The following Management's Discussion and Analysis of Financial Condition and
Results of Operations is intended to provide information necessary to understand
our audited consolidated financial statements for the fiscal years ended
December 31, 2022 and December 31, 2021 and highlight certain other information
which, in the opinion of management, will enhance a reader's understanding of
our financial condition, changes in financial condition and results of
operations. In particular, the discussion is intended to provide an analysis of
significant trends and material changes in our financial position and the
operating results of our business during the year ended December 31, 2022, as
compared to the fiscal year ended December 31, 2021. This discussion should be
read in conjunction with our consolidated financial statements for the fiscal
years ended December 31, 2022 and December 31, 2021 and related notes included
elsewhere in this Annual Report on Form 10-K. These historical financial
statements may not be indicative of our future performance. This Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains numerous forward-looking statements, all of which are based on our
current expectations and could be affected by the uncertainties and risks
described throughout this filing, particularly in "Item 1A. Risk Factors."
39
The full extent to which the COVID-19 pandemic may directly or indirectly impact
our business, results of operations and financial condition, will depend on
future developments that are uncertain, including as a result of new information
that may emerge concerning COVID-19 and the actions taken to contain it or treat
COVID-19, as well as the economic impact on local, regional, national and
international customers and markets. We have made estimates of the impact of
COVID-19 within our financial statements, and although there is currently no
major impact, there may be changes to those estimates in future periods. Actual
results may differ from these estimates.
Significant Recent Events
(i) On January 30, 2023 the Company and each of Citrine High Tech 7 LP ("LP 7"),
Citrine 8 LP ("LP 8 ") and Citrine 9 LP ("LP 9"; together with LP 7 and LP 8,
the "Lending LP"), the lending entities under and parties to the Convertible
Note Purchase Agreement entered into by the Company and several related parties
in April 2020, as subsequently amended (the "CL Agreement"), have entered into
an agreement (the "Agreement") pursuant to which they have agreed to extend the
maturity date on all outstanding convertible loans in the principal amount of
$1,800,000 under the CL Agreement to May 31, 2024. LP 7 also agreed to extend to
May 31, 2024 the note in the principal amount of $80,000
In addition, under the Agreement the Company and the Lending LPs have also
agreed that if the Company's common stock is listed on the Nasdaq Stock Market,
then the Company, in its sole discretion, shall determine to convert, in whole
or in part, the outstanding amount of the above mentioned notes to shares of the
Company's common stock at a conversion price equal to the price paid by the
public investors for the common stock in such offering.
(ii) On January 17, 2023, the Board of Citrine Global, Corp., a Delaware
corporation ( the "Company"), appointed Ms. Ora Elharar Soffer to serve as
president of the Company. Ms. Elharar Soffer has been continuously serving as
the Company's Chief Executive Officer since May 7, 2020 and as a Company
director since February 21, 2020 and as Chairperson of the Board since March 3,
2020.
(iii) On March 5, 2023, the Board of the Company provided that in the event that
the Company's stock is listed on the Nasdaq Stock Exchange, then one half of the
awarded and unvested option grants made in each of August 2021 and in August
2022 to our current officers, directors and specific service providers, will
immediately vest at such time. In addition, the Board also determined to provide
that following the termination of services by our current officers, directors
and specific service providers, for any reason other than cause, they shall have
a one year period from the date of termination to exercise any option that was
vested at the time of the termination of services. Previously, on November 13,
2022, the board of directors ratified the Stock Option Agreements for the
previously disclosed stock options grants that were awarded in each of August
2021 and in August 2022 to our current officers and directors and specific
service providers, to provide that the exercise price of the options that were
awarded to date, shall remain unaffected by the implementation of a reverse
stock split that the Company may implement; to avoid any doubt, such reverse
stock split shall apply to the number of options shares issuable under such
options and all other relevant terms of such options (other than the exercise
price) shall continue in full force and effect following the implementation of
such reverse stock split. Any and all tax implication of this decision shall
rest solely with the optionee.
