MANUKA, INC.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") covers information pertaining to the Company for
the year ended December 31, 2022 and should be read in conjunction with the
audited financial statements and related notes of the Company as of and for the
year ended December 31, 2022 . Except as otherwise noted, the financial
information contained in this MD&A and in the financial statements has been
prepared in accordance with accounting principles generally accepted in the
United States of America . All amounts are expressed in U.S. dollars unless
otherwise noted. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors.
OVERVIEW
We are a beauty company that develops and distributes premium-quality skincare
products, that are based on M?nuka honey and bee venom. Our skincare products
are manufactured in Israel by our vendor, Chic with M?nuka honey ingredients. We
import M?nuka honey from our supplier in New Zealand , Waitemata Honey pursuant
to the Supply Agreement. On February 28, 2022 , we were granted an import license
from the MoH, which allows it to import M?nuka honey from Waitemata Honey.
The skincare product formulas are the intellectual property of Manuka, pursuant
to an agreement signed by the Company and Chic on
Currently, we operate only inIsrael through our online platform www.bmanuka.co.il. Our website and mobile applications currently offer six cosmetic skincare products: "Face Serum withManuka Honey and Bee Venom"; "Face Serum with enhanced Vitamin C"; "Day Cream"; "Night nourishing Cream"; "Eye Cream"; and "Face Cleanser Gel". In the future, we plan to expand our business to other markets outside ofIsrael with the www.bmanuka.com website, which is still under development. We believe our focus on delivering a compelling value proposition to our clients across all Manuka's product categories would drive loyalty from clients. We intend to offer a loyalty program, subscription plans and target promotions. As such, Manuka offers frequent promotions, coupons, and gifts with purchase. For example, Manuka is currently developing a new shopping experience, its "try before you buy" experience. Subject to the "try before you buy" plan's policy, we would offer selected bundles of products, with payment by customers on shipping costs only. Unsatisfied customers would be able to return the products within 14 days for no other costs (including no return fees). Satisfied customers would be charged after 14 days for the full amount of purchase. We plan to broaden our line of products that is currently focused on M?nuka honey and bee venom skincare market to include the pure M?nuka honey market, based on M?nuka honey fromNew Zealand . Our current MoH License enables us to develop and include the pure M?nuka honey products to our existing skincare line of products. TAXES
We have not recorded any income tax benefit for any period from inception to
CRITICAL ACCOUNTING POLICIES
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles inthe United States , orU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on various factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Form 10-K, we believe that the following accounting policy is the most critical for fully understanding and evaluating our financial condition and results of operations.
Stock-Based Compensation
We apply the fair value recognition provisions of ASC 718, Compensation-Stock Compensation, or ASC 718, for stock-based awards granted to officers and other providers for their services. Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. Calculating the fair value of stock-based awards requires that we make subjective assumptions. Pursuant to ASC 718, we measure stock-based awards granted to employees, members of the board of directors and other providers at fair value on the date of grant and recognize the corresponding stock-based compensation expense of those awards on a straight-line basis over the requisite service period. The fair value calculation of the option awards requires a number of assumptions, of which the most significant are the stock price volatility and the expected option term. Each of the above factors requires us to use judgment and make estimates in determining the percentages and time periods used for the calculation. If we were to use different percentages or time periods, the fair value of option awards could be materially different. We recognize stock-based compensation cost for option awards on an straight line basis over the employee's requisite service period, net of estimated forfeitures. Volatility is derived from the historical volatility of publicly traded set of peer companies. The risk-free interest rates used in the Black-Scholes calculations are based on the prevailingU.S. Treasury yield as determined by theU.S. Federal Reserve . We have not paid dividends and does not anticipate paying dividends in the foreseeable future. Accordingly, no dividend yield was assumed for purposes of estimating the fair value of our stock-based compensation. The weighted average expected life of options was estimated individually in respect of each grant. 14 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE YEAR ENDED
Results of Operations
The following table presents our results of operations for the year ended
Year ended Year ended
December 31 December 31
2022 2021
($ THOUSANDS) ($ THOUSANDS)
Revenues 311 7
Costs of revenues 54 1
Gross profit 257 6
Operating expenses
Sales and marketing 664 66
General and administrative 952 230
Total operating expenses 1,616 296
Operating loss (1,359 ) (290 )
Financial expenses/Income, net 4 (39 )
Net Loss and Total Comprehensive Loss (1,355 ) (329 )
Loss per share:
Basic and diluted net loss per share (0.01 ) (0.00 )
Weighted average number of common stocks used in calculation
of net loss per Common share:
Basic and diluted 57,058,283 26,139,289
Revenue
Revenues for the year ended December 31, 2022 were $311,000 , compared to
revenues of $7,000 for the year ended December 31, 2021 , an increase of
$304,000 , or 4,343%. The reason for the increase in revenues was due to the
introduction of new products and increased sales of our products. Following our
sales efforts in the twelve months ended December 31, 2022 , we began to sell
more products and increased our repeated customers. We currently sell five new
products in addition to our first product.
At the beginning of 2022, we introduced five additional products, as follows:
(i) face serum enriched with Vitamin C; (ii) day cream; (iii) night nourishing
cream; (iv) eye cream; and (v) a facial cleansing gel. As a result of increasing
the array of cosmetic products, from one sole product to a total of six, we have
seen a significant increase in revenues and, consequently, an increase in our
customer base.
