ITEM 1A. RISK FACTORS
An investment in our
common stock involves a high degree of risk. You should carefully consider the following risk factors and the other information
in this Annual Report on Form 10-K before investing in our common stock. Our business and results of operations could be seriously
harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations
could be materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may
lose all or part of your investment.
Summary Risk Factors
The
principal factors and uncertainties that make investing in our ordinary shares risky, include, among others:
Risks Related
to Our Financial Position and Capital Requirements
Risks Related
to Our Company and Our Business
● We may never successfully develop any products or generate revenues.
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● Our business may be adversely affected by the impact of the COVID-19 pandemic.
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Risks Related To Our Operations In
Israel
Risks Related To Our Common Stock
Risks Related to Our Financial Position
and Capital Requirements
We have historically
incurred significant losses and there can be no assurance when, or if, we will achieve or maintain profitability.
We realized a net
loss of approximately $6.2 million and $5.5 million for the years ended December 31, 2020 and 2019 and had an accumulated deficit
of $34.7 million as at December 31, 2020. Because of the numerous risks and uncertainties associated with the development of our
products and business, we are unable to predict the extent of any future losses or when we will become profitable, if at all.
Expected future operating losses will have an adverse effect on our cash resources, shareholders’ equity and working capital.
Our failure to become and remain profitable could depress the value of our stock and impair our ability to raise capital, expand
our business, maintain our development efforts, or continue our operations. A decline in our value could also cause you to lose
all or part of your investment in us.
Our limited operating history makes
it difficult to evaluate our business and prospects.
We have only been
developing our measurement technology since 2014. Since then, our operating history has been primarily limited to research and
development, pilot studies, raising capital, and limited sales and marketing efforts. Therefore, it may be difficult to evaluate
our business and prospects. We have not yet demonstrated an ability to commercialize our products. Consequently, any predictions
about our future performance may not be accurate, and you may not be able to fully assess our ability to complete development
and/or commercialize our products, and any future products.
We will need
to raise additional capital to meet our business requirements in the future, which is likely to be challenging, could be highly
dilutive and may cause the market price of our common stock to decline.
Based on our projected
cash flows and the cash balances as of the date of this Annual Report on Form 10-K, we believe we have sufficient cash to fund
our obligations through January 2022. However, in order to meet our business objectives in the future, we will need to raise
additional capital, which may not be available on reasonable terms or at all. Additional capital would be used to accomplish the
following:
● finance our current operating expenses;
● pursue growth opportunities;
● hire and retain qualified management and key employees;
● respond to competitive pressures;
● comply with regulatory requirements; and
● maintain compliance with applicable laws.
Current conditions
in the capital markets are such that traditional sources of capital may not be available to us when needed or may be available
only on unfavorable terms. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets,
economic conditions, the impact of the COVID-19 outbreak and a number of other factors, many of which are outside our control,
and on our financial performance. Accordingly, we cannot assure you that we will be able to successfully raise additional capital
at all or on terms that are acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse
effect on our business, results of operations and financial condition.
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To the extent that
we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities could result
in substantial dilution for our current stockholders. The terms of any securities issued by us in future capital transactions
may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other
derivative securities, which may have a further dilutive effect on the holders of any of our securities then-outstanding. We may
issue additional shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock
in connection with hiring or retaining personnel, option or warrant exercises, future acquisitions or future placements of our
securities for capital-raising or other business purposes. The issuance of additional securities, whether equity or debt, by us,
or the possibility of such issuance, may cause the market price of our common stock to decline and existing stockholders may not
agree with our financing plans or the terms of such financings. In addition, we may incur substantial costs in pursuing future
capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and
distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities
we issue, such as convertible notes and warrants, which may adversely impact our financial condition. Furthermore, any additional
debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain
such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced
to sell assets, perhaps on unfavorable terms, or we may have to cease our operations, which would have a material adverse effect
on our business, results of operations and financial condition.
The report of
our independent registered public accounting firm contains an explanatory paragraph regarding substantial doubt about our ability
to continue as a going concern.
We have incurred significant
losses and negative cash flows from operations and has an accumulated deficit that raises substantial doubt about its ability
to continue as a going concern. Our audited consolidated financial statements for the year ended December 31, 2020 were prepared
under the assumption that we would continue our operations as a going concern. Our independent registered public accounting firm
has included a “going concern” explanatory paragraph in its report on our financial statements for the year ended
December 31, 2020. If we are unable to improve our liquidity position, by, among other things, raising capital through public
or private offerings or reducing our expenses, we may exhaust our cash resources and will be unable to continue our operations.
If we cannot continue as a viable entity, our shareholders would likely lose most or all of their investment in us.
