ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULT OF OPERATIONS
You should read
the following discussion along with our financial statements and the related notes included elsewhere in this Annual Report on
Form 10-K. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions,
including those discussed under “Risk Factors.” Our actual results, performance and achievements may differ materially
from those expressed in, or implied by, these forward-looking statements.
Overview
We are a creator of
mobile device measurement solutions that has developed innovative solutions designed to address shortcomings in multiple verticals,
including the e-commerce fashion/apparel, shipping/parcel and do it yourself, or DIY, industries. Utilizing our sophisticated
algorithms within our proprietary technology, we can calculate and record measurements in a variety of novel ways, and most importantly,
increase revenue for businesses across the globe.
Our solutions can
be utilized to accurately take measurements of a variety of items via a mobile device. By downloading the application to a smartphone,
the user is then able to run the mobile device over the surface of an item the user wishes to measure. The information is then
automatically sent to a cloud-based server where the dimensions are calculated through our proprietary algorithms, and the accurate
measurements (+ or - 2 centimeters) are then sent back to the user’s mobile device. We believe that the commercial applications
for this technology are significant in many areas.
Currently, we are
mainly focusing on the e-commerce fashion/apparel industry. In addition, our solutions address the shipping/parcel and DIY uses
markets.
While we rollout our
products to major retailers and apparel companies, there is a lead time for new customers to ramp up before we can recognize revenue.
This lead time varies between customers, especially when the customer is a tier 1 retailer, where the integration process may
take longer. Generally, first we integrate our product into a customer’s online platform, which is followed by piloting
and implementation, and, assuming we are successful, commercial roll-out, all of which takes time before we expect it to impact
our financial results in a meaningful way. While we have begun generating initial sales revenue, we do not expect to generate
meaningful revenue during the upcoming quarters. Because of the numerous risks and uncertainties associated with the success of
our market penetration and our dependence on the extent to which MySizeID is adopted and utilized, we are unable to predict
the extent to which we will recognize revenue. 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.
Results of Operations
The table below provides
our results of operations for the periods indicated.
Year ended December 31
(dollars in thousands)
Cost of revenues (2 ) (21 )
Research and development expenses $ (1,523 ) $ (1,516 )
General and administrative (2,567 ) (2,587 )
Financial income (expenses), net (11 ) 493
36
Year Ended December 31, 2020 Compared to Year Ended December
31, 2019
Revenues
From inception through
December 31, 2018, we did not generate any revenue from operations and we continue to expect to incur additional losses to perform
further research and development activities. We started to generate revenues only in 2019. Our revenues for the year ended December
31, 2020 amounted to $142,000 compared to $63,000 for year ended December 31, 2019. The increase from the corresponding period
primarily resulted from increase in traffic, as measured by the MySizeID engine under the license agreements with customers and
from fees from customer projects.
Research
and Development Expenses
Our research and development
expenses for the year ended December 31, 2020 amounted to $1,523,000 an increase of $7,000, or approximately 0.5%, compared to
$1,516,000 for the year ended December 31, 2019. The increase resulted primarily from increased expenses associated with hiring
new employees and from stock-based payments, which were offset by a decrease in subcontractor expenses. We expect that research
and development expenses will continue to increase in 2021 and that we will recruit additional employees.
Sales and
Marketing Expenses
Our sales and marketing
expenses for the year ended December 31, 2020 amounted to $2,196,000, an increase of $267,000, or 13.8%, compared to $1,929,000
for the year ended December 31, 2019. The increase primarily resulted from an increase in subcontractor and marketing expenses
which were offset by a decrease in travel expenses and from stock-based payments.
General
and Administrative Expenses
Our general and administrative
expenses for the year ended December 31, 2020 amounted to $2,567,000, a decrease of $20,000, or 0.8%, compared to $2,587,000 for
the year ended December 31, 2019. The decrease compared to the corresponding period was mainly due to a reduction in stock-based
payment expenses, payroll expenses which were offset by an increase in rent and office maintenance related and insurance expenses.
During 2020, we had an expense of $276,000 in respect of stock-based payments, compared to an expense of $352,000 in 2019.
