that we may have unexpected increases in costs and expenses; the effect the current COVID-19 pandemic will have on the Company as further discussed herein. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

3
 

 

PART I

 

ITEM 1. BUSINESS

 

Overview

 

Creations, Inc. was incorporated in May 2019. On July 1, 2019, Creations, Inc, acquired a 100% interest in Yetsira Holdings Ltd., though a share swap agreement. Yetsira Holdings is an Israeli Corporation incorporated on December 2017 which in turn owns 100% of Yetsira Investment House (“Yetsira”), our operating entity, incorporated in November 2016, and Ocean Partners Y.O.D.M Ltd. (“Ocean Partners” and “Ocean”).

 

Through our wholly owned subsidiaries, Yetsira Investment House and Ocean Partners, we operate as a portfolio manager, licensed by the Israel Securities Authority (“ISA”). We currently offer and manage ten mutual funds with approximately $283,000,000 in assets, currently under management (“AUM”). Our core-business is providing investment services for Israeli mutual funds.

 

We generate revenue primarily from management fees paid by our unitholders, which fees are based upon a certain percentage of their assets in the funds. Our expenses are mainly comprised of payments of distribution commissions to banks, third-party platform user fees, salary commissions and expenses, and commissions to the ISA and the Israeli Stock Exchange. Following the acquisition of Ocean, all the investment management business of the group is managed through Ocean. We exercise effective control over the operations of Ocean pursuant to a series of contractual arrangements, under which we are entitled to receive substantially all of its economic benefits.

 

Our continued focus is on our core business of mutual fund management, while increasing our number of managed funds, private portfolio and increasing 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 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.

 

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”) that acts as external mutual funds investment management services for 6 mutual funds and several private clients, 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.

 

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 enlarge the Company’s privet 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 experience that can be used to advance the Company forward.

 

4
 

 

Ocean is an external investment manager of 6 mutual fund and a portfolio manager of 74 private clients, with a total AUM of $95.3M with implied additional yearly expected revenue of $797,169.

 

On February 9, 2023, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) by and among Aharon Barkai & Co. Ltd. (the “Purchasers”) through its controllers Yaniv Aharon and Dan Barkai, and an agreement for the purchase of Shares and Capital Notes (the “Purchase Agreement”), whereby the Company sold all of the capital stock and capital notes of Ocean Yetsira Ltd. (“Ocean”) in exchange for the payment of an aggregate of ILS 2,061,930 (approximately $586,000) and the return of 1,254,498 shares of common stock of the Company and 1,254,498 warrants to purchase common stock owned by the Purchasers. The transactions contemplated in the Purchase Agreement and the Share Exchange Agreement are collectively referred to as the “Transaction”). Mr. Aharon is a director of the Company. The Capital Notes in the amount of ILS 2,165,800 (approximately $615,000) which are owed to the Company by Ocean will be repaid by the Purchasers at closing as well. The closing of the transaction was subject to the approval of the Court of Family Affairs to allow the Executor of the Estate of Guy Nissenson to sign upon behalf of the Estate and to approval of the Company’s stockholders. On March 20, 2023, such approval was obtained.

 

Available Information

 

The Company’s website, www.creationsfin.com , provides access, without charge, to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). The information provided on the Company’s website is not part of this report and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

 

Materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

 

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 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable to smaller reporting companies.

 

ITEM 2. PROPERTIES

 

Not Applicable.

 

ITEM 3. 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 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

5
 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY , RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the OTC Pink maintained by the OTC Markets Group, Inc. under the ticker symbol “CEAI”. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. There is no public trading market for our securities.

 

Holders

 

As of April 12, 2023, we have 3,544,242 shares of our common stock issued and outstanding held by [●] stockholders of record.

 

Dividends

 

The Company has not declared or paid any cash dividends on its common stock and presently intends on retaining future earnings, if any, to fund the development and growth of the business. Therefore, the Company does not anticipate paying any cash dividends in the foreseeable future.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The Company has not adopted an equity incentive plan.

 

Recent Sales of Unregistered Securities

 

The Company has not sold any shares of common stock or securities convertible into common stock during the last two years.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchases

 

During each month within the fourth quarter of the fiscal year ended December 31, 2022, neither we nor any “affiliated purchaser”, as that term is defined in Rule 10b-18(a)(3) under the Exchange Act, repurchased any of our common stock or other securities.

 

ITEM 6. [RESERVED]

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

This Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact including, without limitation, statements under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, may be deemed to be forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

 

This Annual 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.

 

6
 

 

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.

 

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

 

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.

 

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.

 

On February 9, 2023, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) by and among Aharon Barkai & Co. Ltd. (the “Purchasers”) through its controllers Yaniv Aharon and Dan Barkai, and an agreement for the purchase of Shares and Capital Notes (the “Purchase Agreement”), whereby the Company sold all of the capital stock and capital notes of Ocean Yetsira Ltd. (“Ocean”) in exchange for the payment of an aggregate of ILS 2,061,930 (approximately $586,000) and the return of 1,254,498 shares of common stock of the Company and 1,254,498 warrants to purchase common stock owned by the Purchasers. The transactions contemplated in the Purchase Agreement and the Share Exchange Agreement are collectively referred to as the “Transaction”). Mr. Aharon is a director of the Company. The Capital Notes in the amount of ILS 2,165,800 (approximately $615,000) which are owed to the Company by Ocean will be repaid by the Purchasers at closing as well. The closing of the transaction was subject to the approval of the Court of Family Affairs to allow the Executor of the Estate of Guy Nissenson to sign upon behalf of the Estate and to approval of the Company’s stockholders. On March 20, 2023, such approval was obtained.

 

Recently Issued Accounting Pronouncements

 

Management reviewed currently issued pronouncements during the year ended December 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.

 

Critical Accounting Estimates

 

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. Management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. 

 

Results of Operations for the Year Ended December 31, 2022 compared to Year Ended December 31, 2021. (In Thousands)

 

Following the agreement described above, the company classified its investments in Ocean Yetsira Ltd, Yetsira Investment House Ltd. and Ocean Partners Y.O.D.M Ltd. (the sold companies) as of December 31, 2022, as an assets held for sale valued at $1,378.

 

7
 

 

General and Administrative Expenses

 

For the year ended December 31, 2022, our general and administrative expenses were $159 from continuing operations, compared to $23 for the year ended December 31, 2021, those increase in expenses attributed to dividing mutual expenses of the sold companies and the parent company, and increase in professional fees such as attorney and CPA to accomplish the sale of the companies.