Risks Related to Our Company and
Our Business
We are substantially
dependent on assets we purchased from a former related party, and if we lose the rights to such assets or the assets are repurchased
for any reason, our ability to develop existing and new applications based upon these assets would be significantly harmed, and
our business, results of operations and financial condition would be materially and adversely affected.
In February 2014, we
entered into a Purchase Agreement with a former related party, Shoshana Zigdon, or the Seller, pursuant to which we acquired certain
rights related to the collection of data for measurement purposes including rights in the venture, the method and a patent application
that had been filed by the Seller (PCT/IL2013/050056), or the Assets. Our business is substantially dependent upon the Assets we
acquired pursuant to the Purchase Agreement. Therefore, our ability to develop and commercialize our applications depends upon
the effectiveness and continuation of the Purchase Agreement. If we lose the rights, including the rights to the patent that comprise
the Assets, our ability to develop existing and new applications would be harmed. In consideration for the sale of the Assets,
we agreed to pay to Ms. Zigdon, 18% of our operating profit, directly or indirectly connected with the Assets together with value-added
tax in accordance with the Israeli tax law for a period of seven years from the end of the development period of the aforementioned
venture.
The Purchase Agreement
may be terminated by either party in the event of an uncured material breach. The Purchase Agreement further provides that the
Seller is entitled to repurchase the Assets from us upon the occurrence of one or more of the following events: (a) in the case
of liquidation or bankruptcy of the Company; or (b) if on the seventh anniversary of the execution of the Purchase Agreement, the
amount of our income, directly and/or indirectly derived from the Assets is less than NIS 3.6 million (approximately $1 million).
As of the date of this Annual Report on Form 10-K, we have only generated limited revenue and as a consequence of the passage of
seven years since execution of the Purchase Agreement, Ms. Zigdon, has a right to repurchase the Assets for 90 days from February
16, 2021 at the market price of the Assets as determined by a third party independent valuation. In accordance with the Purchase
Agreement, on March 7, 2021, we notified Ms. Zigdon that the amount of our income, directly and/or indirectly derived from the
Assets is less than NIS 3.6 million. We intend to negotiate the waiver of Ms. Zigdon’s right to repurchase of the Assets
and in consideration of such waiver expect to pay cash or issue shares of common stock and/or common stock equivalents, or a combination
of both. At this stage, we are unable to estimate the amount or form of consideration that we will expect to pay in consideration
of the waiver. To the extent that we pay cash, this could materially reduce the amount of cash available for working capital and
other purposes and to the extent we issue any equity this could result in substantial dilution to you and our then current stockholders.
If Ms. Zigdon exercises her right to repurchase the Assets, our ability to develop and commercialize our products would be significantly
harmed and we may cease operations.
We may never successfully develop
any products or generate significant revenues.
We only recently transitioned
into the commercialization phase of our products and have only generated minimal revenues to date. We may be unable to successfully
develop or market any of our current or proposed products or technologies, those products or technologies may not generate any
revenues, and any revenues generated may not be sufficient for us to become profitable or thereafter maintain profitability.
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The market for
our measurement technology is new and unproven, may experience limited growth and is highly dependent on U.S. retailers and online
third party resellers adopting our flagship product, MySizeID.
The market for our
measurement technology is relatively new and unproven and is subject to a number of risks and uncertainties. We believe that our
future success will depend in large part on market adoption of our flagship product, MySizeID, by U.S. retailers and online
third party resellers. In order to grow our business, we intend to focus on educating retailers and resellers and other potential
customers about the benefits of our measurement technology, expanding the functionality of our products and bringing new products
to market to increase market acceptance and use of our technology. Our ability to develop and expand the market that our products
address depends upon a number of factors, including the cost savings, performance and perceived value associated with such products.
The market for our products could fail to develop or there could be a reduction in interest or demand for our products as a result
of a lack of consumer acceptance, technological challenges, competing products and services, weakening economic conditions and
other causes. We may never successfully commercialize our products and if our products fail to achieve market acceptance, this
would have a material adverse effect on our business, results of operations and financial condition.
Our business
may be adversely affected by the impact of COVID-19 pandemic.
Public health epidemics or outbreaks could adversely impact
our business. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially
the outbreak was largely concentrated in China, it has now spread to Israel and the United States, and infections have been reported
globally. Many countries around the world, including in Israel, have implemented significant governmental measures to control the
spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and other
material limitations on the conduct of business. These measures have resulted in work stoppages and other disruptions. We implemented
remote working and work place protocols for our employees in accordance with Israeli government requirements. In addition, while
we have seen an increased demand for MySizeID, the COVID-19 pandemic has had a particularly adverse impact on the retail industry
and this has resulted in an adverse impact on our marketing and sales activities. For example, we have three ongoing pilots with
international retailers that have been halted, we are unable to participate physically in industry conferences, our ability to
meet with potential customers is limited, and in certain instances sales processes have been delayed or cancelled. The extent to
which COVID-19 continues to impact our operations will depend on future developments, which are highly uncertain and cannot be
predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain
COVID-19 or treat its impact.