(iv) On March 6, 2023 Cannovation, the Company's majority owned subsidiary and
S.R. Accord Ltd., an Israeli public company ("Lender"), entered into an 18-month
credit facility agreement (the "Credit Facility") pursuant to which Lender has
committed to fund Cannovation in an aggregate amount of 3,000,000 NIS
(approximately $857,000) as needed. At the time of each draw down, Cannovation
and Lender will determine the repayment of the loan. All amounts drawn under the
Credit Facility will bear interest at a monthly rate of 1.7% and. Cannovation
has the right to pre-pay the entire amount outstanding under the Credit Facility
at any time. As security for any loans under the Credit Facility, Cannovation
granted Lender a first priority lien on its rights to the 125,000 sq ft (11,687
sqm) of industrial land in Yerucham, a city in southern Israel which Cannovation
acquired in February of 2022(the "Premises") to build the Green Vision Center
Israel with the support of the government of Israel. The lien will become
effective only if Cannovation utilizes the Credit Facility. If the market value
of the Premises is less than the amount outstanding under the Credit Facility,
then Lender will be entitled to additional security including additional shares
of Citrine Global common stock, on such terms and conditions as the parties may
agree. As additional security for any payments due to Lender, CTGL Citrine
Global Israel Ltd., a wholly owned subsidiary of Citrine Global, (ii) Beezzhome
Technologies Ltd. an entity wholly owned by Ora Elharar Soffer, the Chief
Executive Officer of Citrine Global and (iii) Netto Holdings, an unaffiliated
entity under the partial control of Ilan Ben Ishay, a director on the board of
Cannovation, as well as each of Ms. Elharar Soffer and Mr. Ben Ishay in their
personal capacities, are providing guarantees for the repayment of any amounts
that may be owing to Lender under the Credit Facility. Cannovation and the
Company has agreed to indemnify Ms. Elharar Soffer and Mr. Ben Ishay for any
losses they incur as a result of the guarantee.
On March 7, 2023, the Company issued to the Lender 2,154,677 shares of the
Company's common stock a commitment fee in respect of the provision of the
Credit Facility. As of the date of this report, Cannovation utilized $50,000 out
of the credit line. Ilan Ben Ishay and Ms. Elharar Soffer and Mr. Ben Ishay in
their personal capacities in are provided guarantees to Lender for the repayment
this amounts.
40
(v) On March 16, 2023, the consulting agreement originally entered into as of
July 2020 with Ms. Ora Elharar Soffer, the Company's Chairperson, CEO and
President, was amended. The amendment provides for the following: (i) the
monthly consulting to which Ms. Elharar Soffer is entitled will increase from
$20,000 to $25,000 (in invoice plus VAT if applicable) upon a listing of the
Company's stock on the Nasdaq Stock Market, retroactive to January 1, 2023, (ii)
the terms contained in her original agreement and all other terms and awards
previously approved by the Company's board relating to her, including payment of
her monthly fee and reimbursement of social benefits payments made by Mr Elharar
Soffer, shall continue in full force and effect so long as Ms. Elharar Soffer
serves as either director and /or executive officer (iii) all previous awards
and bonuses previously made to her were affirmed and (iv) Ms. Elharar Soffer has
agreed to defer compensation due to her until such time as the Company shall
have consummated an investment of at least $1.8 million in the Company's
securities, at which time all of the outstanding consulting fees from March 2020
and all reimbursement for related social benefits would be paid to her. In
addition, The amendment also provides that the committee of the Board that will
be responsible for setting the compensation terms of senior management shall
prepare and present for approval a compensation program for the Consultant that
takes into consideration Ms. Elharar Soffer's role in founding and leading the
Company and that such compensation package shall be competitive with
compensation programs for top senior executives/founders generally available in
the market and which will include, among other things, appropriate bonuses,
severance payments and other amenities generally made available in the market to
senior executive and that Ms. Elharar Soffer shall receive the most extensive of
such compensation terms amongst senior management.
(vii) On March 16, 2023, the consulting agreement originally entered into as of
July 2020 with Ms Ilanit Halperin, the Company's director and CFO, was amended.
The amendment provides for the following: (i) the monthly consulting to which
Ms. Elharar Soffer is entitled will increase from $7,500 to $10,000 ( in invoice
plus VAT if applicable) upon a listing of the Company's stock on the Nasdaq
Stock Market, retroactive to January 1, 2023, (ii) the terms contained in her
original agreement and all other terms and awards previously approved by the
Company's board relating to her, including payment of her monthly fee and
reimbursement of social benefits payments made by Mr Elharar Soffer ,shall
continue in full force and effect so long as Ms. Halperin serves as either
director and /or executive officer, (iii) all previous awards and bonuses
previously made to her were affirmed and (iv) s. has agreed o defer compensation
due to her until such time as the Company shall have consummated an investment
of at least $1.8 million in the Company's securities, at which time all of the
outstanding consulting fees from March 2020 and all reimbursement for related
social benefits would be paid to her. In addition, The Company undertakes that
the committee of the Board that will be responsible for setting the compensation
terms of senior management shall prepare and present for approval a compensation
program for Ms. Halperin that shall be competitive with compensation programs
for senior executives generally available in the market and which will include,
among other things, appropriate bonuses, severance payments and other amenities
generally made available in the market to senior executives.