 

Discontinued operations

 

Net loss from continuing operations for the years ended on December 31, 2022, and 2021, amount to loss off $220 and $23 respectively, Income (loss) arising from the sold companies for the years ended on December 31, 2022, and 2021 is presented in the statements of operations and comprehensive as income from discontinued operations amounted to income of $194 and loss of 80, respectively.

 

Net Loss

 

The Company realized a net loss of $26 for the year ended December 31, 2022, compared to a net loss of $103 for the year ended December 31, 2021. The decrease in net loss attributed to income from discontinued operations.

 

After taking into account foreign currency translation adjustments, which resulted in other comprehensive loss of $179 and income of $49 for the year ended December 31, 2022, and 2021, respectively, the Company realized a net loss after other comprehensive expenses of $205 and $54 for the year ended December 31, 2022 and 2021, respectively.

 

Liquidity and capital resources

 

As of December 31, 2022, the Company had cash from continued operations in the amount of $114 compared to cash in the amount of $195 as of December 31, 2022.

 

Stockholders’ equity as of December 31, 2022 was $1,360, as compared to stockholders’ equity of $1,565 as of December 31, 2021.

 

The Company’s accumulated deficit was $1,778 and $1,752 on December 31, 2022 and December 31, 2021, respectively.

 

Off- Balance Sheet Arrangements

 

The Company currently does not have any off-balance sheet arrangements.

 

ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

 

The Results of Operations of the sold companies for the Year Ended December 31, 2022, compared to Year Ended December 31, 2021. (In Thousands)

 

Revenue

 

For the year ended December 31, 2022, and 2021, the held for sale Companies generated revenues in the amount of $2,333 and $2,030 respectively. The increase was attributable to an increase in AUM.

 

8
 

 

Assets Under Management and Investment Performance

 

The following table reflects the changes in AUM for the year ended December 31, 2022, and 2021.

 

(In millions)

 

   For the year ended
December 31, 2022		   For the year ended
December 31, 2021		 
Beginning Balance  $282.73   $180.96 
Gross inflows/ outflows, net   118.07    65.77 
Market appreciation (depreciation) (1)   (83.72)   35.99 
           
           
End Balance  $317.08   $282.73 

 

  (1) Market appreciation (depreciation) includes investment gains (losses) on assets under management, the impact of foreign exchange rates and net reinvested dividends.

 

Total AUM increased by $34.35 million during the year ended December 31, 2022, from $282.73 million as of December 31, 2021 to $317.08 million as of December 31, 2022, or a 12.14 % increase on total AUM. The increase was a result of net AUM inflows of $118.07 million, and market depreciation of $83.72 million.

 

Cost of Revenues

 

For the year ended December 31, 2022, and 2021, cost of revenues was $1,288 and $1,186, respectively. The increase in these expenses was mainly attributable to an increase in AUM.

 

Marketing Expenses

 

For the year ended 31, 2022, marketing expenses were $208, compared to $210 for the prior-year period.

 

General and Administrative Expenses

 

For the year ended December 31, 2022, our general and administrative expenses were $618, compared to $746 for the period ended December 31, 2021, an approximate 17.1% decrease.

 

Net Loss

 

The sold Company realized a net income of $194 for the year ended December 31, 2022, compared to a net loss of $80 for the year ended December 31, 2021. This attributed to increased revenue following the grows of our AUM.

 

After taking into account foreign currency translation adjustments, which resulted in other comprehensive loss of $179 and income of $49 for the year ended December 31, 2022 and 2021, respectively, the Company realized a net income after other comprehensive income of $15 and loss of $31 for the year ended December 31, 2022 and 2021, respectively.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

9
 

 

CREATIONS INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021

 

F-1
 

 

CREATIONS INC. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm PCAOB (2015) F-3
   
Consolidated Balance Sheets F-4
   
Consolidated Statements of Operations and Comprehensive Loss F-5
   
Consolidated Statements of Changes in Stockholders’ Equity F-6
   
Consolidated Statements of Cash Flows F-7
   
Notes to the Consolidated Financial Statements F-8 - F-26

 

F-2
 

 

LOGO OF ACCOUNTING FIRM

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Creations Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Creations Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “Financial Statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

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

 

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

 

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

 

/s/ BARZILY AND CO.

 

We have served as the Company’s auditor since 2019.

 

Jerusalem, Israel

April 14, 2023

 

F-3
 

 

CREATIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

 

   December 31,   December 31, 
   2022   2021 
ASSETS          
Current assets          
Cash and cash equivalents   114    195 
Other current assets   -    9 
Capital note   637    637 
Assets held for sale   1,508    1,699 
Total current assets   2,259    2,540 
           
Non-current assets          
Loans granted to stockholders   13    - 
Total non-current asset   13    - 
           
Total assets   2,272    2,540 
           

LIABILITIES AND STOCKHOLDERS’ EQUITY

          
Current liabilities          
Accounts payable   145    2 
Liabilities held for sale   767    973 
Total current liabilities   912    975 
Total liabilities   912    975 
           
COMMITMENT AND CONTINGENCIES   -    - 

STOCKHOLDERS’ EQUITY

          
Common Stock of $0.0001 par value - Authorized: 100,000,000 shares at December 31, 2022 and 2021; Issued and outstanding: 3,544,242 shares at December 31, 2022 and 2021   -    - 
Additional paid-in capital   3,162    3,162 
Accumulated other comprehensive income   (24)   155 
Accumulated deficit   (1,778)   (1,752)
Total stockholders’ equity   1,360    1,565 
           
Total liabilities and stockholders’ equity   2,272    2,540 

 

The accompanying notes are an integral part of the financial statements

 

F-4
 

 

CREATIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

 

   2022   2021 
   For the year ended December 31, 
   2022   2021 
         
General and administrative expenses   (159)   (23)
           
Operating income (loss)   (159)   (23)
           
Financial income (expenses), net   13    1 
Loss before income tax   (146)   (22)
Tax expenses   (74)   (1)
           
Net loss for the year from continuing operations   (220)   (23)
Net income (expenses) from discontinued operations, net of tax   194    (80)
           
Net loss for the year   (26)   (103)
Other comprehensive income (loss):          
Foreign currency translation adjustments from discontinued operations   (179)   49 
Comprehensive loss   (205)   (54)
           
Basic and diluted net loss per share   (0.01)   (0.03)
           
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 financial statements

 

F-5
 

 

CREATIONS INC. AND SUBSIDIARIES

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 (deficit) 
                         
Balance as of January 1, 2021   3,544,242    -    3,162    106    (1,649)   1,619 
                               
Foreign currency translation adjustments   -    -    -    49    -    49 
Net loss   -    -    -    -    (103)   (103)
                               
Balance as of December 31, 2021   3,544,242    -    3,162    155    (1,752)   1,565 
                               
