CITRINE GLOBAL, CORP. - Quarter Report: 2013 September (Form 10-Q)

FORWARD-LOOKING STATEMENTS

We are a development stage Company with limited operations and no significant revenues from our business operations. There is substantial doubt that we can continue as a going business for the next twelve months. We do not anticipate that we will generate significant revenues until we enter into licensing agreements with additional online gaming servers, or web advertisers, to permit them to offer games of skill on our platform as part of their member services, or as part of their advertising campaign. Accordingly, we must raise cash from sources other than our operations in order to implement our marketing plan.

In our management’s opinion, there is a potential demand for our technology which will enable online game service providers, and websites engaged in marketing efforts designed to increase traffic, to provide a platform offering financial rewards to winners of online competitive games of skill.

On July 10, 2011, we executed a license agreement with GT-SAT International S.A.R.L ("GT-SAT"), a corporation organized under the laws of Luxemburg. The GT-SAT license agreement granted the licensee a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Europe and an exclusive license in Luxembourg, Belgium, and Holland. In consideration of such license, GT-SAT made an upfront, non refundable, payment of $90,000 to the Company and has agreed to pay royalties on future revenues. On December 26, 2011, GT-SAT terminated this agreement due to the prevailing difficult economic climate in Europe.

On July 1, 2011, we executed a license agreement with Yanir Levin Ltd., an Israeli corporation, which granted the licensee a nonexclusive right to develop websites and offer online games based on our proprietary gaming platform in Asia and an exclusive license in Israel. In consideration of the license granted to the licensee, the licensee made an upfront, non refundable, payment of $29,000 and has agreed to pay us royalties on future revenues.

We believe that we have sufficient cash on hand to allow us to market our online gaming platform to potential clients and remain in business through the third quarter of 2013. If, after that, we are unable to generate significant revenues from operations for any reason, or if we are unable to make a reasonable profit, we may have to consider the advisability of suspending or otherwise limiting operations. At the present time, we have not made any arrangements to raise additional cash through either debt or equity financing.

Our initial plan of operations was to license our online gaming platform to third party licensees to permit these licensees to offer games of skill on our platform as part of their member services. However, following a review of current market conditions, and in light of our relatively limited working capital, our management has determined to focus our short-term efforts on marketing our platform as a leverage for web marketing campaigns designed to increase traffic in websites.

In order to carry out this plan and continue our business plan during the next twelve month period, we believe that we will require total cash resources of approximately $120,000. While we plan to raise additional funds through a private offering of our common stock or some form of debt financing, if we are unable to raise such funds at terms satisfactory to the Company, of which there can be no assurance, we will have to reevaluate our plan of operations.

On February 18, 2013, the Company entered into a Joint Venture Agreement ("JV Agreement") with Zenetek LLC, a Company organized under the laws of the State of Delaware and  a wholly-owned subsidiary of Anything Technologies Media (OTCPK: EXMT), with offices located in Vietnam. Pursuant to the terms of the JV Agreement, Zenetek agreed to represent the Company in China, Singapore, Taiwan, Vietnam, Hong Kong and Indonesia (the "Territories") during an initial term of 12 months  to: facilitate the Company's ability to enter into JV agreements and/or other transactions with third parties within the Territories; generate revenues for the Company "state-of-the-art" multiplayer puzzle game platform, implementing the platform into major social media networks within the Territories; and negotiating JV transactions with gaming companies within the Territories using the Company's Generic patented GER system.

The JV Agreement further provides that in order for Zenetek to retain its representation rights on an exclusive basis, Zenetek must prepare and present an operating business plan satisfactory to the Company, which shall include potential JV partners. In consideration for the representation and distribution services being provided by Zenetek in the SE Asian Territories, the parties have agreed that net revenues generated from any JV Transaction shall be distributed thirty-five (35%) percent to the Company and sixty-five (65%) percent to Zenetek.

In addition, Zenetek has agreed to assume responsibility for all marketing and related costs and expenses as well as all engineering costs. Furthermore, to the extent that Zenetek shall utilize the services of Company's engineering and/or other personnel in fulfilling its obligations under this Agreement, such personnel costs shall be billed by the Company and paid for by Zenetek under separate subcontracting agreements.

On April 2, 2012, we filed with the U.S. Patent Office a provisional application for a patent for the game event record technology underlying our proprietary multiplayer online gaming and reward-processing platform.

