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 with the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2022. 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”.
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, one of 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 developing and distributing supplements aimed at the beauty and skincare markets and, developing and manufacturing skincare products based on New Zealand’s Manuka honey and bee venom, among other natural ingredients. All of Manuka’s products are marketed and sold solely on its website. 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 are a beauty company that develops and distributes premium-quality skincare products, that are based on Manuka honey and bee venom. Since our inception, Manuka’s business activities primarily consisted of developing and manufacturing skincare products based on Manuka 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 MARCH 31, 2023, COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2022
Revenues. During the three months ended March 31, 2023, we generated revenues of $173 thousand, compared to $16 thousand for the three months ended March 31, 2022. The reason for the increase in revenues for the three months ended March 31, 2023, was mainly due to the deployment of 5 new products and our marketing and sales efforts, as well as an increase in sales and repeat customers.
Sales and Marketing Expenses. During the three months ended March 31, 2023, we had sales and marketing expenses of $195 thousand compared to $109 thousand for the three months ended March 31, 2022. The increase in our sales and marketing expenses for the three months ended March 31, 2023, is mainly due to our efforts to increase our sales and generate new customers.
General and Administrative. Our general and administrative expenses for the three months ended March 31, 2023, which consisted primarily of professional services and salaries, and stock-based compensation amounted to $213 thousand, compared to $102 thousand for the three months ended March 31, 2022. The increase in the general and administrative expenses for the three months ended March 31, 2023, was mainly due to an increase in share-based compensation expenses.
Financial Expense. For the three months ended March 31, 2023, we had financial income, net of $15 thousand compared to financial expense of $4 thousand for the three months ended March 31, 2022. The reason for the decrease in financial expenses for the three months ended March 31, 2023, was due to changes in exchange rates and translation differences.
Net Loss. We incurred a net loss of $249 thousand for the three months ended March 31, 2023, as compared to a net loss of $203 thousand for the three months ended March 31, 2022, the reason for the increase in net loss is mainly due to the increase in our marketing and sales efforts to increase the number of customers as well as an increase in stock-based compensation expenses.
LIQUIDITY AND CAPITAL RESOURCES
We had $109 thousand in cash on March 31, 2023, versus $317 thousand in cash on March 31, 2022. Cash used by operations for the three months ended March 31, 2023, was $96 thousand as compared to $157 for the three months ended March 31, 2022. The reason for the decrease in cash is that we are operating our business at a loss, while we continue to market our products.
Net cash provided by financing activities was $150 thousand for the three months ended March 31, 2023, as compared to net cash provided by financing activities of $13 thousand for the three months ended March 31, 2022. The increase is mainly due to an increase in our credit line. In that regard, in January 2023, we increased our existing credit line by $138 thousand, from $83 thousand to $221 thousand.
Cash Flows
| | Three Months ended March 31 | |
(USD in thousands) | | 2 0 2 3 | | | 2 0 2 2 | |
| | $ | | | $ | |
Cash flows from operating activities: | | | | | | | | |
Net loss | | | (249 | ) | | | (203 | ) |
Net cash used in operating activities | | | (96 | ) | | | (157 | ) |
Cash flows from investing activities: | | | | | | | | |
Net cash used in investing activities | | | - | | | | (10 | ) |
Cash flows from financing activities: | | | | | | | | |
Net cash provided by financing activities | | | 150 | | | | 13 | |
Cash and cash equivalents at beginning of period | | | 55 | | | | 471 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | | 109 | | | | 317 | |
Non-cash activities: | | | | | | | | |
Intangible assets recognized with corresponding other liability | | | - | | | | 6 | |
Reverse recapitalization effect on equity | | | - | | | | - | |
Net cash used in operating activities
Net cash used in operating activities was $96 thousand for the three months ended March 31, 2023, a decrease of 38%, compared to $157 thousand used in operations for the same period in 2022. The cash used for operations decreased mainly due to the adjustment of the increase in share-based compensation.
Net cash used in investing activities
Net cash used for investing activities was $0 thousand for the three months ended March 31, 2023, a decrease of $10 thousand, compared to $10 thousand for the same period in 2022. Cash used for investing activities decreased mainly due to a decrease in fixed assets (purchase of property and equipment) during the three months ended March 31, 2023.
Net cash provided by financing activities
Net cash provided by financing activities was $150 thousand for the three months ended March 31, 2023, compared to $13 thousand net cash provided by financing activities during the same period in 2022. The increase in financing activities is mainly due to an increase in short-term bank credit.
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 three months ended March 31, 2023, and three months ended March 31, 2022, the rate of inflation in Israel was 1.19% and 1.46%, respectively, the Dollar exchange rate in value Shekels increased in value by approximately 2.72% as of March 31, 2023 and 2.12%, respectively, as of March 31, 2022.
CURRENT OUTLOOK
We are in our early stages and have incurred substantial operating losses. There is uncertainty regarding the future of our operations. Moreover, we are thinly capitalized and have not yet generated cash from operations. Management expects us to continue to generate substantial operating losses and to continue to fund our operations primarily through additional raises of capital and through its credit line. Such conditions raise substantial doubts about our ability to continue as a going concern. Management’s plan includes raising funds from existing and potential investors. However, there is no assurance such funding will be available to us or that it will be obtained on terms favorable to us or will us with sufficient funds to meet our objectives. These financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should we be unable to continue as a going concern.