Operating Loss
As a result of the
foregoing, for the year ended December 31, 2020, our operating loss was $6,146,000, an increase of $156,000, or 2.6%, compared
to our operating loss for the year ended December 31, 2019 of $5,990,000.
Financial
Income (Expenses), net
Our
financial expenses, net for the year ended December 31, 2020 amounted to $11,000 as opposed to financial income, net of $493,000
for the year ended December 31, 2019. In 2020, we had financial expenses exchange rate differences offset by an income from fair
value revaluation of investment in marketable securities whereas in 2019 we had financial income from the fair value revaluation
of warrants offset by expenses from exchange rate differences and expenses from fair value revaluation of investment in marketable
securities.
Net Loss
As a result of the foregoing, research and development, marketing
general and administrative expenses, and initial revenues, our net loss for the year ended December 31, 2020 was $6,157,000 compared
to net loss of $5,497,000 for the year ended December 31, 2019. The increase in net loss was mainly due increase in sales and marketing
expenses and financial expenses as opposed to financial income in the corresponding period.
37
Liquidity and Capital Resources
Since our inception,
we have funded our operations primarily through public and private offerings of debt and equity in Israel and in the U.S.
As of December 31,
2020, we had cash, cash equivalents and restricted cash of $1,774,000 and short-term restricted deposit of $184,000 compared to
$1,466,000 cash, cash equivalents, restricted cash as of December 31, 2019 and short-term deposit and no short-term restricted
deposit as of December 31, 2019. This increase primarily resulted from the public offerings that we completed in January and May
2020 both of which are further described below.
In addition, on March 25, 2021, we completed an underwritten
public offering of our common stock pursuant to which we issued 2,618,532 shares of our common stock at a public offering price
of $1.28 per share for gross proceeds of $3,300,000. We received net proceeds of approximately $2,904,000, after deducting the
underwriting discounts and commissions and estimated offering expenses. Prior to that, on January 8, 2021, we completed an underwritten
public offering of our common stock pursuant to which we issued 1,569,179 shares of our common stock at a public offering price
of $1.28 per share for gross proceeds of $2,008,000. We received net proceeds of approximately $1,700,000, after deducting the
underwriting discounts and commissions and estimated offering expenses. Furthermore, in January and February 2021, a holder of
warrants exercised warrants to purchase 725,000 of our ordinary shares in exchange for $0.8 million.
On May 8, 2020, we
completed a public offering of (i) 1,925,001 units, each unit consisting of one share of common stock, and one warrant to purchase
one share of common stock at a price of $1.10, and (ii) 2,620,453 pre-funded units, each pre-funded unit consisting of one pre-funded
warrant to purchase one share of common stock and one warrant, at a price of $1.099 per pre-funded unit. We received net proceeds
of approximately $4.3 million, after deducting placement agent’s fees and other offering expenses payable by us. The warrants
to purchase an aggregate of 4,545,454 shares of common stock are immediately exercisable and may be exercised at a consideration
of $1.10 per share. The term of the warrants are five and a half years. Pre-funded warrants were immediately exercisable and were
exercisable at a nominal consideration of $0.001 per share. During May 2020, the pre-funded warrants were exercised in full and
therefore are no longer outstanding.
On January 15, 2020,
we completed a public offering of our securities pursuant to which we issued 514,801 shares of our common stock and warrants to
purchase up to 514,801 shares of common stock at an exercise price of $3.76 per share for gross proceeds of $2,000,000. The term
of the warrants are five and a half years. We received net proceeds of $1,700,000 after deducting placement agent fees and other
offering expenses.
On September 13, 2019,
we entered into an At the Market Offering Agreement with H.C. Wainwright. According to the agreement, we may offer and sell, from
time to time, our shares of common stock having an aggregate offering price of up to $5.5 million through H.C. Wainwright or the
ATM Prospectus Supplement. From September 13, 2019 until December 31, 2020, we issued 87,756 shares of common stock at an average
price of $4.77 per share through the ATM Prospectus Supplement, resulting in net proceeds of $418,524. We paid a commission equal
to 3% of the gross proceeds from the sale of our shares of common stock under the ATM Prospectus Supplement. On January 15, 2020,
we terminated the ATM Prospectus Supplement, but the offering agreement remains in full force and effect.