In particular, the
continued spread of COVID-19 in Israel and globally could adversely impact our operations, including among others, our sales and
marketing efforts and our ability to raise additional funds, and accordingly, the impact of coronavirus could have an adverse
impact on our business and our financial results.
Failure
to effectively develop and expand our sales and marketing capabilities could harm our ability to grow our business and achieve
broader market acceptance of our products.
Our ability to achieve
customer adoption, especially among U.S. retailers will depend, in part, on our ability to effectively organize, focus and train
our sales and marketing personnel. We have limited experience selling to U.S. retailers and only recently established a U.S. sales
force. We believe that there is significant competition for experienced sales professionals with the skills and industry knowledge
that we require. Our ability to achieve significant revenue growth in the future will depend, in part, on our ability to recruit,
train and retain a sufficient number of experienced sales professionals, particularly those with experience selling to U.S. retailers.
In addition, even if we are successful in hiring qualified sales personnel, new hires require significant training and experience
before they achieve full productivity, particularly for sales efforts targeted at U.S. retailers and new markets. Because we only
recently started sales efforts, we cannot predict whether, or to what extent, our sales efforts will be successful.
We
expect our sales cycle to be long and unpredictable and require considerable time and expense before executing a customer agreement,
which may make it difficult to project when, if at all, we will obtain new customers and when we will generate revenue from those
customers.
As we seek adoption of our products by U.S. retailers, we expect
to incur higher costs and long sales cycles, especially as a result of the COVID-19 pandemic. In this market segment, the decision
to adopt our products may require the approval of multiple technical and business decision makers, including security, compliance,
procurement, operations and IT. In addition, while U.S. retailers may be willing to deploy our products on a limited basis, before
they will commit to deploying our products at scale, they often require extensive education about our products and significant
customer support time, engage in protracted pricing negotiations and seek to secure readily available development resources. As
a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these customers. As part
of our sales cycle, we may incur significant expenses before executing a definitive agreement with a prospective customer and before
we are able to generate any revenue from such agreement. We have no assurance that the substantial time and money spent on our
sales efforts will generate significant revenue. If conditions in the marketplace generally or with a specific prospective customer
change negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any of these
expenses. If we are not successful in targeting, supporting and streamlining our sales processes and if revenue expected to be
generated from a prospective customer is not realized in the time period expected or not realized at all, our ability to grow our
business, and our operating results and financial condition may be adversely affected. If our sales cycles lengthen, our future
revenue could be lower than expected, which would have an adverse impact on our operating results and could cause our stock price
to decline.
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We
may in the future engage in acquisitions, joint ventures or collaborations which may increase our capital requirements, dilute
our shareholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks. We may not realize the
benefits of these acquisitions, joint ventures or collaborations.
In
order to reduce time to market and obtain complementary technologies, we are seeking to acquire technologies and businesses that
are synergistic to our product offering. We may evaluate various acquisitions and collaborations, including licensing or acquiring
complementary technologies, intellectual property rights, or businesses. The process for acquiring a company may take from several
months up to a year and costs can vary greatly. We may also compete with others to acquire companies, and such competition may
result in decreased availability of, or an increase in price for, suitable acquisition candidates. In addition, we may not be able
to consummate acquisitions or investments that we have identified as crucial to the implementation of our strategy for other commercial
or economic reasons. As a result, it may be more difficult for us to identify suitable acquisition or investment targets or to
consummate acquisitions or investments on acceptable terms or at all. If we are not able to execute on any acquisition, we may
not be able to achieve a future growth strategy and may lose market share.
In
addition, any potential acquisition, joint venture or collaboration will entail numerous potential risks, including:
● increased operating expenses and cash requirements;
● the assumption of additional indebtedness or contingent liabilities;
All
of the foregoing risks may be magnified as the cost, size or complexity of an acquisition or acquired company increases, or where
the acquired company’s products, market or business are materially different from ours, or where more than one integration
is occurring simultaneously or within a concentrated period of time. We may not be able to obtain the necessary regulatory approvals,
including those of antitrust authorities and foreign investment authorities, in countries where we seek to consummate acquisitions
or make investments. For those and other reasons, we may ultimately fail to consummate an acquisition, even if we announce the
intended acquisition.
