| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The
interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“U.S. GAAP”) for interim financial information and with Rule 8-03 of Regulation S-X. The interim financial statements do
not include a full disclosure as required in annual financial statements and should be read with the annual financial statements of the
Company as of December 31, 2021 from which the accompanying condensed consolidated statement of financial position dated was derived.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six and three months ended June 30, 2022 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2022. The accounting policies implemented in the interim financial statements is
consistent with the accounting policies implemented in the annual financial statements as of December 31, 2021, except of the following
accounting pronouncement adopted by the Company. Recently
Issued Accounting Pronouncements, not yet adopted In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which is intended to
address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics
of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments
and convertible preferred stocks, and enhances information transparency by making targeted improvements to the disclosures for convertible
instruments and earnings-per-share guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal
years, and interim periods in those fiscal years, beginning after December 15, 2023 (effective January 1, 2024) for smaller reporting
companies. The Company is determining the adoption of this new accounting guidance and the effect on its consolidated financial statements
throughout the period until implementation. In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)” (“ASU 2016-13”), which
significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not
measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that
requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13
credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of
a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present
the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for
credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold
for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk
of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently
generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit
losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual
periods, beginning after December 15, 2022 for smaller reporting companies. Early adoption is permitted. The Company is currently assessing
the impact ASU 2016-13 will have on its consolidated financial statements. CREATIONS
INC. AND SUBSIDIARIES NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
dollars in thousands)
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”. SCHEDULE
OF TRANSLATION ADJUSTMENTS
June 30, June 30,
2022 2021
Official exchange rate of NIS 1 to US dollar 0.286 0.307
Exchange rate change in the period ( 11.1 )% ( 1.4 )% CREATIONS
INC. AND SUBSIDIARIES NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
dollars in thousands)
D. 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. Asset
Management and Investments Fees (Gross) All
of the Company’s revenues is from contracts with customers. Customers are invoiced at the end of the month.
E. Intangible
assets Intangible
assets consist of existing customer relationships from the acquisition of Ocean in August and September 2020 for the cost amount of
$ 364 5.25 18 35 no
F. Goodwill Goodwill
represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill
amount of $ 577 649 Goodwill
is not amortized, but is tested at least annually for impairment, or if circumstances occur that more likely than not reduce the fair
value of the reporting unit below its carrying amount. The
Company has determined that there has been no
G. Earnings (Loss) per Share Basic earnings (loss) per share (“EPS”) is computed
by dividing the net income (loss) applicable to common stockholders by the weighted-average number of shares of common stock outstanding
for the period. For purposes of calculating diluted
earnings per common share, the denominator includes both the weighted-average number of shares of common stock outstanding during the
period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. There were no dilutive
securities for any periods presented. CREATIONS
INC. AND SUBSIDIARIES NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
dollars in thousands) | 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”. CREATIONS
INC. AND SUBSIDIARIES NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S.
dollars in thousands) NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.) C.
(Continued) SCHEDULE OF TRANSLATION ADJUSTMENTS
December 31, December 31,
2021 2020
Official exchange rate of NIS 1 to US dollar 0.322 0.311 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. 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, 2021 and 2020, 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 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, 2021 and 2020, 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. 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) 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, 2021 and 2020, 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, 2021 and 2020.
K.
Markertable securities Marketable
securities represent equity investments in common stocks mutual funds. Equity investments in unconsolidated entites, 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. 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, 2021 and 2020, 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. 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, 2021
and 2020. 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, 2021 and 2020, 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 (see also Notes 12B5 and 12B6) 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 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 2021 and 2020 amounted to $ 74
thousand and $ 19
thousand, respectively. The annual amortization
for the next 4 years is expected to be in the amount of $ 74
thousand a year. 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 no U.
Recently
Issued Accounting Pronouncements, Adopted On
January 1, 2021, the Company adopted ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”)
which reduces the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach
for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax
liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent
application of U.S. GAAP. Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments
must be applied on a retrospective or modified retrospective basis. The adoption of this guidance did not have a material impact on the
Company’s consolidated financial statements.
V.
Recently Issued Accounting Pronouncements, Not Yet Adopted . In
August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815–40)” (“ASU 2020-06”). This guidance simplifies
the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and
contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15,
2021, and interim periods within those fiscal years. The Company will adopt ASU 2020-06 effective January 1, 2022 and the adoption of
this guidance is not expected to have a material impact on the Company’s consolidated financial statements. In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016- 13”), which significantly
changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at
fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires
entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit
impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial
asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net
amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit
losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition
of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance,
trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting
principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables
under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after
December 15, 2022 for smaller reporting companies (January 1, 2023 for the Company). Early adoption is permitted. The Company will evaluate
the impact of ASU 2016-13 on the Company’s consolidated financial statements in a future period closer to the date of adoption. CREATIONS
INC. AND SUBSIDIARIES NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S.
dollars in thousands) |