In furtherance of the Company's long term strategy in both the U.S and worldwide, the Company has been negotiating with third parties to allow them to offer games of skill on our platform as part of their services. In August 2012, the Company entered into a licensing agreement with Inhouse Interactive LTD, a Company engaged in the business of creating innovative and interactive media, including online games, using a wide range of media and unique technologies, granting Inhouse rights to upload a flash game, utilizing the Company's platform technology in Israel.

Starting April 1, 2012, the Company had completed it's initial Research and Development stage and began concentrating all efforts in marketing activities. Additional developments may incur following the success of the marketing activities.

In addition to advertising our online gaming platform on our website and selected portals and social networks, we currently plan to market our technology and services by approaching internet advertizing companies as well other website administrators, and offer our platform as a mechanism designed to increase traffic in websites. As a proof of concept we are in the final stages of developing a Flash Puzzle game that leverages our core technology, and which we intend to market through our Facebook page.

Our revenues for the three months ended September 30, 2013 and 2012 were $1,462, which were received from a single licensing agreement.

Our operating expenses for the three months ended September 30, 2013 were $12,059 compared to $102,317 during the three-month period ended September 30, 2012. The decrease in operating expenses during the three-month period ended September 30, 2013 was mainly due to a significant decrease in general and administrative expenses, which decreased by $90,258 or 88%.

We incurred interest expenses of $3,668 during the three-month period ended September 30, 2013 compared to interest expenses of $1,576 during the same periods in the prior year. We recorded amortization of debt discount expenses of $12,264 during the three-month period ended September 30, 2013 compared to no amortization expenses during the same periods in the prior year. We expensed a realized loss on trading securities of $1,924 during the three-month period ended September 30, 2013 compared to no realized loss on trading securities during the same periods of the prior year. We had other expenses of $232 during the three-month period ended September 30, 2013 compared no other expenses during the same periods of the prior year.

Our net loss for the three-month periods ended September 30, 2013 was $28,685 compared to $102,431 for the three-month period ended September 30, 2012. The decreases in our net loss was mainly due to reduced general and administrative expenses during the tree-month period ended September 30, 2013.

Our revenues for the nine months ended September 30, 2013 were $4,338, received from a single licensing agreement, compared to revenues of $4,354 for the nine-month period ended September 30, 2012 received from the same licensing agreement.

Our operating expenses for the nine months ended September 30, 2013 were $57,011 compared to $207,649 during the nine-month period ended September 30, 2012. The decrease in operating expenses during the nine-month period ended September 30, 2013 was mainly due to decreased general and administrative expenses totaling $55,721 during the nine months ended September 30, 2013 and no research and development expenses during the nine months ended September 30, 2013 compared to general and administrative expenses of $178,642 and research and development expenses of $29,007 during the nine-month period ended September 30, 2012.

We incurred interest expense of $10,295 during the nine-month period ended September 30, 2013 compared to $1,576 in interest expense during the same periods in the prior year. We recorded amortization of debt discount expense of $55,614 during the nine-month period ended September 30, 2013 as compared to no amortization expenses during the same periods in the prior year. We expensed a realized loss on trading securities of $114,752 during the nine-month period ended September 30, 2013 compared to no realized loss on trading securities during the same period in the prior year. We had other income of $3,920 during the nine-month period ended September 30, 2013 compared to other expenses of $418 during the same period in the prior year.

Our net loss for the nine-month period ended September 30, 2013 was $229,414 compared to $205,289 for the nine-month period ended September 30, 2012. The increases in our net loss was mainly due to amortization of debt discount expenses and charges related to realized losses on trading securities during the nine-month period ended September 30, 2013, as noted above.

We had total current assets of $20,487 consisting of $9,136 in cash and cash equivalents, restricted cash of $43 and accounts receivable of $11,308 as of September 30, 2013 compared to total current assets of $199,660 at December 31, 2012. Our property and equipment, net of depreciation, were $255 at September 30, 2013 compared to $489 as of December 31, 2012.

We had total assets of $20,742 at September 30, 2013 compared to total assets of $200,149  at December 31, 2012.

We had total current liabilities of $125,903 as of September 30, 2013 consisting of $6,546 in accounts payable and accrued liabilities, outstanding convertible notes payable of $113,557 and deferred revenues of $5,800 compared to total current liabilities of $123,059 consisting of accounts payable and accrued liabilities of $31,941, related parties payable of $52,090, convertible notes payable of $33,228 and deferred revenues of $5,800 as of December 31, 2012.