In
addition, we may require significant financing to complete an acquisition or investment, whether through bank loans, raising of
equity or debt or otherwise. We cannot assure you that such financing options will be available to us on reasonable terms, or
at all. If we are not able to obtain such necessary financing, it could have an impact on our ability to consummate a substantial
acquisition or investment and execute a future growth strategy. Alternatively, we may issue a significant number of shares as
consideration for an acquisition, which would have a dilutive effect on our existing shareholders. Furthermore, if we undertake
acquisitions, we may incur large one-time expenses and acquire intangible assets that could result in significant future amortization
expense.
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If we are not
able to enhance our brand and increase market awareness of our company and products, then our business, results of operations
and financial condition may be adversely affected.
We believe that enhancing
the “MySize” brand identity and increasing market awareness of our company and products, particularly among U.S. retailers,
is critical to achieving widespread acceptance of our products. Our ability to successfully develop new retailers may be adversely
affected by a lack of awareness or acceptance of our brand. To the extent that we are unable to foster name recognition and affinity
for our brand, our growth may be significantly delayed or impaired. The successful promotion of our brand will depend largely
on our continued marketing efforts, market adoption of our products, and our ability to successfully differentiate our products
from competing products and services. Our brand promotion may not be successful or result in revenue generation. Any incident
that erodes consumer affinity for our brand could significantly reduce our brand value and damage our business. If consumers perceive
or experience a reduction in quality, or in any way believe we fail to deliver a consistently positive experience, our brand value
could suffer and our business may be adversely affected.
In particular, adverse
weather conditions can impact guest traffic at our retailers, and, in more severe cases, cause temporary retail closures, sometimes
for prolonged periods. Our business is subject to seasonal fluctuations, with retail sales typically higher during certain months,
such as December. Adverse weather conditions during our most favorable months or periods may exacerbate the effect of adverse
weather on consumer traffic and may cause fluctuations in our operating results from quarter-to-quarter within a fiscal year.
If we do not
develop enhancements to our products and introduce new products that achieve market acceptance, our business, results of operations
and financial condition could be adversely affected.
Our
ability to attract new customers depends in part on our ability to enhance and improve our existing products, increase adoption
and usage of our products and introduce new products. The success of any enhancements or new products depends on several factors,
including timely completion, adequate quality testing, actual performance quality, and overall market acceptance. Enhancements
and new products that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may
have interoperability difficulties with our platform or other products or may not achieve the broad market acceptance necessary
to generate significant revenue. Furthermore, our ability to increase the usage of our products depends, in part, on the development
of new use cases for our products and may be outside of our control. If we are unable to successfully enhance our existing products
to meet evolving customer requirements, increase adoption and usage of our products, develop new products, then our business,
results of operations and financial condition would be adversely affected.
The mobile technology
industry is subject to rapid technological change and, to compete, we must continually enhance our mobile Apps and custom development
services.
We must continue to
enhance and improve the performance, functionality and reliability of our products. The mobile technology industry is characterized
by rapid technological change, changes in user requirements and preferences, frequent new product and services introductions embodying
new technologies and the emergence of new industry standards and practices that could render our products obsolete. Our success
will depend, in part, on our ability to both internally develop and enhance our existing products, develop new products that address
the increasingly sophisticated and varied needs of our customers, and respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis. The development of our technology involves significant technical
and business risks. We may fail to use new technologies effectively or to adapt our proprietary technology and systems to customer
requirements or emerging industry standards. If we are unable to adapt to changing market conditions, customer requirements or
emerging industry standards, we may not be able to increase our revenue and expand our business.
Changes in economic
conditions could materially affect our business, financial condition and results of operations.
Because our primary
target customers include U.S. retailers, we, together with the rest of the fashion/apparel industry, will depend upon consumer
discretionary spending. Increases in unemployment rates, reductions in home values, increases in home foreclosures, investment
losses, personal bankruptcies and reductions in access to credit and reduced consumer confidence, may impact consumers’
ability and willingness to spend discretionary dollars. In addition, volatile economic conditions may repress consumer confidence
and discretionary spending. Any of the foregoing may have a material adverse effect on our business, financial condition and results
of operations.
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Our growth depends, in part, on the
success of our strategic relationships with third parties.
To grow our business,
we anticipate that we will continue to depend on relationships with third parties, such as our customers and third party platforms.
Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. If we
are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace
or to grow our revenue could be impaired, and our results of operations may suffer. Even if we are successful, we cannot assure
you that these relationships will result in increased customer usage of our products or increased revenue.
We rely upon
third parties to provide distribution for our applications, and disruption in these services could harm our business.
