ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” references to “the Company” “we,” “us,” or “our,” refer to Artemis Therapeutics, Inc. and its consolidated subsidiaries and dollar amounts are in thousands, except as otherwise stated.
The following management’s discussion and analysis should be read in conjunction with our financial statements, related notes and other information included in this Quarterly Report on Form 10-Q, the audited financial statements and related notes for the year ended December 31, 2021 and the Risk Factors included in our Current Report on Form 8-K filed with the SEC on July 5, 2022, and with the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Current Report on Form 8-K filed with the SEC on July 5, 2022 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
OVERVIEW
Until January 10, 2019, we were engaged in the development of agents for the prevention and treatment of severe and potentially life-threatening infectious diseases. On January 10, 2019, we received a notice regarding the immediate termination of a certain license agreement, dated May 31, 2016 (the “License Agreement”), executed by and between the Company, Hadasit Medical Research Services and Development Ltd. and the Hong Kong University of Science and Technology R and D Corporation Limited. We relied primarily on the License Agreement with respect to the development of Artemisone, our former lead product candidate. Upon the termination of the License Agreement, the Company ceased having an operating business.
From January 10, 2019 through June 30, 2022, we had no business operations and have classified as a “shell” company, as such term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
On March 6, 2022, we signed a Share Exchange Agreement, as amended (the “Share Exchange Agreement”), with Manuka Ltd., a limited liability company organized under the laws of the State of Israel, having an office for the transaction of business at 3 Eliezer Vardinon St., Petach Tikva, 4959507, Israel (“Manuka”), pursuant to which Manuka became our wholly owned subsidiary. Since its inception, Manuka’s business activities primarily consisted of distributing Mānuka honey imported from New Zealand, developing and distributing supplements aimed at the beauty and skincare markets and, developing and manufacturing skincare products based on New Zealand’s Mānuka honey and bee venom, among other natural ingredients. All three segments of Manuka’s products are to be marketed and sold solely on its websites. Manuka's skincare products are manufactured in Israel. The transactions contemplated by the Share Exchange Agreement closed on June 30, 2022 (the “Closing”) and following the Closing, we adopted the business of Manuka.
Pursuant to the terms of the Share Exchange Agreement, we acquired all of the outstanding shares of Manuka (the “Manuka Shares”) from Manuka’s shareholders in exchange for an aggregate amount of 33,791,641 common stock (including 2,242,509 shares issued to services provider) of our common stock of and 110,000 shares of our Series D Preferred stock (convertible into 66,000,000 shares of our common stock) (collectively, the “Consideration Shares”), such that Manuka’s shareholders held, immediately following the closing, eighty-nine percent (89%) of our issued and outstanding share capital (including and assuming the full conversion of the Series D Preferred stock).
In addition, on June 30, 2022, we entered into various debt forgiveness agreements with various existing stockholders, including Tonak Ltd., for the forgiveness of an aggregate of $306,117 in outstanding debt in exchange for the issuance of 3,031,567 shares of Artemis’ common stock. On June 30, 2022, we entered into various warrant exchange agreements for the exchange of certain warrants to purchase shares of our common stock, originally issued in October 2017, in exchange for an aggregate of 2,342,802 shares of our common stock. Finally, on June 30, 2022, we entered into a debt forgiveness agreement and warrant exchange agreement with Cutter Mill Capital, pursuant to which we agreed to issue 894,169 shares of our common stock. We also agreed to register all such shares issued to Cutter Mill Capital, including any and all shares issued or issuable to such holder upon conversion of any of its outstanding preferred stock, within the earlier of 60 days following the closing date (provided, however that in the event the company has not cleared comments with the SEC with respect to the filing of the Current Report on Form 8-K filed on July 5, 2022 relating to the transactions contemplated by the Share Exchange Agreement, such date shall be 90 days following the date of the agreement) and the date that we file our next registration statement, and agreed to obtain effectiveness within 90 days (or 120 days in the event of a full review by the SEC).
We are a beauty company that develops and distributes premium-quality skincare products, that are based on Mānuka honey and bee venom. Since our inception, Manuka’s business activities primarily consisted of developing and manufacturing skincare products based on Mānuka honey and bee venom from New Zealand, among other natural ingredients, marketed and sold solely on our website in Israel, www.bmanuka.co.il, and to be marketed and sold globally at www.bmanuka.com.
Our Common Stock is quoted on the OTC Pink Open Market under the symbol “ATMS”.
THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021
Revenues. During the three months ended June 30, 2022, we generated revenues of $61,283, compared to $3,377 for the three months ended June 30, 2021. The reason for the increase in revenues for the three months ended June 30, 2022, was mainly due to our marketing and sales efforts, and an increase in sales and repeat customers.
Sales and Marketing Expenses. During the three months ended June 30, 2022, we had sales and marketing expenses of $86,832 compared to $8,023 for the three months ended June 30, 2021. The increase in our Sales and Marketing Expenses for the three months ended June 30, 2022 is mainly as a result of our efforts to increase our sales and for generating new customers.
General and Administrative. Our general and administrative expenses for the three months ended June 30, 2022, which consisted primarily of professional services and salaries, amounted to $178,367, compared to $34,369 for the three months ended June 30, 2021. The increase in the general and administrative expenses for the three months ended June 30, 2022, was mainly due to an increase in consultants and professional services expenses paid in connection with the Reverse Recapitalization Transaction.