Components of Operating Results
The following discussion summarizes the key factors our management believes are
necessary for an understanding of our consolidated financial statements.
Revenues
We have not generated any revenues from product sales as of December 31, 2022.
Research and Development Expenses
The process of researching and developing our products is lengthy,
unpredictable, and subject to many risks. We expect to continue incurring
expenses for the next several years for research and development as we continue
to develop products and innovative solutions. We are unable, with any certainty,
to estimate either the costs or the timelines in which those expenses will be
incurred. Our current development plans focus on the development of plant-based
solutions including GreenFeels™ and Green Side by Side Products lines.
Our research and development costs include costs are composed of:
? internal recurring costs, such as personnel-related and consultants costs
(salaries, employee benefits, equity compensation and other costs), materials
and supplies, facilities and maintenance costs attributable to research and
development functions; and
? fees paid to external parties who provide us with contract services, such as
preclinical testing, manufacturing and related testing and activities.
41
Marketing
Marketing expenses consist primarily of salaries, employee benefits, equity
compensation, and other personnel-related costs associated with executive and
other support staff. Other significant marketing expenses include the costs
associated with professional fees to develop our marketing strategy.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, employee
benefits, equity compensation, and other personnel-related costs associated with
executive, administrative and other support staff. Other significant general and
administrative expenses include the costs associated with professional fees for
accounting, auditing, insurance costs, consulting and legal services, along with
facility and maintenance costs attributable to general and administrative
functions.
Financial Expenses
Financial expenses consist primarily impact of exchange rate derived from
re-measurement of monetary balance sheet items denominated in non-dollar
currencies. Other financial expenses include bank's fees and interest on long
term loans.
Results of Operations
Year ended December 31, 2022 as compared to the year ended December 31, 2021
The following table presents our results of operations for the years ended
December 31, 2022 and 2021
Year Ended
December 31,
2022 2021
U.S. Dollars in thousands
Revenues - -
Cost of sales - -
Gross loss -
Research and development expenses (120 ) (96 )
Marketing, general and administrative expenses (1,866 ) (3,239 )
Operating loss (1,986 ) (3,335 )
Expenses related to convertible loan terms (635 ) (1,129 )
Other financing expenses, net (24 ) (52 )
(659 ) (1,181 )
Net loss (2,645 ) (4,516 )
During the year ended December 31, 2022 and 2021, the Company did not record any
revenue.
The Company's research and development expenses increased to $120,000 during the
year ended December 31, 2022, compared to approximately $96,000 during the prior
year. The increase is mainly attributable to professional expenses related to
the development of our Green Botanical product line.
The Company's marketing, general and administrative expenses during the year
ended December 31, 2022, were $1,866,000 compared to $3,239,000 during the year
ended December 31, 2021. The decrease in our marketing, general and
administrative expenses is mainly attributable to the decrease in our non-cash
share-based compensation expenses.
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During the year ended December 31, 2022, the Company incurred financial
expenses, net of $659,000, as compared to financial expenses of $1,181,000
during the year ended December 31, 2021. The reason for the decrease in
financial expense is attributable to changes in terms of our convertible loans.
As a result of the above, the Company incurred a net loss of approximately
$2,636,000 during the twelve months ended December 31, 2022 as compared to a net
loss of approximately $4,516,000 in 2021.
Liquidity and Capital Resources
At December 31, 2022, we had current assets of $185,000 compared to total
current assets of $349,000 as of December 31, 2021. At December 31, 2022, we had
current liabilities of $1,805,000 as compared to $1,064,000 as of December 31,
2021. At December 31, 2022, we had total liabilities of $3,780,000 as compared
to $2,495,000 as of December 31, 2021. The increase is mainly attributed to the
increase in the balance of accrued expenses and the balance of convertible
component in convertible notes.