Foreign currency translation adjustments   -    -    -    (179)   -    (179)
Net loss   -    -    -    -    (26)   (26)
                               
Balance as of December 31, 2022   3,544,242   $-   $3,162   $(24)  $(1,778)  $1,360 

 

The accompanying notes are an integral part of the financial statements

 

F-6
 

 

CREATIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

 

   December 31   December 31 
   2022   2021 
Cash flows from operating activities:          
Net loss   (26)   (103)
Less net loss (income) from discontinued operations   (194)   80 
Changes in operating assets and liabilities:          
Other current assets   9    (5)
Accounts payable   143    (9)
Related parties   (13)   - 
Operating cash flow from discontinued operations   196    41 
Net cash provided by (used in) operating activities   115    4 

Cash flows from investing activities:

          
Investing cash flow from discontinued operations   (206)   (137)
Net cash by (used in) investing activities   (206)   (137)
           
           
Foreign currency translation adjustments on cash and cash equivalents from discontinues operations   (42)   11 
           
Change in cash and cash equivalents   (133)   (122)
Cash of continuing operations at the beginning of the period   195    233 
Cash of discontinued operations at the beginning of the period   308    392 
Cash at the end of the period   370    503 
Less cash of discontinued operations at the end of the period   (256)   (308)
Cash and cash equivalents at end of year   114    195 

 

F-7
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE 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. Ocean Yetsira Ltd. (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 (See note 1B).

 

See note 1c.regarding planning for sailing these regarding.

 

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 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.

 

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 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.

 

On February 9, 2023, after the balance sheet date, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) by and among Aharon Barkai & Co. Ltd. (the “Purchasers”) through its controllers Yaniv Aharon and Dan Barkai, and an agreement for the purchase of Shares and Capital Notes (the “Purchase Agreement”), whereby the Company sold all of the capital stock and capital notes of Ocean Yezira Ltd. (“Ocean”) in exchange for the payment of an aggregate of ILS 2,061,930 (approximately $586,000) and the return of 1,254,498 shares of common stock of the Company and 1,254,498 warrants to purchase common stock owned by the Purchasers. The transactions contemplated in the Purchase Agreement and the Share Exchange Agreement are collectively referred to as the “Transaction”). Mr. Aharon is a director of the Company. The Capital Notes in the amount of ILS 2,165,800 (approximately $615,000) which are owed to the Company by Ocean will be repaid by the Purchasers at closing as well. The closing of the transaction was subject to the approval of the Court of Family Affairs to allow the Executor of the Estate of Guy Nissenson to sign upon behalf of the Estate and to approval of the Company’s stockholders. On March 20, 2023, such approval was obtained.

 

F-8
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 1 - GENERAL (CONT.)

 

  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 financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

 

  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.

 

  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”.

 

F-9
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

  C. (Continued)

 

   December 31,   December 31, 
   2022   2021 
Official exchange rate of NIS 1 to US dollar   0.284    0.322 

 

  D. Merger of entities under common control

 

The Company accounted for the exchanges of shares completed under the Yetsira Exchange and the Holdings Exchange pursuant to ASC 805-50 “Transactions between Entities under Common Control”. Accordingly, all prior financial information has been presented to reflect this transaction as a “pooling of interests” as of the earliest period presented under common control.

 

When accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. If the receiving entity issues equity interests in the exchange, the equity interests issued are recorded at an amount equal to the carrying amount of the net assets transferred, even if the fair value of the equity interests issued is reliably determinable.

 

The annual consolidated financial statements of the receiving entity shall report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period in which common control was established. Results of operations for that period will thus comprise those of the previously separate entities combined from the beginning of the period in which common control was established to the date the transfer is complete, and those of the combined operations from that date to the end of the period.

 

  E. Cash and cash equivalents

 

The Company considers all highly liquid investments, which include short-term bank deposits that are not restricted as to withdrawal or use, and short-term debentures, with original periods to maturity not exceeding three months, to be cash equivalents.

 

F-10
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

  F. Accounts receivable

 

Accounts receivable are reported at their outstanding unpaid principal balances net of an allowance for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. At both December 31, 2022 and 2021, the Company determined that an allowance for doubtful accounts was not needed.

 

  G. Property and equipment, net

 

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

 

   % 
Computers and equipment   33 
Vehicle   15 

 

When an asset is retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the statements of operations.

 

  H. Impairment of long-lived assets

 

Property and equipment subject to amortization are reviewed for impairment in accordance with ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2022 and 2021, no impairment losses were recorded.

 

  I. 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-11
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

  I. (Continued)

 

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.

 

Contract Assets and Liabilities

 

A contract asset is an entity’s right to payment for goods and services already transferred to a customer if that right to payment is conditional on something other than the passage of time. Generally, an entity will recognize a contract asset when it has fulfilled a contract obligation but must perform other obligations before being entitled to payment.

 

A contract liability is an entity’s obligation to transfer goods or services to a customer at the earlier of (1) when the customer prepays consideration or (2) the time that the customer’s consideration is due for goods and services the entity will yet provide. Generally, an entity will recognize a contract liability when it receives a prepayment.

 

At both December 31, 2022 and 2021, contract assets and liabilities were $0.

 

  J. Fair value of financial instruments

 

The carrying amounts reported in the balance sheets for cash and cash equivalents, bank deposits, other current assets and accounts receivables and accounts payable approximate their fair market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021.

 

  K. Marketable securities

 

Marketable securities represent equity investments in common stocks mutual funds. Equity investments in unconsolidated entities, other than those accounted for using the equity of accounting, are generally measured at fair value. Realized and unrealized gains and losses are included in net income.

 

Fair Value Measurements

 

The Company values its investments under the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

  L. Severance pay

 

The groups liability for severance pay is calculated according to Section 14 of the Israeli Severance Compensation Act, 1963 (“Section 14”), pursuant to which Holdings’ severance pay liability to its employees is fully discharged by monthly deposits to pension fund accounts in the employees’ names, at a rate of 8.33% of the employees’ monthly salary. Under Israeli employment law, payments in accordance with Section 14 release Holdings from any future severance payment obligations in respect of those employees. The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of the cause of termination. The severance pay liabilities and deposits under Section 14 are not reflected in the consolidated balance sheets as the severance pay risks have been irrevocably transferred to the severance funds.

 

F-12
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

  M. Income taxes

 

The Company accounts for income taxes under ASC 740, “Income Taxes”. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

 

The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.

 

The Company accounts for uncertainties in income taxes under the provisions of ASC 740-10-05 which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and certain recognition thresholds must be met before a tax position is recognized. An entity may only recognize or continue to recognize tax positions that meet a “more likely-than-not” threshold. As of December 31, 2022 and 2021, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense.