We currently utilize,
and plan on continuing to utilize over the current fiscal year, third-party networking providers and distribution through companies
including, but not limited to, Apple and Google as well as Shopify, WooCommerce and, Datalogic, Honeywell and Zebra to distribute
our technologies. If disruptions or capacity constraints occur, we may have no means of replacing these services, on a timely
basis or at all. This could cause a material adverse condition for our operations and financial earnings.
We rely on third-party
hosting and cloud computing providers to operate certain aspects of our business. Any failure, disruption or significant interruption
in our network or hosting and cloud services could adversely impact our operations and harm our business.
Our technology infrastructure
is critical to the performance of our products and customer satisfaction. Our products run on a complex distributed system, or
what is commonly known as cloud computing. We own, operate and maintain elements of this system, but significant elements of this
system are operated by third-parties that we do not control and which would require significant time to replace. We expect this
dependence on third-parties to continue. In particular, a significant portion, if not almost all data storage, data processing
and other computing services and systems is hosted by cloud computing providers. Any disruptions, outages and other performance
problems relating to such services, including infrastructure changes, human or software errors and capacity constraints, could
adversely impact our business, financial condition or results of operations.
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Information
technology system failures or breaches of our network security could interrupt our operations and adversely affect our business.
Our operations depend
upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications
failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive
problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations
could have a material adverse effect on our business and subject us to litigation or actions by regulatory authorities. Although
we employ both internal resources and external consultants to conduct auditing and testing for weaknesses in our systems, controls,
firewalls and encryption and intend to maintain and upgrade our security technology and operational procedures to prevent such
damage, breaches or other disruptive problems, there can be no assurance that these security measures will be successful.
Real or perceived
errors, failures, or bugs in our products could adversely affect our operating results and growth prospects.
We update our products
on a frequent basis. Despite efforts to test our updates, errors, failures or bugs may not be found in our products until after
they are deployed to a customer. We have discovered and expect we will continue to discover errors, failures and bugs in our products
and anticipate that certain of these errors, failures and bugs will only be discovered and remediated after deployment. Real or
perceived errors, failures or bugs in our platform could result in negative publicity, government inquiries, loss of or delay
in market acceptance of our products, loss of competitive position, or claims by customers for losses sustained by them. In such
an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order
to help correct the problem.
We could be
harmed by improper disclosure or loss of sensitive or confidential company, employee, or customer data, including personal data.
In connection with
the operation of our business, we store, process and transmit data, including personal and payment information, about our employees
and customers, a portion of which is confidential and/or personally sensitive. Unauthorized disclosure or loss of sensitive or
confidential data may occur through a variety of methods. These include, but are not limited to, systems failure, employee negligence,
fraud or misappropriation, or unauthorized access to or through our information systems, whether by our employees or third parties,
including a cyberattack by computer programmers, hackers, members of organized crime and/or state-sponsored organizations, who
may develop and deploy viruses, worms or other malicious software programs. Such disclosure, loss or breach could harm our reputation
and subject us to government sanctions and liability under our contracts and laws that protect sensitive or personal data and
confidential information, resulting in increased costs or loss of revenues. It is possible that security controls over sensitive
or confidential data and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure
of, or loss of such information. The potential risk of security breaches and cyberattacks may increase as we introduce new products
and offerings. Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the
various jurisdictions in which we provide services. Any failure or perceived failure to successfully manage the collection, use,
disclosure, or security of personal information or other privacy related matters, or any failure to comply with changing regulatory
requirements in this area, could result in legal liability or impairment to our reputation in the marketplace.
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A material breach
in security relating to our information systems and regulation related to such breaches could adversely affect us.
Information security
risks have generally increased in recent years, in part because of the proliferation of new technologies and the use of the Internet,
and the increased sophistication and activity of organized crime, hackers, terrorists, activists, cybercriminals and other external
parties, some of which may be linked to terrorist organizations or hostile foreign governments. For example, a cybercriminal could
use cybersecurity threats to gain access to sensitive information about another company or to alter or disrupt news or information
to be distributed by PR Newswire. Cybersecurity attacks are becoming more sophisticated and include malicious software, ransomware,
attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in critical
systems, unauthorized release of confidential or otherwise protected information and corruption of data, substantially damaging
our reputation. Any person who circumvents our security measures could steal proprietary or confidential customer information
or cause interruptions in our operations. We incur significant costs to protect against security breaches, and may incur significant
additional costs to alleviate problems caused by any breaches. Our failure to prevent security breaches, or well-publicized security
breaches affecting the Internet in general, could significantly harm our reputation and business and financial results.
Our products
and our business are subject to a variety of U.S. and international laws and regulations, including those regarding privacy, data
protection and information security, and our customers may be subject to regulations related to the handling and transfer of certain
types of sensitive and confidential information. Any failure of our products to comply with or enable our customers to comply
with applicable laws and regulations would harm our business, results of operations and financial condition.