At December 31, 2022, we had a cash balance of $77,000 compared to the cash
balance of $270,000 as of December 31, 2021.
At December 31, 2022, we had a working capital deficiency of $1,620,000 as
compared with a working capital deficiency of $715,000 at December 31, 2021.
The following table provides a summary of operating, investing, and financing
cash flows for the years ended December 31, 2022 and 2021 respectively (in
thousands):
Year Ended
December 31, 2022 December 31, 2021
Net cash used in operating activities (567,000 ) (582,000 )
Net cash provided by investment activities 11,000 286,000
Net cash provided by Financing Activities 360,000 350,000
On March 6, 2023 our majority owned subsidiary, Cannovation and S.R. Accord
Ltd., an Israeli company ("Lender"), entered into an 18-month credit facility
agreement (the "Credit Facility") pursuant to which Lender has committed to fund
Cannovation in an aggregate amount of 3,000,000 NIS (approximately $857,000) as
needed. At the time of each draw down, Cannovation and Lender will determine the
repayment of the loan. All amounts drawn under the Credit Facility will bear
interest at a monthly rate of 1.7% and will be due by no later than September
2024. Cannovation has the right to pre-pay the entire amount outstanding under
the Credit Facility at any time. As security for any loans under the Credit
Facility, Cannovation granted Lender a first priority lien on its rights to the
125,000 sq ft (11,687 sqm) of industrial land in Yerucham, a city in southern
Israel which Cannovation acquired in February of 2022 (the "Premises") to build
the Green Vision Center Israel with the support of the government of Israel. The
lien will become effective only if Cannovation utilizes the Credit Facility. If
the market value of the Premises is less than the amount outstanding under the
Credit Facility, then Lender will be entitled to additional security on such
terms and conditions as the parties may agree.
On July 15, 2022, Citrine 9 LP (hereinafter "Citrine 9"), one of the related
entities who are the signatory lenders (hereinafter the "Buyers") to the
Convertible Note Purchase Agreement entered into by the Company and such Buyers
in April 2020, as subsequently amended (the "CL Agreement") agreed to honor a
Draw Down Notice for, and has advanced to the Company, $100,000 on the same
terms and conditions as are specified in the CL Agreement. The annual interest
on the loan continues to be nine percent (9%). The principal and interest
payment on the Note shall be made in New Israeli Shekels (NIS) at the conversion
rate which was in effect on the date on which the loan was advanced. As provided
for under the terms of the Convertible Note Agreement, Citrine 9 is entitled to
8,333,333 Series A warrants and 8,333,333 Series B warrants for shares of common
stock, where each of the series are exercisable beginning January 15, 2023
through October 31, 2025, in each case at an exercise price of $0.05 per share.
On August 9, 2022, the Company's board of directors agreed to extend the
exercise period of the warrants through August 9, 2027. On January 26, 2023, the
CL Agreement was further amended to extend to May 31, 2024 the maturity date
thereof. The amendment also provides that upon a public offering of securities
that the Company may effect in connection with a listing of the Company's stock
on a U.S. National Securities Exchange, the note is automatically convertible
into the securities that are the subject matter such offering, in whole or in
part, as the Citrine Global Board may determine.
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On September 30, 2022, Citrine Global received a loan from Citrine Hi Tech 7 LP,
an Israeli limited partnership and an affiliated entity (the "Lender"), in the
principal amount of $80,000. The loans bears interest at 12% per annum and was
scheduled to mature on December 15, 2022. On January 29, 2023 the maturity date
was extended to May 31, 2024. The holder also agreed that upon a public offering
of securities that the Company may effect in connection with a listing of the
Company's stock on a U.S. National Securities Exchange, the note is
automatically convertible into the securities that are the subject matter such
offering, in whole or in part, as the Citrine Global Board may determine
Based on the Company's current cash balances and the access to the Credit
Facility described above, the Company believes that it has sufficient funds for
its plans for the next twelve months from the issuance of these financial
statements. As the Company is embarking on its activities as detailed herein, it
is incurring losses. It cannot determine with reasonable certainty when and if
it will have sustainable profits.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Recently issued accounting pronouncements
Recently issued accounting pronouncements are described in the notes to our
financial statements for the years ended December 31, 2022 and 2021, which are
included within Item 8 in this annual report.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in the notes to our financial
statements for the years ended December 31, 2022 and 2021 and which included
within Item 8 in this annual report.
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