 

  N. Concentrations of credit risks

 

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and restricted bank deposit. Cash and cash equivalents and the restricted bank deposit are invested mainly in USD and NIS in banks in Israel and the United States. Such funds in United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

 

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

 

F-13
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

  O. 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 3,544,242 for both of the years ended December 31, 2022 and 2021.

 

  P. Legal and other contingencies

 

The Company accounts for its contingent liabilities in accordance with ASC 450 “Contingencies” under which a provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2022 and 2021, the Company is not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

 

Legal costs incurred in connection with loss contingencies are expensed as incurred.

 

  Q. Warrants

 

Warrants that were granted by the Company to investors through private placement transactions and to the Holdings stockholders under the Holdings Exchange are classified as a component of permanent equity since they are freestanding financial instruments that are legally detachable and separately exercisable, contingently exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of shares of

 

F-14
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

  Q. (Continued)

 

common stock upon exercise. In addition, the warrants must require physical settlement and may not provide any guarantee of value or return. Fully vested and non-forfeitable warrants that meet these criteria are initially recorded at their grant date fair value and are not subsequently re-measured.

 

  R. Leases

 

The Company accounts for leases under the guidance of FASB Accounting Standards Codification, or ASC, Topic 842, Leases, or ASC 842, which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet and the disclosure of key information about certain leasing arrangements.

 

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all the Company’s operating leases are comprised of office space leases and substantially all its finance leases are comprised of office furniture and technology equipment.

 

Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancellable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

 

Lease expense for operating leases consists of the lease payments, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability.

 

The Company recognized a lease liability in the amount of the present value of the lease payments, and concurrently recognized right of use assets in the same amount of the lease liability regarding a lease agreement classified as operating lease.

 

  S. Intangible assets

 

Intangible assets consist of existing customer relationships from the acquisition of Oceans (see Note 3). 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 2022 and 2021 amounted to $72 thousand and $74 thousand, respectively. The annual amortization for the next 3 years is expected to be in the amount of $72 thousand a year.

 

F-15
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

  T. Goodwill

 

Goodwill consists of the excess of cost over net assets acquired of Ocean. Goodwill is not amortized, but is tested at least annually for impairment, or if circumstances change that will more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company performs annual impairment testing on a recurring basis in the last quarter of each year. Impairments, if any, are expensed in the year incurred. The Company did not record an impairment in 2022 and 2021.

 

NOTE 3 - ACQUISITIONS

 

  A. 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”).

 

The Company consummated the aforesaid acquisition at August 19, 2020 (the “Closing Date”).

 

  B. On September 7, 2020, the Company 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 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:

 

  3. 1,254,498 shares of common stock of the Company;
     
  4. 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”).

 

In addition, the Company incurred acquisition related costs totaling $32 thousands, which are included in other expenses. Acquisition related costs include banking, legal and accounting fees, as well as other external costs directly related to the acquisition.

 

The acquisition implements the Company’s vision of becoming a leading investment company in Israel and delivering high quality management and value to its clients and shareholders. By combining the two businesses, 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 privet clients with high degree of customer loyalty which can be used as a platform to enlarge the Company’s privet client’s portfolio management business.

 

F-16
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 3 - ACQUISITIONS (CONT.)

 

  B. (Continued)

 

Furthermore, the acquisition brought a more diversified ability to the Company’s investment managers team and additional experience of the marketing capabilities that can be used to advance the Company forward.

 

Under business combination accounting principles, the total purchase price which including the Cash Consideration and Equity Consideration, was allocated to Ocean’s net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The goodwill is attributable primarily to the strategic opportunities aforementioned. The related goodwill and intangible assets are not deductible for tax purposes.

 

The allocation of the purchase price to assets acquired and liabilities assumed is as follows:

 

      
Cash  $100 
Bank deposit   12 
Prepaid expenses and other current assets   50 
Property and equipment   33 
Accrued expenses and other current liabilities   (13)
Deferred income taxes   (84)
Intangible asset - Customer relationships (*)   363 
Goodwill   583 
      
Total purchase price (**)  $1,044 

 

  (*) The fair value of the customer relationships asset associated with Ocean acquisition amounted to $363 was based on market participant approach to valuation, performed internally by the management using estimates and assumptions. The customer relationships represent the existing relationships and agreements of Ocean with private portfolio clients.
     
  (**) The fair value of the purchase price is comprised from Cash Consideration that was paid in total amount of $87 (see Note 3A) and Equity Consideration in form of issuance of shares of units consists of Common Stock and warrants in total consideration of $957 which was determined internally by the management as certain percentage of the Company’s managing assets.

 

The consolidated results of operations for the year ended December 31, 2020 include revenues and expenses related to Ocean business for the fourth quarter of 2020.

 

F-17
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 3 - ACQUISITIONS (CONT.)

 

  C. In connection with the Share Exchange Agreement as noted in Note 3B, on September 7, 2020, the Company and its current Chief Executive Officer and Chairman and majority shareholder, and the Ocean Shareholders, entered into a shareholder agreement (the “Shareholder Agreement”), under which certain minority rights and protections (including representation on the Company’s Board of Directors) to Ocean Shareholders.

 

NOTE 4 - ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

 

Following non-commital guidelines for future transactions regarding sale of main activity to related parties during 2022 (note 10.E.) and the agreement after the balance sheet date described in note 1.C., As a result, the Company classified the operations of Ocean Yetsira, Yetsira and Ocean (the held companies) as discontinued operations for the year ended December 31, 2022. And in accordance with the provisions of ASC-205-20, The Company has retrospectively recast its consolidated statement of operations for the year ended December 31, 2021 presented. In addition, those assets and liabilities associated with the discontinued operations of the held companies have been classified as held for sale as of December 31, 2022. The Company has retrospectively recast its consolidated balance sheet as of December 31, 2021 for assets and liabilities held for sale.

 

The following table presents net carrying values related to the assets and liabilities that were classified as held for sale at December 31, 2022 and 2021 (in thousands) :

 

   December 31,   December 31, 
   2022   2021 
Cash and cash equivalents   256    308 
Marketable securities   310    152 
Bank deposit   18    47 
Accounts receivable   102    102 
Other current assets   7    19 
Property and equipment, net   36    44 
Intangible assets, net   205    309 
Goodwill   574    649 
Loans granted to stockholders   -    14 
Operating right of use assets   -    55 
Total assets   1,508    1,699 
           
Accounts payable   50    90 
Related parties   33-    120 
Operating lease liability – current portion   -    55 
Deferred taxes   47    71 
Capital note   637    637 
Total liabilities   767    973 

 

F-18
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 4 - ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (CONT.)