We
and our customers that use our products may be subject to privacy- and data protection-related laws and regulations that impose
obligations in connection with the collection, processing and use of personal data, financial data, health or other similar data.
The U.S. federal and various state and foreign governments have adopted or proposed limitations on, or requirements regarding,
the collection, distribution, use, security and storage of personally identifiable information of individuals. The U.S. Federal
Trade Commission and numerous state attorneys general are applying federal and state consumer protection laws to impose standards
on the online collection, use and dissemination of data, and to the security measures applied to such data.
Similarly, many foreign
countries and governmental bodies, including the EU member states, have laws and regulations concerning the collection and use
of personally identifiable information obtained from individuals located in the EU or by businesses operating within their jurisdiction,
which are often more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to
the collection, use, storage, disclosure and security of personally identifiable information that identifies or may be used to
identify an individual, such as names, telephone numbers, email addresses and, in some jurisdictions, IP addresses and other online
identifiers.
For example, the GDPR,
which took full effect on May 25, 2018. The GDPR enhances data protection obligations for businesses and requires service
providers (data processors) processing personal data on behalf of customers to cooperate with European data protection authorities,
implement security measures and keep records of personal data processing activities. Noncompliance with the GDPR can trigger fines
equal to or greater of €20 million or 4% of global annual revenues. In addition, the CCPA, effective as of January 1,
2020, gives California residents expanded rights to access and require deletion of their personal information, opt out of certain
personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides
for civil penalties for violations, as well as a private right of action for data breaches, that is expected to increase data
breach litigation. Further, failure to comply with the Israeli Privacy Protection Law of 1981, and its regulations, as well as
the guidelines of the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including class
actions) and in certain cases criminal liability. Current pending legislation may result in a change of the current enforcement
measures and sanctions. There are also additional laws and regulations in additional jurisdictions around the world which govern
the protection of consumers and of electronic communications. If our efforts to comply with GDPR, CCPA or other applicable laws
and regulations are not successful, we may be subject to penalties and fines that would adversely impact our business and results
of operations, and our ability to conduct business could be significantly impaired.
Additionally, although
we endeavor to have our products comply with applicable laws and regulations, these and other obligations may be modified, they
may be interpreted and applied in an inconsistent manner from one jurisdiction to another, and they may conflict with one another,
other regulatory requirements, contractual commitments or our internal practices. We also may be bound by contractual obligations
relating to our collection, use and disclosure of personal, financial and other data or may find it necessary or desirable to
join industry or other self-regulatory bodies or other privacy- or data protection-related organizations that require compliance
with their rules pertaining to privacy and data protection.
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We expect that there
will continue to be new proposed laws, rules of self-regulatory bodies, regulations and industry standards concerning privacy,
data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine
the impact such future laws, rules, regulations and standards may have on our business. Moreover, existing U.S. federal and various
state and foreign privacy- and data protection-related laws and regulations are evolving and subject to potentially differing
interpretations, and various legislative and regulatory bodies may expand current or enact new laws and regulations regarding
privacy- and data protection-related matters. Because global laws, regulations and industry standards concerning privacy and data
security have continued to develop and evolve rapidly, it is possible that we or our products or platform may not be, or may not
have been, compliant with each such applicable law, regulation and industry standard and compliance with such new laws or to changes
to existing laws may impact our business and practices, require us to expend significant resources to adapt to these changes,
or to stop offering our products in certain countries. These developments could adversely affect our business, results of operations
and financial condition.
We may not be
able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely affect
our business.
Our ability to implement
our business plan successfully depends in part on our ability to build brand recognition using our trademarks, service marks and
other proprietary intellectual property, including our names and logos. We currently have no registered trademarks. While we plan
to register a number of our trademarks; however, no assurance can be given that our trademark applications will be approved. We
have been issued ten patents, three of each in of Russia and the US and one each in Canada, Japan and Israel., and have several
patent applications in process. No assurance can be given that our patent applications which are in process will be approved.
If our patent applications are not approved, our ability to expand or develop our business may be negatively affected.
Third parties may
also oppose our trademark or patent applications, or otherwise challenge our use of the trademarks or patents. In the event that
our trademarks or patents are successfully challenged, we could be forced to rebrand our goods and services or redesign our technology,
which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands
and products.
If our efforts to
register, maintain and protect our intellectual property are inadequate, or if any third party misappropriates, dilutes or infringes
on our intellectual property, the value of our brands may be harmed, which could have a material adverse effect on our business
and might prevent our brands from achieving or maintaining market acceptance. We may also face the risk of claims that we have
infringed third parties’ intellectual property rights. If third parties claim that we infringe upon their intellectual property
rights, our operating profits could be adversely affected. Any claims of intellectual property infringement, even those without
merit, could be expensive and time consuming to defend, require us to rebrand our services, if feasible, divert management’s
attention and resources or require us to enter into royalty or licensing agreements in order to obtain the right to use a third
party’s intellectual property.