15
--------------------------------------------------------------------------------Costs of revenues
Costs of revenues for the years endedDecember 31, 2022 and 2021 were$54,000 and$1,000 , respectively, an increase of$53,000 , or 5,300%. The reason for the increase in cost of revenue was mainly due to an increase in the purchases of raw materials for products following an increase in sales.
Gross profit
Gross profit for the years endedDecember 31, 2022 and 2021 were$257,000 and$6,000 , respectively, an increase of$251,000 , or 4,183%. The reason for the increase in gross profit was mainly due to an increase in sales and repeat customers.
Sales and Marketing Expenses
Sales and marketing expenses for the years endedDecember 31, 2022 and 2021 were$664,000 and$66,000 , respectively, an increase of$598,000 , or 906%. The increase in our sales and marketing expenses was mainly due to an increase in expenditures relating to media advertising expenses and marketing on online public platforms in support of our efforts to increase our sales and generate new customers.
General and Administrative Expenses
Our general and administrative expenses for the year endedDecember 31, 2022 , which consisted primarily of professional services and salaries, amounted to$952,000 , compared to$230,000 for the year endedDecember 31, 2021 , an increase of$722,000 , or 314%. The increase in the general and administrative expenses was mainly due to an increase in consultants and professional services expenses paid in connection with the Share Exchange Agreement and share based compensation.
Operating Loss
As a result of the foregoing, our operating loss totalled$1,359,000 for the year endedDecember 31, 2022 , representing an increase of$1,069,000 , or 369%, compared to$290,000 for the year endedDecember 31, 2021 .
Financial Income (Expense)
For the year endedDecember 31, 2022 , we had financial income, net of$4,000 compared to a financial expense of$39,000 for the year endedDecember 31, 2021 , a decrease of$43,000 , or 110%. The reason for the decrease in financial expenses was due to changes in exchange rates and translation differences.
Net Loss
We incurred a net loss of$1,355,000 for the year endedDecember 31, 2022 as compared to a net loss of$329,000 for the year endedDecember 31, 2021 , an increase of$1,026,000 , or 311.6%. The reason for the increase in net loss is mainly due to the increase in our marketing and sales efforts to increase our sales as well as an increase in consultants and professional services expenses paid in connection with the Share Exchange Agreement and share based compensation.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Since our inception, we have not had significant revenues and have incurred
significant operating losses and negative cash flows from our operations. We
have funded our operations principally with approximately
Although we raised funds from an outside investor, such amount is not sufficient to fund our operations for the period of twelve months from the date of approval of the financial statements, which raises substantial doubts as to our ability to continue as a going concern. Management plans to alleviate such doubts are mainly reliant on the following factors: (i) as detailed in our financial reports, one of our major stockholders has committed and will continue to support the Company throughDecember 2023 , (ii) we plan to raise capital in the near term, and (iii) based on our current business activity, and according to prior experience, we are expected to increase our sales revenue and become cash positive during the second quarter of 2023. Furthermore, we currently have no obligations for additional support from any other sources such as shareholders, directors, or officers.
The table below presents our cash flows for the periods indicated:
Year ended
December 31
2022 2021
($ THOUSANDS) ($ THOUSANDS)
Cash flows from operating activities:
Net loss (1,355 ) (329 )
Net cash used in operating activities (390 ) (279 )
Cash flows from investing activities:
Net cash used in investing activities (26 ) (27 )
Cash flows from financing activities:
Net cash provided by financing activities - 774
Cash and cash equivalents at beginning of period 471 3
Cash and cash equivalents at end of period 55 471
Non-cash activities:
Intangible assets recognized with corresponding other liability 6 32
Reverse recapitalization effect on equity (60 ) -
Right-of-use asset recognized with corresponding lease liability - 60
Purchase of property and equipment in credit - 12
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Operating Activities
Net cash used in operating activities was$390,000 for the year endedDecember 31, 2022 , an increase of 40% compared to$279,000 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 for investing activities was$26,000 for the year endedDecember 31, 2022 , a decrease of$1,000 , or 3.7%, compared to$27,000 for the same period in 2021. Cash used for investing activities decreased mainly due to a decreasing in fixed assets (purchase of property and equipment) during the year endedDecember 31, 2022 .
Net cash provided by financing activities was$0 for the year endedDecember 31, 2022 , compared to$774,000 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 credits and other loans for working capital.
Financing Arrangements
Since our inception, we have funded our operations primarily through shareholders loans, by our director and CEO,Mr. Citron , in an aggregate amount of$757,000 . As ofDecember 31, 2022 , our financial arrangements withMr. Citron includes several loans at an aggregate amount of$236,000 . The loans bear no interest and are linked to the Israeli Consumer Prices Index ("CPI"). The repayment date has not been determined. We expect our expenses to increase significantly in connection with our ongoing operations, particularly as we advance marketing activities to introduce our products to the market and find new markets.
We are still growing and do not know how to estimate our future expenses at this time.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through the sales of our securities, milestone payments and other outside funding sources. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government and other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market by ourselves. In addition, if we are unable to fund outside sources of funding, our majority stockholders intend to provide us with the necessary financial support to continue our operations.
Seasonality
We currently expect that our business will be subject to seasonal fluctuation. Such estimates of significant portions of net sales and profits to be realized during the fall, winter and spring seasons as well as peaks during seasonal holidays such as Black Friday, Christmas, New Year, and Easter.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
None.
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