 

The following table presents a reconciliation of the major financial lines constituting the results of operations for discontinued operations to the income (loss) from discontinued operations presented separately in the consolidated statements of operations (in thousands):

 

 

   2022   2021 
   For the year ended December 31, 
   2022   2021 
         
Revenues   2,333    2,030 
Cost of revenues   1,288    1,186 
Gross profit   1,045    844 
           
Operating expenses:          
Marketing expenses   (208)   (210)
General and administrative expenses   (618)   (746)
           
Operating income (loss)   219    (112)
           
Other income (expenses) – capital gain (loss) from marketable securities   (40)   14 
Financial income (expenses), net   3    (1)
Income (loss) before income tax benefit   182    (99)
Income tax benefit (expenses)   12    19 
           
Net income (loss) for the year   194    (80)

 

NOTE 5 - ACCOUNTS RECEIVABLE

 

Refers to discontinued operations

 

   2022   2021 
   December 31, 
   2022   2021 
         
Trade accounts receivable in respect of mutual funds and portfolio management  $102   $102 
Accounts Receivable   102   $102 

 

NOTE 6 - PROPERTY AND EQUIPEMENT

 

Depreciation expense was approximately $7 thousand and $7 thousand for the years ended December 31, 2022 and 2021, respectively.

 

Fixed assets at December 31, 2022 and 2021 in the amount of $36 thousand and $44 thousand, respectively, are included in assets held for sale. The depreciation expense for the years ended December 31, 2022 and 2021 are classified as part of income (loss) from discontinued operations.

 

NOTE 7 - INTANGIBLE ASSETS

 

  A.

Customer relations in the amount of $363 thousand that was acquired by the company through the acquisition of Ocean have a economic useful life of 5.25 years and are measured at cost less accumulated amortization. The company recognized amortization of $72 thousand and $74 thousand during 2022 and 2021 regarding customer relations.

 

Intangible assets at December 31, 2022 and 2021 in the amount of $205 thousand and $309 thousand, respectively, are included in assets held for sale. The amortization expense for the years ended December 31, 2022 and 2021 are classified as part of income (loss) from discontinued operations.

     
  B. Goodwill in the amount of $583 thousand that was recognized by the company through the acquisition of Ocean (see Note 3). Goodwill amounted to $574 thousand and $649 thousand as of December 31, 2022 and 2021, respectively and is included in assets held for sale. This difference of the amounts is from foreign currency adjustments only.

 

F-19
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 8 - LOANS GRANTED TO STOCKHOLDERS

 

In 2019, the Company entered into loan agreements with three of its stockholders, who also serve as service providers to Yetsira and Ocean (see also Note 11C), under which the Company issued each of the three a loan of NIS41 thousand, for an aggregated total of NIS123 thousand (approximately $34 thousand) (the “Loans”). The Loans bear interest at a rate of 1.45% per annum (the “Interest”). The Loans are payable on the earlier of the stockholders’ request to repay, 90 days after the termination of such stockholders’ service agreements, or 30 days after the resignation of such stockholders from their positions as a service providers or 30 days upon selling of 25% of the Company’s shares that are held by such stockholders.

 

During 2020, one of the stockholders service agreement was terminated and the loan of 12 thousand was fully repaid.

 

During 2021, one of the stockholders service agreement was terminated and the loan of 13 thousand was fully repaid.

 

There were no repayments in 2022.

 

Composition:

 

  

Year ended

December 31,

  

Year ended

December 31,

 
   2022   2021 
         
Opening balance  $12   $14 
Interest income and exchange differences   1    (2)
           
Closing balance  $13   $12 

 

NOTE 9 - COMMITMENT AND CONTINGENCIES

 

  A. Leases:

 

On October 22, 2020, Ocean Yetsira entered into new Lease Agreement (the “New Lease Agreement”) with an unrelated third party, for leasing premises which including 196 square meters and 4 parking spaces. The lease is for a term commencing December 1, 2020 throughout November 30, 2022 (the “Leasing Period”), and Ocean Yetsira has the right to terminate the New Lease Agreement in an advance notice of 3 months following the lapse of first 9 months of Leasing Period. The monthly lease fee amounted to NIS 65 (approximately $19) for each square meter and NIS 750 (approximately $214) for each parking space. The monthly lease fee is linked to the index price customer.

 

In addition, Ocean Yetsira has the right to extend the Leasing Period by additional 24 months, as long as advance notice of 6 months has been provided before the ending of the Leasing Period.

 

Ocean Yetsira pledged an amount of NIS 55 (approximately $16) to secure its commitments under the New Lease Agreement for a period commencing the closing of the New Lease Agreement through 60 days following the New Lease Agreement’s termination date.

 

The lease was capitalized under ASC 842: minimum payment $5 thousands, 24 months, interest rate 3.6%.

 

Total lease expenses amounted to $55 thousands and $57 thousands for the years ended December 31, 2022 and 2021, respectively.

 

The agreement term was ended in November 2022 and is renewed on a quarterly basis.

 

  B. Following the acquisition of Ocean, the mutual fund management activity of the group is managed through Ocean.

 

On September 24, 2020, Ocean entered into a new hosting agreement (the “New Hosting Agreement”) with Sigma Mutual Funds Ltd. (“Sigma Mutual Funds”), an unrelated third party, under which Ocean receives hosting services from Sigma Mutual Funds and provides fund portfolio management services for funds under the management of Sigma Mutual Funds. The New Hosting Agreement replaced the Hosting Agreement signed with Mutual Funds Moduls.

 

F-20
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 9 -  COMMITMENT AND CONTINGENCIES (CONT.)

 

  B. (Continued)

 

The New Hosting Agreement term is for unlimited period commencing the date in which the Company’s funds are transferred from the former funds administrator and may be terminate upon occurrence of events as determined in the New Hosting Agreement. As of November 9, 2020, the Company’s funds were transferred from the former funds administrator and the New Hosting Agreement has entered into effect.

 

During the years ended December 31, 2022 and 2021, the Company incurred hosting services and fund portfolio management services expenses in total amount of $1,071 thousands and $912 thousands which were recorded as cost of revenues and classified as part of income (loss) from discontinued operations.

 

  C. Yetsira and Ocean Yetsira entered into Administration Service Agreements (the “Agreements”) with certain of the Company stockholders (the “Service Providers”), under which the Service Providers will provide outsourced executive services over a period of 12 months commencing from the Effective Date. In consideration of their services, the Service Providers will be entitled to (1) monthly consideration which is subject to the volume of assets administered by Ocean Yetsira; (2) bonus awards as defined and under conditions specified in the Agreements and (3) reimbursement of reasonable expenses that were incurred to perform the services. Following the agreement described in Note 1.C., certain service providers operate through Creations.