Net cash used in operating
activities was $5,679,000 for the year ended December 31, 2020 compared to $5,418,000 for the year ended December 31, 2019. The
increase in cash used in operating activity is derived mainly from increase in the net loss.
Net cash used in investing
activities for the year ended December 31, 2020 was $211,000 as opposed to net cash provided by investing activities of $1,073,000
for the year ended December 31, 2019. The net cash used in investing activities for the year ended December 31, 2020 was mainly
from investment in restricted deposits as opposed to proceeds from short-term deposits and restricted deposits during the year
ended December 31, 2019.
We had positive cash
flow from financing activities of $6,094,000 for the year ended December 31, 2020 compared to $266,000 for the year ended December
31, 2019. The cash flow from financing activities for the year ended December 31, 2020 was due to the proceeds from public offerings
of our securities and proceeds from the exercise of outstanding warrants.
38
We do not have any
material commitments for capital expenditures during the next twelve months. 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.
As a result, there is substantial doubt about our ability to continue as a going concern. However, 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 pandemic 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.
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.
Recently Issued Accounting Pronouncements
Certain recently issued
accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to the consolidated financial statements included
in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We have not entered
into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative
instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other
obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit
risk support.
39
Application of Critical Accounting
Policies and Estimates
Our management’s
discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have
prepared in accordance with U.S. generally accepted accounting principles issued by the Financial Accounting Standards Board,
or FASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements,
as well as the reported expenses during the reporting periods. Actual results may differ from these estimates under different
assumptions or conditions.
While our significant
accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this Annual Report
on Form 10-K, we believe that the accounting policies discussed below are critical to our financial results and to the understanding
of our past and future performance, as these policies relate to the more significant areas involving management’s estimates
and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information
was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2)
changes in the estimate could have a material impact on our financial condition or results of operations.
Revenue from contracts with customers
The Company implemented ASC 606, Revenue
from Contract with Customers.
To recognize revenue under ASC 606, the Company applies the
following five steps:
2. Identify the performance obligations in the contract.
The Company’s revenue is derived from License cloud-enabled
software subscriptions, associated software maintenance and support.
Revenue is recognized when a contract exists
between the Company and a customer (business) and upon transfer of control of promised products or services to customers in an
amount that reflects the consideration we expect to receive in exchange for those products or services. The Company enters into
contracts that can include various combinations of products and services, which may be capable of being distinct and accounted
for as separate performance obligations. In case of offerings such as cloud-enabled license services, other service elements in
the contract are generally delivered concurrently with the subscription services and therefore revenue is recognized in a similar
manner as the subscription services.
Product, Subscription and Services Offerings
Such performance obligations includes cloud-enabled subscriptions,
software maintenance and technical support.
Fully hosted subscription services (SaaS) allow customers to
access hosted software during the contractual term without taking possession of the software. Cloud-hosted subscription services
are sold on a fee-per-subscription that is based on consumption or usage (per fit recommendation).
We recognize revenue ratably over the contractual service term for hosted services that are priced based
on a committed number of transactions where the delivery and consumption of the benefit of the services occur evenly over time,
beginning on the date the services associated with the committed transactions are first made available to the customer and continuing
through the end of the contractual service term. Over-usage fees and fees based on the actual number of transactions are billed
in accordance with contract terms as these fees are incurred and are included in the transaction price of an arrangement as variable
consideration. Fees based on a number of transactions or impressions per month, are allocated to the period in which the transactions
occur. Revenue for subscriptions sold as a fee per period is recognized ratably over the contractual term as the customer simultaneously
receives and consumes the benefit of the underlying service.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
As a “smaller
reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
MY SIZE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020
U.S. DOLLARS IN THOUSANDS
INDEX
Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Comprehensive Loss F-4
Consolidated Statements of Shareholders’ Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-27
- - - - - - - - - - - - - -
F-1
Report of Independent Registered Public
Accounting Firm
To the Shareholders and Board of Directors
My Size, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets
of My Size, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive
loss, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its
operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with U.S. generally
accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1d to the consolidated financial statements,
the Company has 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. Management’s plans in regard to these matters are also
described in Note 1d. The consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising
from the current period audit of the consolidated financial statements that were communicated or required to be communicated to
the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements
and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Somekh Chaikin
Somekh Chaikin
Member Firm of KPMG International
We have served as the Company’s auditor since 2017.