Any royalty or licensing
agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against
us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the
sale of certain products or services, any of which could have a negative impact on our operating profits and harm our future prospects.
We may face
intense competition and expect competition to increase in the future, which could prohibit us from developing a customer base
and generating revenue.
We face significant
competition in every aspect of our business. Our competitors include True Fit, Virtusize, EasyMeasure, AR MeasureKit, Smart Measure
and 3DLook. These companies may already have an established market in our industry. Most of these companies have significantly
greater financial and other resources than us and have been developing their products and services longer than we have been developing
ours.
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In addition, some
of our larger competitors have substantially broader product offerings and leverage their relationships based on other products
or incorporate functionality into existing products to gain business in a manner that discourages potential customers from purchasing
our products. Potential customers may also prefer to purchase from their existing solution providers rather than a new solution
provider regardless of product performance or features. These larger competitors often have broader product lines and market focus
and will therefore not be as susceptible to downturns in a particular market. Conditions in our market could change rapidly and
significantly as a result of technological advancements, partnering by our competitors or continuing market consolidation. New
start-up companies that innovate and large competitors that are making significant investments in research and development may
invent similar or superior products and technologies that compete with our products. In addition, some of our competitors may
enter into new alliances with each other or may establish or strengthen cooperative relationships. Any such consolidation, acquisition,
alliance or cooperative relationship could lead to pricing pressure and our loss of any future market share and could result in
a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our ability to
compete. Furthermore, organizations may be more willing to incrementally add solutions to their existing infrastructure from competitors
than to replace their existing infrastructure with our products. Any failure to meet and address these factors could harm our
business, results of operations and financial condition.
Our business
operations and future development could be significantly disrupted if we lose key members of our management team.
The success of our
business continues to depend to a significant degree upon the continued contributions of our senior officers and key employees,
both individually and as a group. Our future performance will be substantially dependent in particular on our ability to retain
and motivate Ronen Luzon, our Chief Executive Officer, and certain of our other senior executive officers. The loss of the services
of our Chief Executive Officer, senior officers or other key employees could have a material adverse effect on our business and
plans for future development. We have no reason to believe that we will lose the services of any of these individuals in the foreseeable
future; however, we currently have no effective replacement for any of these individuals due to their experience, reputation in
the industry and special role in our operations. We also do not maintain any key man life insurance policies for any of our employees.
If we are able to expand our operations,
we may be unable to successfully manage our future growth.
Our growth may strain
our infrastructure and resources. Any such growth could place increased strain on our management, operational, financial and other
resources, and we will need to train, motivate, and manage employees, as well as attract management, sales, finance and accounting,
international, technical, and other professionals. Any failure to expand these areas and implement appropriate procedures and
controls in an efficient manner and at a pace consistent with our business objectives could have a material adverse effect on
our business, results of operations and financial condition.
Our business
operations are conducted in multiple languages and could be disrupted due to miscommunications or translation errors.
The success of our
business continues to depend on our marketing efforts in the United States, Europe and Israel, each of which is conducted in the
local language. Miscommunications or inaccurate foreign language translations could have a material adverse effect on our business
operations and financial conditions. Additionally, contracts, communications and complex technical information must be accurately
translated into foreign languages.
We will continue
to incur costs and be subject to various obligations as a result of being a public company, listed in the United States and in
Israel.
We will continue to
incur significant legal, accounting and other expenses as a result of being a public company, listed in the United States and
in Israel. Although we will incur costs each year associated with being a publicly-traded company, it is possible that our actual
costs of being a publicly-traded company will vary from year to year and may be different than our estimates. In estimating these
costs, we take into account expenses related to insurance, legal, accounting and compliance activities.
Furthermore, the need
to maintain the corporate infrastructure demanded of a public company may divert management’s attention from implementing
our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have
made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems
to meet our reporting obligations as a U.S. publicly traded company. However, the measures we take may not be sufficient to satisfy
our obligations as a publicly traded company.
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Any future or
current litigation could have a material adverse impact on our results of operations, financial condition and liquidity.