 

In addition, the Service Providers are also committed to non-competition clauses over a period of twenty-four months commencing the Effective Date (the “Non-Competition Period”). It was agreed that (1) upon termination of the Agreement by the Company, the Service Providers will be entitled to their monthly based salary over the period commencing the termination period and through the Non-Competition Period or (2) upon resignation of the Agreement by a Service Provider, the Service Provider will be entitled to 50% of his monthly based salary over the period commencing the termination period and through the Non-Competition Period but the Company has the right to avoid the payment by release the Service Provider from this commitment under the non-competition clause.

 

F-21
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 9 -  COMMITMENT AND CONTINGENCIES (CONT.)

 

  D. On June 18, 2021, Guy Nissensohn, the Company’s Chief Executive officer (“CEO”) and Acting Chief Financial Officer (“CFO”), passed away. Following Mr. Nissensohn’s death, the Board of Directors (the “Board”) appointed Niv Nissensohn to serve as interim CEO, effective immediately. Niv Nissensohn (Guy Nissensohn’s brother) assumed Guy Nissensohn’s role as a director on the Board. Shmuel Yelshevich was appointed as Interim CFO of the Company, effective immediately. The Board also appointed Yaniv Aharon as Chairman of the Board, effective immediately.

 

On November 24, 2021, shareholders constituting the majority voting power (the “Majority Shareholders”) of CREATIONS, INC. (the “Company”) appointed Ilan Arad Keshet and Shmuel Yelshevich to serve, along with Yaniv Aharon as Directors (“Directors”) of the Company.

 

On November 24, 2021, Niv Nissenson resigned as Director, effective upon and simultaneously with the appointments of Mr. Arad and Mr. Yelshevich as Directors. Mr. Nissenson’s resignation was not a result of any disagreement with the Company.

 

On November 24, 2021, Niv Nissenson resigned as Interim CEO of Creations Inc, effective December 3rd, 2021.

 

On December 17, 2021, the Board of Directors (the “Board”) of the “Company” appointed Shmuel Yelshevich to serve as Chief Executive Officer, President, Treasurer and Secretary of the Company, effective December 20, 2021.

 

On December 17, 2021, the Board appointed Ilan Arad to serve as Chairman of the Board, effective December 20, 2021.

 

On December 17, 2021, the Board appointed each of Shmuel Yelshevich and Ilan Arad to serve on the boards of Ocean Yetsira, Ltd., Ocean Partners, Y.O.D.M. and Yetsira Investment House, LTD (the “Subsidiaries”), each of which is a wholly-owned subsidiary of the Company, with such appointments effective December 20, 2021.

 

NOTE 10 - STOCKHOLDERS’ EQUITY

 

  A. Common Stock

 

The holder of the shares of Common Stock are entitled to the following rights:

 

  1. Right to participate and vote in the Company’s general meetings, whether regular or extraordinary. Each share will entitle its holder, when attending and participating in the voting in person or via agent or letter, to one vote;
     
  2. Right to share in distribution of dividends, whether in cash or in the form of bonus shares; the distribution of assets or any other distribution pro rata to the par value of the shares held by them;
     
  3. Right to a share in the distribution of the Company’s excess assets upon liquidation on a pro rata basis to the par value of the shares held by them.

 

  B. Issuance of shares of Common Stock

 

  1. Following the acquisition of the remaining 92.5% of the shares of Ocean (See Note 3B), the Company issued on September 28, 2020:

 

  A. 1,254,498 shares of common stock of the Company;
     
  B. 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.

 

  2. In connection with the Share Exchange Agreement as noted in Note 3B, on September 7, 2020, the Company and its current Chief Executive Officer and Chairman and majority shareholder, and the Ocean Shareholders, entered into a shareholder agreement (the “Shareholder Agreement”), under which certain minority rights and protections (including representation on the Company’s Board of Directors) to Ocean Shareholders.

 

  C. Warrants

 

   2022   2021 
         
Outstanding as of January 1   3,544,242    3,544,242 
Granted   -    - 
Exercised   -    - 
           
Outstanding as of December 31   3,544,242    3,544,242 

 

F-22
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 11 - EMPLOYEE BENEFITS

 

Refers to discontinued operations

 

The Company’s liability for severance pay is calculated according to Section 14 of the Israeli Severance Compensation Act, 1963 (“Section 14”), pursuant to which Holdings’ severance pay liability to its employees is fully discharged by monthly deposits to pension fund accounts in the employees’ names, at a rate of 8.33% of the employees’ monthly salary. Under Israeli employment law, payments in accordance with Section 14 release from any future severance payment obligations in respect of those employees. The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of the cause of termination. The severance pay liabilities and deposits under Section 14 are not reflected in the consolidated balance sheets as the severance pay risks have been irrevocably transferred to the severance funds.

 

Severance pay deposit expenses under Section 14 for the years ended December 31, 2022 and 2021 amounted to $10 thousand and $14 thousand, respectively.

 

NOTE 12 - TAXES ON INCOME

 

  A. Taxation under Various Laws

 

  1. Tax rate applicable to Ocean Yetsira, Yetsira and Ocean is 23%.
     
  2. Tax rates applicable to the Company:

 

The enactment of the Tax Cuts and Jobs Act (“Tax Act”) in December 2017, reduced the federal income tax rates from an average of 35% to a 21% flat rate, beginning in the 2018 tax year. The Tax Act also includes a provision designed to currently tax global intangible low-taxed income (“GILTI”), beginning in 2018 tax year. As the Company is currently in a loss position, there was no tax effect in the current year. The Company will record the U.S. income tax effect of future GILTI inclusions in the period in which they arise, if relevant.

 

After the enactment of the Tax Act, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided guidance on accounting for the enactment effect of the Tax Act. SAB 118 addressed the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. SAB 118 provided or a measurement period of up to one year from the Tax Act enactment date for companies to complete their accounting under ASC 740. During the quarter ended December 31, 2019, the Company completed the accounting for the income tax effects of the Tax Act, which resulted in an immaterial change in the net deferred tax asset, before valuation allowance, at the enactment date.

 

F-23
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 12 - TAXES ON INCOME (CONT.)

 

  B. Net operating losses carryforward

 

As of December 31, 2022, Ocean Yetsira, Yetsira and Ocean have accumulated net operating loss carryforwards for Israeli tax purposes in the amount of approximately $1,381 thousand which may be carried forward and offset against taxable income in the future for an indefinite period.