Tel Aviv, Israel
F-2
MY SIZE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share
data)
December 31,
Assets
Current assets:
Restricted deposit 184 -
Accounts receivable 28 38
Other receivables and prepaid expenses 4 482 321
Property and equipment, net 5 128 141
Investment in marketable securities 8 59 26
Liabilities and shareholders’ equity
Current liabilities:
Total non-current liabilities 579 659
CONTINGENCIES AND COMMITMENTS 13
SHAREHOLDERS’ EQUITY 10
Stock capital -
Accumulated other comprehensive loss (424 ) (539 )
Total liabilities and shareholders’ equity 3,566 2,958
The accompanying notes are an integral
part of the consolidated financial statements.
F-3
MY SIZE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except share
data and per share data)
Year ended December 31,
Cost of revenues (2 ) (21 )
Operating expenses
Research and development (1,523 ) (1,516 )
Total operating expenses (6,286 ) (6,032 )
Financial income (expense), net 16 (11 ) 493
Other comprehensive income (loss):
Foreign currency translation differences (115 ) 296
Total comprehensive loss (6,272 ) (5,201 )
Basic loss per share (*) (1.11 ) (2.75 )
Diluted loss per share (*) (1.11 ) (3.12 )
The accompanying notes are an integral
part of the consolidated financial statements.
F-4
MY SIZE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS’ EQUITY
U.S. dollars in thousands (except share
data)
Number Amount capital loss Deficit (deficit)
Issuance of shares to consultants 2,084 (*) 48 - - 48
Issuance of shares, net of issuance cost of $138 87,756 (*) 266 - - 266
Reverse Stock Split (Note 10 (b) 5,901 (*) - - - (*)
Exercise of warrants and pre funded warrants 2,707,134 2 97 - - 99
Liability reclassified to equity (**) - - 328 - - 328
(*) Represents an amount of less than $1.
(**) See note 2 b
The accompanying notes are an integral
part of the consolidated financial statements.
F-5
MY SIZE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31,
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of operating lease right-of-use asset 42 7
Revaluation of warrants and derivatives - (997 )
Interest and revaluation of short-term deposit - 55
Interest received on short-term deposits - 16
Revaluation of investment in marketable securities (33 ) 195
Capital loss on disposal of property and equipment - 8
Stock based compensation 645 692
Decrease (increase) in accounts receivable 13 (37 )
Increase in other receivables and prepaid expenses (155 ) (83 )
(Decrease) increase in trade payables (69 ) 117
(Decrease) increase in accounts payables (5 ) 76
Net cash used in operating activities (5,679 ) (5,418 )
Cash flows from investing activities:
Proceeds from short-term deposits, net - 1,200
Proceeds from (investment in) restricted deposits, net (170 ) 181
Investment in right to use asset (25 ) (205 )
Purchase of property and equipment (16 ) (103 )
Net cash provided by (used in) investing activities (211 ) 1,073
Cash flows from financing activities:
Proceeds from issuance of shares, net of issuance costs 5,995 -
Proceeds from Exercise of warrants and pre funded warrants 99 -
Proceeds from issuance of shares, warrants and short-term loan, net - 266
Net cash provided by financing activities 6,094 266
Effect of exchange rate fluctuations on cash and cash equivalents 104 315
Cash and cash equivalents and restricted cash at the end of the year 1,774 1,466
The accompanying notes are an integral
part of the consolidated financial statements.
F-6
MY SIZE, INC. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share
data and per share data)
NOTE 1 - GENERAL
My Size, Inc., was incorporated
and commenced operations in September 1999, as Topspin Medical Inc. (“Topspin”), a private company registered in the
State of Delaware. In December 2013, the Company changed its name to Knowledgetree Ventures Inc. Subsequently, in February 2014,
the Company changed its name to My Size, Inc. Topspin was engaged, through its Israeli subsidiary, in research and development
in the field of cardiology and urology.
Since September 1, 2005, the Company
has traded on the Tel Aviv Stock Exchange (“TASE”).