From time to time
we may be subject to litigation, including, among others, potential stockholder derivative actions and class actions. Risks associated
with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant
periods of time. Subject to certain exceptions, our Amended and Restated Certificate of Incorporation, or Certificate of Incorporation,
and Amended and Restated Bylaws, or Bylaws, require us to indemnify and advance expenses to our officers and directors involved
in legal proceedings. To date we have obtained directors and officers’ liability, or D&O, insurance to cover some of
the risk exposure for our directors and officers.Such insurance generally pays the expenses (including amounts paid
to plaintiffs, fines, and expenses including attorneys’ fees) of officers and directors who are the subject of a lawsuit
as a result of their service to us. There can be no assurance that we will be able to continue to maintain this insurance at reasonable
rates or at all, or in amounts adequate to cover such expenses should such a lawsuit occur. Without D&O insurance, the amounts
we would pay to indemnify our officers and directors should they be subject to legal action based on their service to us could
have a material adverse effect on our financial condition, results of operations and liquidity. Such lawsuits, and any related
publicity, may result in substantial costs and, among other things, divert the attention of management and our employees. An unfavorable
outcome in any claim or proceeding against us could have a material adverse impact on our financial position and results of operations
for the period in which the unfavorable outcome occurs, and potentially in future periods. Further, any settlement announced by
us may expose us to further claims against us by third parties seeking monetary or other damages which, even if unsuccessful,
would divert management attention from the business and cause us to incur costs, possibly material, to defend such matters, which
could have a material adverse impact on our financial position. See “Legal Proceedings” on page 34 for more information
regarding our involvement in ongoing litigation matters.
Federal, state
and local or Israeli tax rules may adversely impact our results of operations and financial position.
We are subject to
federal, state and local taxes in the U.S., as well as local taxes in Israel in respect to our operations in Israel. Although
we believe our tax estimates are reasonable, if the Internal Revenue Service or other taxing authority disagrees with the positions
we have taken on our tax returns, we could face additional tax liability, including interest and penalties. If material, payment
of such additional amounts upon final adjudication of any disputes could have a material impact on our results of operations and
financial position. In addition, complying with new tax rules, laws or regulations could impact our financial condition, and increases
to federal or state statutory tax rates and other changes in tax laws, rules or regulations may increase our effective tax rate.
Any increase in our effective tax rate could have a material impact on our financial results.
Risks Related To Our Operations In
Israel
Our headquarters
and most of our operations are located in Israel, and therefore, political conditions in Israel may affect our operations and
results.
Our
headquarters and most of our operations are located in central Israel and our key employees, officers and directors are residents
of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our
business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel
and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between
Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult
for us to raise capital. During the winter of 2008, winter of 2012 and the summer of 2014, Israel was engaged in an armed conflict
with Hamas, a militia group and political party operating in the Gaza Strip, and during the summer of 2006, Israel was engaged
in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. Israel faces political tension
with respect to its relationships with Turkey, Iran and certain Arab neighbor countries. In addition, recent conflicts involved
missile strikes against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. Recent
political uprisings and social unrest in various countries in the Middle East and North Africa are affecting the political stability
of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these
countries, and have raised concerns regarding security in the region and the potential for armed conflict. Any armed conflicts,
terrorist activities or political instability in the region could adversely affect business conditions and could harm our results
of operations. For example, any major escalation in hostilities in the region could result in a portion of our employees and service
providers being called up to perform military duty for an extended period of time. Parties with whom we do business have sometimes
declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when
necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving
performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force
majeure provisions in such agreements. Any future deterioration in the political and security situation in Israel will negatively
impact our business.
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Our
commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the
Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist
attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred
by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely
negatively affect business conditions and could harm our results of operations.
Further, in the past,
the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business
with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating
results, financial condition or the expansion of our business.
The legislative power
of the State resides in the Knesset, a unicameral parliament that consists of 120 members elected by nationwide voting under a
system of proportional representation. Israel’s most recent general elections were held on April 9, 2019, September 17,
2019 and March 2, 2020. The uncertainty surrounding the results of the recent elections may continue. Actual or perceived political
instability in Israel or any negative changes in the political environment, may individually or in the aggregate adversely affect
the Israeli economy and, in turn, our business, financial condition, results of operations and prospects.
Israel’s
economy may become unstable.
From time to time,
Israel’s economy may experience inflation or deflation, low foreign exchange reserves, fluctuations in world commodity prices,
military conflicts and civil unrest. For these and other reasons, the government of Israel has intervened in the economy employing
fiscal and monetary policies, import duties, foreign currency restrictions, controls of wages, prices and foreign currency exchange
rates and regulations regarding the lending limits of Israeli banks to companies considered to be in an affiliated group. The
Israeli government has periodically changed its policies in these areas. Reoccurrence of previous destabilizing factors could
make it more difficult for us to operate its business and could adversely affect its business.
Some of our
employees are obligated to perform military reserve duty in Israel.
Many Israeli citizens,
including our employees are obligated to perform one month, and in some cases more, of annual military reserve duty until they