 

As of December 31, 2022, the Company (excluding subsidiaries) has accumulated net operating loss carryforwards for U.S. federal income tax purposes of approximately $196 thousand which may be carried forward and offset against taxable income in the future for an indefinite period. Utilization of the U.S. net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

 

  C. Income taxes on foreign subsidiaries

 

Foreign subsidiaries are taxed according to the tax laws in their respective country of residence. Neither Israeli income taxes, foreign withholding taxes nor deferred income taxes were provided in relation to undistributed earnings of the Company’s foreign subsidiaries. This is because the Company has the intent and ability to reinvest these earnings indefinitely in the foreign subsidiaries and therefore those earnings are continually redeployed in those jurisdictions.

 

  D. Income tax expenses

 

Tax expenses for the years ended December 31, 2022 and 2021 are as follows:

 

   2022   2021 
   December 31, 
   2022   2021 
         
Current tax  $34   $1 
Prior periods tax   40    - 
Income tax expenses  $74   $1 

 

F-24
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 12 - TAXES ON INCOME (CONT.)

 

  E. Deferred income taxes

 

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

 

   2022   2021 
  

Year Ended

December 31,

 
   2022   2021 
         
Deferred tax assets:          
Net operation loss carryforward  $357   $383 
           
Net deferred tax asset before valuation allowance   357    383 
Valuation allowance   (357)   (383)
           
Net deferred tax asset  $-   $- 

 

    2022    2021 
  

Year Ended

December 31,

 
   2022   2021 
         
Deferred tax liability:          
Customer relations intangible assets  $47   $71 
           
Net deferred tax liability  $47   $71 

 

The net deferred tax liability at December 31, 2022 and 2021 are included in liabilities held for sale.

 

The Company has a valuation allowance against a majority of its net deferred tax assets due to the uncertainty of realization of the deferred tax assets due to the operating loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income.

 

  F. Reconciliation of Income Taxes

 

The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowances in respect to deferred taxes relating to accumulated net operating losses carried forward and temporary differences due to the uncertainty of the realization of such deferred taxes.

 

F-25
 

 

CREATIONS INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

 

NOTE 12 - TAXES ON INCOME (CONT.)

 

  G. The components of profit and loss before taxes on income are as follows:

 

    2022    2021 
  

Year ended

December 31,

 
   2022   2021 
         
Foreign - discontinued operations  $

181

   $(99)
Domestic - continuing operations   (146)   (22)
           
Income (Loss) before taxes on income  $35  $(121)

 

  H. Tax Assessments

 

The Company, Yetsira and Ocean Yetsira have not received final tax assessments for income tax purposes since incorporation. Ocean tax assessments until 2017 are considered final.

 

NOTE 13 - FINANCIAL INCOME (EXPENSE), NET

 

Composition:

 

         
  

Year ended

December 31,

 
   2022   2021 
         
Bank commissions and others  $-   $1 
Other   13    - 
           
Total financial expense, net  $13   $1 

 

NOTE 14 - RELATED PARTIES BALANCES AND TRANSACTIONS

 

  A. Balances with related parties

 

    2022    2021 
   December 31, 
   2022   2021 
         
Assets:          
Loans granted to stockholders (Note 9)  $13   $14 
           
Liabilities:          
Management fee payable to stockholders  $67   $120 

 

  B. Transactions with related parties

 

    2022    2021 
  

Year ended

December 31,

 
   2022   2021 
         
Income:          
Income in respect to loans granted to stockholders  $1   $- 
           
Expenses:          
Management fee  $406   $273 

  

F-26

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. 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 December 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.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our board of directors consists of two (2) members: Shumel Yelshevich, and Ilan Arad Keshet. 

 

Directors and Executive Officers

 

The following table provides information as of April [●], 2023 as to each person who is, as of the filing hereof, a director and/or executive officer of the Company:

 

Name   Position(s)   Age
Shmuel Yelshevich   Interim Chief Executive Officer, Chief Financial Officer, President, Treasurer, and Secretary    
Ilan Arad Keshet   Chairman of the Board    

 

(1) Chairman of audit committee and Chairman of compensation committee

 

No Family Relationships

 

There is no family relationship between any director and executive officer or among any directors or executive officers.

 

10
 

 

Business Experience and Background of Directors and Executive Officers

 

BOARD OF DIRECTORS

 

Shmuel Yelshevish co-founded Yetsira and served as Chief Financial Officer, Vice President of Sales and Investment Manager at Yetsira since November 2016. From 2013 to 2016, Mr. Yelshevich served as a manager of marketing department, portfolio manager and analyst at Israeli portfolio management firm. Mr. Shmuel holds a portfolio management license from the ISA and a B.A. in Finance and Financial Risk Management from The Interdisciplinary Center Herzliya. Mr. Yelshevich is a licensed portfolio manager by the ISA.

 

Ilan Arad Keshet co-founded Yetsira and has served as Chief Executive Officer and Investment Manager of Yetsira since November 2016. From 2013 to 2015. Mr. Arad Keshet served as a private investment manager and counselor to a wealth family, specializing in complex options strategies. From 2010 to 2013, Mr. Arad Keshet served at dash- Securities, a large brokerage firm in Israel, as a trading floor manager and portfolio manager of institutional funds. Mr. Arad Keshet holds a portfolio management license from the ISA and a BA in Finance from Max Stern Yezreel Valley College. Mr. Arad Keshet is a licensed portfolio manager by the ISA. 

 

Board Leadership Structure and Role in Risk Oversight

 

Our Board of Directors is primarily responsible for overseeing our risk management processes on behalf of our company. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.

 

Committees of the Board

 

We currently do not maintain any committees of the Board of Directors. Given our size and the development of our business to date, we believe that our directors can perform all of the duties and responsibilities which might be performed by a committee. We do not currently have an audit committee financial expert.

 

Corporate Governance Guidelines

 

The Board of Directors will adopt corporate governance guidelines that serve as a flexible framework within which our Board of Directors and its committees operate. These guidelines will cover a number of areas including the size and composition of the board, board membership criteria and director qualifications, director responsibilities, board agenda, roles of the chairman of the board and Chief Executive Officer and Chief Financial Officer, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. A copy of our corporate governance guidelines will be available on our website at www.Creationsfin.com

 

11
 

 

Involvement in Certain Legal Proceedings

 

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

 

  1. any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
     
  2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
     
  4. being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
     
  5. being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  6. being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Board of Directors Meetings and Attendance

 

We have no formal policy regarding director attendance at the annual meeting of stockholders. The Board of Directors held [●] (●)  meetings in 2022. All Board members were present at all of the meetings .

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who own more than 10% of the Company’s stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and changes in ownership of the Company’s common stock. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. To the Company’s knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended December 31, 2022 all Reporting Persons timely complied with all applicable filing requirements, if applicable.

 

ITEM 11. EXCUTIVE COMPENSATION

 

The following table  sets forth all compensation recorded by us in each of the last two completed fiscal years for the named executive officers. 