Between 2007 and 2012 the Company
reported as a public company with the U.S. Securities and Exchange Commission (the “SEC”). In August 2012, the Company
suspended its reporting obligations under Section 13(a) and 15(d) of the Securities Exchange Act of 1934. In mid-2015, the Company
resumed reporting as a public company.
In February 2014, the Company established
a wholly-owned subsidiary, My Size (Israel) 2014 Ltd., a company registered in Israel, which is currently engaged in the development
of the Venture described above.
In return for purchasing an interest
in the Venture, the Company undertook to pay the Seller 18% of the Company’s operating profit, direct or indirect, connected
to the Venture for a period of seven years starting from the end of the Venture’s development period.
As part of the agreement, the Seller
received an option to buy back the Assets for consideration which will reflect the market fair value at that time, on the occurrence
of the following events: a) if a motion is filed to liquidate the Company; b) if seven years after signing the agreement, the Company’s
total accumulated revenues, direct or indirect, from the Venture or the commercialization of the patent will be lower than NIS
3.6 million.
In such an event, Seller may repurchase
the interest in the Venture at a market price to be determined by an independent third party valuation consultant, who shall be
chosen by agreement by the parties, and the audit committee shall conduct the negotiations on behalf of the Company to determine
the identity of the consultant.
As of December 31, 2020, the Company has only generated limited
revenue and as a consequence of the passage of seven years since execution of the agreement with the Seller, the Seller, has a
right to repurchase the Assets for 90 days from February 16, 2021. The Company intends to negotiate the waiver of the Seller’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.
The Company’s management
expects that the Company will continue to generate losses and negative cash flows from operations for the foreseeable future. Based
on the projected cash flows and cash balances as of December 31, 2020, management is of the opinion that its existing cash will
be sufficient to fund operations until the end of January 2022. As a result, there is substantial doubt about the Company’s
ability to continue as a going concern.
F-7
MY SIZE, INC. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share
data and per share data)
NOTE 1 - GENERAL (Cont.)
Management’s plans include
the continued commercialization of the Company’s products and securing sufficient financing through the sale of additional
equity securities, debt or capital inflows from strategic partnerships. Additional funds may not be available when the Company
needs them, on terms that are acceptable to it, or at all. If the Company is unsuccessful in commercializing its products and securing
sufficient financing, it may need to cease operations.
The financial statements include
no adjustments for measurement or presentation of assets and liabilities, which may be required should the Company fail to operate
as a going concern.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared according
to United States generally accepted accounting principles (“U.S. GAAP”), applied on a consistent basis, as follows
a. Use of estimates:
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those estimates.
b. Functional currency:
In 2019 the currency of the primary
economic environment in which the operations of the Company and its subsidiary are conducted is the New Israeli Shekel (“NIS”)
and thus it is the Company’s and its subsidiary functional currency. The reporting currency according to which these financial
statements are prepared is the U.S. dollar.
The Company reassessed its functional
currency and determined to change its functional currency to the U.S. dollar from the NIS as of January 1, 2020. The change in
functional currency was accounted for prospectively from such date.
My Size
Israel functional currency remains the NIS.
As a result of the change in the
Company’s functional currency, the Company reclassified its warrants that were outstanding as a financial liability in an
amount of $328 as at December 31, 2019 to equity.
F-8
MY SIZE, INC. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share
data and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
c. Principles of consolidation:
The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated
upon consolidation.
d. Cash equivalents:
Cash equivalents are short-term
highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date acquired.
e. Property and equipment:
Property and equipment are stated
at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives
of the assets, at the following annual rates:
%
Computers and peripheral equipment 33
Office furniture and equipment 7-15
f. Impairment of long-lived assets:
The Company’s property and
equipment are reviewed for impairment in accordance with ASC 360, “Property Plant and Equipment”, 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. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less selling costs. During the periods ended December 31, 2020 and 2019, no impairment losses have
been recorded.
g. Severance pay:
The Subsidiary’s liability
for severance pay is covered by Section 14 of the Israeli Severance Pay Law (“Section 14”). Under Section 14,
employees in Israel are entitled to have monthly deposits, at a rate of 8.33% of their monthly salary, made on their behalf to
their insurance funds. Payments in accordance with Section 14 exempt the Subsidiary from any additional obligation for these
employees. As a result, the Subsidiary does not recognize any liability for severance pay due to these employees and the deposits
under Section 14 are not recorded as an asset in the Subsidiary’s balance sheet. These contributions for compensation
represent defined contribution plans and expenses are recorded based on actual deposits.