Financial Expense. For the three months ended June 30, 2022, we had financial income, net of $19,239 compared to financial expense of $6,309 for the three months ended June 30, 2021. The reason for the decrease in financial expenses for the three months ended June 30, 2022, was due to changes in exchange rates and translation differences.
Net Loss. We incurred a net loss of $201,396 for the three months ended June 30, 2022 as compared to a net loss of $45,874 for the three months ended June 30, 2021. The reason for the increase in net loss is mainly due to the increase in the Company's marketing and sales efforts to increase the number of customers as well as an increase in consultants and professional services expenses paid in connection with the Share Exchange Agreement.
SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2021
Revenues. During the six months ended June 30, 2022, we generated revenues of $77,660, compared to $3,377 for the six months ended June 30, 2021. The reason for the increase in revenues for the six months ended June 30, 2022, was mainly due an increase of our sales and repeated customers as a result of an increase of marketing and sales efforts, including sales of 5 new products in addition to our first product.
Sales and Marketing Expenses. During the six months ended June 30, 2022, we had sales and marketing expenses of $196,034, compared to $18,073 for the six months ended June 30, 2021. The increase in our sales and marketing expenses for the six months ended June 30, 2022 is mainly due to the Company's efforts to increase its sales and generate new customers.
General and Administrative. Our general and administrative expenses for the six months ended June 30, 2022, which consisted primarily of professional services and stockholder’s salaries, amounted to $280,180, compared to $55,170 for the six months ended June 30, 2021. The increase in the general and administrative expenses for the six months ended June 30, 2022, was mainly due to increase in consultants and professional services expenses paid in connection with the Share Exchange Agreement.
Financial Expense. For the six months ended June 30, 2022, we had financial income, net of $14,532 compared to financial expense of $8,251 for the six months ended June 30, 2021. The reason for the decrease in financial expenses for the six months ended June 30, 2022, was due to changes in exchange rates and translation differences.
Net Loss. We incurred a net loss of $404,681 for the six months ended June 30, 2022 as compared to a net loss of $78,667 for the six months ended June 30, 2021. The reason for the increase in net loss is mainly due to the increase in the Company's marketing and sales efforts to increase the number of customers as well as an increase in consultants and professional services expenses paid in connection with the Share Exchange Agreement.
LIQUIDITY AND CAPITAL RESOURCES
We had $149,396 in cash at June 30, 2022 versus $0 in cash at June 30, 2021. Cash used by operations for the six months ended June 30, 2022 was $293,297 as compared to $99,311 for six months ended June 30, 2021. The reason for the increase in cash used by operations is primarily due to payments to consultants and financial services as well as payments to marketing and public relations for the exposure to the Company's products.
Net cash provided by financing activities was $10,744 for the six months ended June 30, 2022, as compared to net cash provided by financing activities of $113,089 for the six months ended June 30, 2021. The decrease is mainly due to decrease in receipt of credit and owner loans and the use of working capital.
Cash Flows
The following table sets forth selected cash flow information for the periods indicated:
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Cash flows from operating activities: | | | | | | |
Net loss | | | (404,681 | ) | | | (78,667 | ) |
Net cash used in operating activities | | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Net cash used in investing activities | | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Net cash provided by financing activities | | | | | | | | |
Cash and cash equivalents at beginning of period | | | | | | | | |
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Cash and cash equivalents at end of period | | | | | | | | |
Non-cash activities: | | | | | | | | |
Intangible assets recognized with corresponding other liability | | | | | | | | |
Reverse recapitalization effect on equity | | | | | | | | |
Net cash used in operating activities
Net cash used in operating activities was $293,297 for the six months ended June 30, 2022 an increase of 195% compared to $99,311 used in operations for the same period in 2021. Cash used in operations increased mainly due to the increase in our operating activities.
Net cash used in investing activities
Net cash used for investing activities was $17,637 for the six months ended June 30, 2022, an increase of $805 compared to $16,832 for the same period in 2021. Cash used for investing activities increased mainly due to an increase in fixed assets (purchase of property and equipment) during the six months ended June 30, 2022.
Net cash provided by financing activities
Net cash provided by financing activities was $(-10,744) for the six months ended June 30, 2022 compared to $113,089 net cash provided by financing activities during the same period in 2021. The decrease in financing activities is mainly due to a decrease in short-term bank credit and other loans for working capital.
Inflation and Price Changes
Our functional and reporting currency is the U.S. dollar. We incur some of our expenses in other currencies. As a result, we are exposed to the risk that the rate of inflation in countries in which we are active other than the United States will exceed the rate of devaluation of such countries’ currencies in relation to the dollar or that the timing of any such devaluation will lag behind inflation in such countries. To date, we have been affected by changes in the rate of inflation or the exchange rates of other countries’ currencies compared to the dollar, and we cannot assure you that we will not be adversely affected in the future.
For the three and six months ended June 30, 2022, the rate of inflation in Israel was 3.22% and 1.60%, respectively. At June 30, 2021, the NIS increase in value versus the U.S. dollar by approximately 12.54% as of June 30, 2022 and 1.4% as of June 30, 2021.
CURRENT OUTLOOK
We anticipate that our cash balances will be sufficient to permit us to conduct our operation until December 2023. We may also satisfy future liquidity needs through the sale of our securities, either in public or private transactions.
If we are unable to obtain sufficient amounts of additional capital, we may be required to raise capital, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.