In addition, we had long-term deferred revenues of $10,138 and $14,476 as of September 30, 2013 and December 31, 2012, respectively.

We had a negative working capital of $105,416 on September 30, 2013 compared to $76,601 on December 31, 2012. We had an accumulated deficit of $680,560 as of September 30, 2013 compared to $451,146 as of December 31, 2012. The Company is operating with limited capital. As a result, the Company is dependent on the procurement of additional financing to continue as a going concern.

We used net cash in our operating activities of $92,721 during the nine-month period ended September 30, 2013 compared to net cash used in our operating activities of $171,498 during the same period of the prior year. Our negative cash flow during the nine-month period ended September 30, 2013 was principally due to a net loss of $229,414, offset by a realized loss on trading securities of $114,752, depreciation expenses of $234 and expenses of $55,614 related to amortization of debt discounts. In addition, our cash flow from operating activities was negatively effected by an increase in accounts receivable of $11,308, a decrease in accounts payable and other current liabilities of $12,189, a decrease in related parties payable of $6,000, a decrease in the value of trading securities of $4,063, decrease in deferred revenues of $6,000 offset by an increase in other assets of $3,991.

During the nine months ended September 30, 2013, the Company generated $16,920 from its financing activities through the issuance of convertible notes in the amount of $6,900 and the issuance of a $10,020 non-convertible note.

Our investing activities provided us with proceeds of $63,545 through the sale trading securities. Due to our limited cash position, we believe that we have to raise additional funds to continue our operations for approximately the next three months. We believe we will require approximately $6,000 per month to maintain our operations for the next twelve months. We plan to raise additional capital through the sale of debt and/or equity, which sales may cause dilution to our then existing shareholders, moving forward if needed to support our ongoing operations and expenses. There can be no assurances that we will be able to raise additional capital in the future, and/or that such sales of securities will not be on unfavorable terms.

Although we hope to generate meaningful revenues sufficient to support our operations in the next eight to twelve months, if we are unsuccessful in generating such revenues, we will likely need to take steps to raise equity capital or to borrow additional funds, to continue our operations and meet liabilities. We believe that we will require total cash resources of approximately $120,000 in order to carry out this plan and continue our business plan during the next twelve month period.

We have no commitments from officers, Directors or affiliates to provide funding. Our failure to obtain adequate additional financing may require us to delay, curtail or scale back some or all of our operations.

There is substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures with respect to this matter.

We have no off-balance sheet arrangements.

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

The accounting policies identified as critical are as follows:

We are considered a development stage Company as defined by ASC 915 “Development Stage Entities,” as we have no principal operations or revenue from any source. Operations from the inception of the development stage have been devoted primarily to strategic planning, raising capital, and research and development activities.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

Software revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred in accordance with the terms and conditions of the contract, the fee is fixed or determinable, and collection is reasonably assured. For software arrangements involving multiple elements, revenue is allocated to each element based on the relative fair value or the residual method, as applicable, and using vendor specific objective evidence of fair value, which is based on prices charged when the element is sold separately. Revenue related to post-contract support (“PCS”), including technical support and unspecified when-and-if available software upgrades, is recognized ratably over the PCS term for contracts that are greater than one year. For contracts where the post contract period is one year or less, the costs are deemed insignificant, and the unspecified software upgrades are expected to be and historically have been infrequent, revenue is recognized together with the initial licensing fee and the estimated costs are accrued.

The Company incurred costs internally to create its platform product. Such costs have been and will be charged to operations as R&D expenses until technological feasibility has been established. Thereafter, software production costs will be capitalized. Technological feasibility is considered established when all planning, designing, coding, and testing activities have been performed. As evidence that technological feasibility has been established, the Company must have performed the activities as follows:

(a) The product design and the detail program design have been completed and the Company has established that the necessary skills, and technology are available to produce the product.

(b) The completeness of the detail program design and its consistency with the product design have been confirmed by documenting and tracing the detail program design to product specifications.

(c) The detail program design has been reviewed for high-risk development issues (e.g., novel, unique, unproven functions and features or technological innovations) and any uncertainties related to high-risk development issues have been resolved through coding and testing.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. However, from time to time, we may become a party to certain legal proceedings in the ordinary course of business.

Not applicable.

Not applicable.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Erez Zino
Chief Executive Officer

Erez Zino
Chief Financial Officer