F-9
MY SIZE, INC. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share
data and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
h. Research and development costs:
Research and development costs
are charged to the statement of operations, as incurred. Most of the research and development expenses are for wages and subcontractors.
i. Income taxes:
The Company accounts for income
taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the consolidated financial statements or in the Companies’
tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company assesses
the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based
upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be
realized. The Company establishes a valuation allowance, if necessary, to reduce deferred tax assets to the amount more likely
than not to be realized. As of December 31, 2020, and 2019, a full valuation allowance was established by the Company.
The Company implements a two-step
approach to recognize and measure the benefit of its tax positions. The first step is to evaluate the tax position taken or expected
to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that,
on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals
or litigation processes. The second step is to measure the tax benefit as the largest amount that is greater than 50 percent (cumulative
basis) likely to be realized upon settlement. The Company believes that its tax positions are all highly certain of being upheld
upon examination. As such, as of December 31, 2020 and 2019 the Company has not recorded a liability for unrecognized tax benefits.
j. Accounting for stock-based compensation:
The Company accounts for its employees’
stock-based compensation as an expense in the financial statements based on ASC 718. All awards are equity classified and therefore
such costs are measured at the grant date fair value of the award and graded vesting attribution approach to recognize compensation
cost over the vesting period. The Company estimates stock option grant date fair value using the Binomial option pricing-model.
The Company recorded stock options
issued to non-employees at the grant date fair value, and recognizes expenses over the related service period by using the straight-line
attribution approach in accordance with ASU 2018-07. All awards are equity classified.
The expected volatility of the
share prices reflects the assumption that the historical volatility of the share prices is reasonably indicative of expected future
trends.
The risk-free interest rate for
grants with an exercise price denominated in USD for employees and several consultants is based on the yield from US treasury zero-coupon
bonds with an equivalent term.
The Company has historically not
paid dividends and has no foreseeable plans to pay dividends.
F-10
MY SIZE, INC. AND ITS SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share
data and per share data)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k. Fair value of financial instruments:
ASC 820, Fair Value Measurements
and Disclosures, relating to fair value measurements, defines fair value and established a framework for measuring fair value.
The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market data obtained from
sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances. ASC 820 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
essentially an exit price. In addition, the fair value of assets and liabilities should include consideration of non-performance
risk, which for the liabilities described below includes the Company’s own credit risk.
As a basis for considering such
assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies
in measuring fair value:
The expected volatility of the
share prices reflects the assumption that the historical volatility of the share prices is reasonably indicative of expected future
trends.
The Company holds share certificates
in iMine Corporation (“iMine”) formerly known as Diamante Minerals, Inc., a publicly-traded company on the OTCQB.
Due to sales restrictions on the sale of the iMine shares, the
fair value of the shares was measured on the basis of the quoted market price for an otherwise identical unrestricted equity instrument
of the same issuer that trades in a public market, adjusted to reflect the effect of the sales restrictions and is therefore, ranked
as Level 2 asset.
l. Basic and diluted net loss per share:
Basic net loss per share is computed based on the weighted average
number of shares of common stock outstanding during each year. Diluted net income per share is computed based on the weighted average
number of shares of common stock outstanding during each year plus dilutive potential equivalent common stock considered outstanding
during the year, in accordance with ASC 260, “Earnings per Share”. For the year ended December 31, 2020, all outstanding
options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.
For the year ended December 31, 2019, some of the outstanding warrants have been included in the calculation of the diluted net
loss per share since their effect was dilutive.
As described in Note 10a, for accounting
purposes, the loss per share amounts have been adjusted to give retroactive effect to the Exchange Ratio and the Reverse Stock
Split for all periods presented in these consolidated financial statements.
m. Concentrations of credit risk:
Financial instruments that potentially
subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents.
Cash and cash equivalents are invested
in banks in Israel and United States. Such deposits in Israel 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 and its subsidiaries
have no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging
arrangements.