 

Name and Principal Position  Year  

 

Salary ($)

   Bonus ($)   Stock Awards  

 

Option Awards

   Non-Equity Incentive Plan Compensation   Non-Qualified Deferred Compensation   All Other Compensation   Total Compensation ($) 
Guy Nissenson   -                                 
Former CEO, CFO, Director (1)   2021                                         
                                              
Niv Nissesson                                             
Former Interim Chief Executive Officer   2021                                         
                                              
Shmuel Yelshevich   2022                                         
Interim Chief Executive Officer   2021                                         
                                              
Ilan Arad Keshet   2022                                         
Chairman of the Board   2021                                         
                                              
Yaniv Yaar Aharon   2022                                         
Director (1)   2021                                         

 

  (1) On June 18, 2021, the Company learned that Guy Nissenson, Chief Executive Officer, Acting Chief Financial Officer, and director, passed away. Following Mr. Nissenson’s death, the board of directors appointed Niv Nissenson to serve as interim CEO. Niv Nissenson is Guy Nissenson’s brother and also assumed Guy Nissenson’s role as a director on the Board.
     
  (2) Yaniv Yaar Aharon resigned as a director of the Company on March 30, 2023 in connection with the sale of Yetsira Holdings, a subsidiary of the Company to a group led by Aharon.

 

12
 

 

Employment Agreements with Named Officers

 

On February 22, 2021, the Company and Yaniv Aharon entered into an agreement  for the provision of management services (the “Agreement”) with Yetsira Holdings Ltd., effective January 1, 2020. The scope of services will change from time to time in accordance with the needs of the Company. Pursuant to the agreement, Yaniv will be entitled to a monthly Consideration as specified below, in accordance with the scope of the assets managed by the Investment House from time to time, plus VAT (hereinafter: “the Gradation of the Consideration”):

 

Gradation of the volume of managed

assets

(in NIS million)

  

The monthly Consideration

(in NIS, before VAT)

0-1,000   20,000
1,001-2,000   30,000
2,001-3,000   45,000
3,001-4,000   65,000
4,001+   85,000

 

Outstanding Equity Awards at Fiscal Year-End

 

There were no outstanding equity awards at the end of December 31, 2022.

 

Director Compensation

 

To date, we have not paid any compensation to our directors.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information with respect to the beneficial ownership of our common stock as of April [●], 2023 for:

 

  ● each beneficial owner of more than 5% of our outstanding common stock;
     
  ● each of our director and named executive officers; and
     
  ● all of our directors and executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include common stock that can be acquired within 60 days of April [●], 2023. The percentage ownership information shown in the table is based upon [●] shares of common stock outstanding as of April [●], 2023.

 

13
 

 

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options and warrants held by that person that are immediately exercisable or exercisable within 60 days of April [●], 2023. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*). The information in the table below is based on information known to us or ascertained by us from public filings made by the stockholders. Except as otherwise indicated in the table below, addresses of the directors, executive officers and named beneficial owners are in care of the Company.

 

Name  and Address of Beneficial
Owner		   Title of Class   Number of shares of Common stock Beneficially Owned     Percentage of Common stock Beneficially Owned (1)  
Guy Nissenson(1)(3)   Common Stock     [●]       [●] %
Shmuel Yelshevich(2)   Common Stock     [●]       [●] %
Ilan Arad (2)   Common Stock     [●]       [●] %
Yaniv Yaar Aharon(4)   Common Stock     [●]       [●] %
All Executive Officers and Directors as a group (3 individuals)         [●]       [●] %

 

(1) Based on [●] shares of common stock outstanding as of April [●], 2023

(1) Includes 1,044,435 warrants to purchase shares of common stock.

 

(2) Includes 80,903 warrants to purchase shares of common stock.

 

(3) Does not include an aggregate of 242,709 shares of common stock, which shares are subject to the Voting Agreement granting Mr. Nissenson the right to vote such shares.

 

(4) Includes 554,692 warrants to purchase shares of common stock.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Transactions 

 

We describe below all transactions and series of similar transactions, other than compensation arrangements, in the last two fiscal years, to which we were a party or will be a party, in which:

 

  ● the amounts involved exceeded the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years; and
     
  ● any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

The Company will only enter into related party transactions if the terms are at least as favorable to them as could be obtained from a third party.

 

Director Independence

 

We currently do not have any directors who are independent.

 

14
 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following is a summary  of the fees billed to the Company by Barzily for professional accounting services rendered for the year ended December 31, 2022 and 2021.

 

   Fiscal Year 2022  Fiscal Year 2021 
Audit fees  $ [●]   $25,000 
Audit related fee    -    - 
Tax fees    -    - 
Other fees    -    - 
Total  $ [●]   $25,000 

 

Audit fees consist of fees billed for services rendered for the audit of our financial statements and review of our financial statements included in our quarterly reports on Form 10–Q. Other fees consist of comfort letter service fees.

 

Tax fees consist of fees billed for professional services related to the preparation of our U.S. federal and state income tax returns.

 

We did not incur assurance and audit-related fees during 2022 and 2021, to Barzily as applicable, nor in connection with the audit of our financial statements for the reviews of registration statements and issuance of related consents and assistance with SEC comment letters.

 

There were no other fees billed to us by Barzily as applicable, for services rendered to us during the years ended December 31, 2022 and 2021, respectively, other than the services described above under “Audit Fees” and “Audit-Related Fees.”

 

Policy on Pre-Approval by Audit Committee of Services Performed by Independent Registered Public Accounting Firms

 

The policy of the audit committee is to pre-approve all audit and permissible non-audit services to be performed by the independent public accounting firm during the fiscal year. The audit committee pre-approves services by authorizing specific projects within the categories outlined above. The audit committee’s charter delegates to its Chair the authority to address any requests for pre-approval of services between audit committee meetings, and the Chair must report any pre-approval decisions to the audit committee at its next scheduled meeting. All services related to the fees described above were approved by the audit committee pursuant to the pre-approval provisions set forth in the applicable SEC rules and the audit committee’s charter.

 

15
 

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

Exhibit No.   Description
     
31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Acting Chief Financial Officer (filed herewith)
     
32.1   Certification by the Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
     
101.INS   Inline XBRL Instance Document.*
101.SCH   Inline XBRL Taxonomy Extension Schema.*
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase.*
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase.*
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase.*
101.PRE   Inline XBRL Extension Presentation Linkbase.*
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

16
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

  Creations, Inc.
   
Date: April 14, 2023 By: /s/ Shmuel Yelshevich
  Name: Shmuel Yelshevich
  Title: Interim Chief Executive Officer

 

17

 

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