SUMMARY
This
summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including
the section entitled “Risk Factors” before deciding to invest in our common stock. The terms “My Size,”
the “Company,” “we,” “our” or “us” in this prospectus refer to My Size, Inc. and
its wholly-owned subsidiaries, unless the context suggests otherwise.
OUR
BUSINESS
Overview
The
Company is a technology company whose strategy is based on the development of applications that can be utilized to accurately
take measurements of a variety of items via a smartphone. By downloading the application to a smartphone, the user is then able
to run the smartphone 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 the Company’s proprietary algorithms, and the accurate measurements
(+ or - 2 centimeters) are then sent back to the users smartphone. We believe that the commercial applications for this technology
are significant in many areas.
Currently,
we are focusing on the following market segments:
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E-commerce apparel
industry – our main target-market;
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Do it yourself (“DIY”)
uses; and
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Usage as a tape
measure.
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While
we are currently devoting much of our focus on the applications for the apparel business, management believes that all of the
above mentioned applications will be useful to users, retailers and vendors alike.
The
Market - The Apparel Industry
The
growth in online apparel shopping has been positive and negative for retailers. The positive: what was an approximately $72.13
billion apparel and accessories market in 2016 is projected to increase to approximately $116.3 billion U.S. dollars by 2021 (https://www.statista.com/statistics/278890/us-apparel-and-accessories-retail-e-commerce-revenue).
The negative: although online apparel shopping is growing quickly, customer returns are also growing quickly due to a bad fit.
For
apparel retailers, both in retail and online, customer returns are a necessary pain point, backed by flexible return policies
and in some instances, free return shipping. However, online retailers have higher operating costs as at least 30% of all products
ordered online are returned, compared to 8.89% from retail stores, according to recent data (http://www.business2community.com/infographics/e-commerce-product-return-statistics-trends-infographic-01505394#Js0FFKfd6xZEorqz.97).
The U.S. Census Bureau estimated that total e-commerce sales for 2016 were $394.9 billion, an increase of 15.1% from 2015. According
to Euromonitor International, most online apparel retailers have average return rates of 15-20%, of which around 80% are fit-based.
According to the National Retail Federation, when translating these figures into hard currency, in the United States, online consumers
returned approximately $260 billion in merchandise to retailers in 2015, or 8% of all purchases.
MySizeID
We
are currently in development of an application (“MySizeID”) which assists the consumer to accurately take the measurements
of his or her own body using a smartphone in order to fit clothing in the best way possible without the need to try the clothes
on. The purpose of our application is to simplify the process of clothing acquisition through the internet and to significantly
reduce the rate of returns of ill-fitting clothing which are acquired through the internet.
The
application is the result of a research and development effort that combines:
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Anthropometric research
– analyses of information pertaining to body measurements derived from a survey and the subsequent determination of
correlations between body parts;
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Body measurement
algorithm research – an algorithm created by the Company to measure body parts; and
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Retailers size chart
analyses – adopting a deep understanding of the size charts of retailers and the corresponding “body to garment
size.”
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MySizeID
will operate based on the use of existing sensors in smart phones which enable, through a specific purpose application, the measurement
of the body of consumers independently by moving the cellular phone along his or her body. The measurements will then be saved
on the Company’s cloud database, enabling the user to search for clothes in various retailer websites without worrying about
size. When a search is made, the retailer will connect to the Company’s cloud database and then provide results based on
the user’s measurements and other parameters as he or she may have defined. This data will also be saved for use when a
customer enters a brick and mortar store to help serve the customer more efficiently and to provide a better shopping experience.
As
soon as the item is found and the acquisition is completed, the retailer will be charged a certain percentage of the acquisition
price. The rate to be charged by My Size for the acquisition has not yet been fixed, and will be determined following negotiations
with fashion companies, in a more advanced stage of the development
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How
MySizeID Can be Utilized by the Apparel Industry
The MySizeID application will allow consumers to create a secure, online profile of their personal measurements,
which can then be utilized with partnered online retailers to insure that no matter the manufacturer or size chart, they will get
the right fit. The MySizeID application will utilize a patent-pending measurement technology that does not rely on user photographs
or any additional hardware; all a user needs to do is scan their body with their smartphone and the app records their measurements.
The
application is being designed to use a person’s body measurements to help determine correct apparel sizes when shopping
on-line. To begin, the app will measure the hip breadth, and uses statistical, mathematical algorithms to recommend the most appropriate
size trousers.
The first beta version of the MySizeID
application was revealed and demonstrated at the 2018 Consumer Electronics Show, or CES, held in Las Vegas, Nevada in January
2018. The first beta version of the application includes the ability of users to take their own measurement using their smartphone
and obtaining the recommended size for retailers providing a more personalized shopping experience.
True
Size
In
November 2016, the Company introduced a new product called TrueSize.
TrueSize
is a customizable, white-label, mobile application that empowers retailers to improve the online shopping experience of their
customers by perfectly matching their true measurements with the retailer’s offerings. The level of accuracy and ease of
use integrated into the retailer’s website ensures that the customers will select the right size apparel every time, and
we believe this will significantly reduce the amount of returns.
How
Does TrueSize Work?
TrueSize
has two components: a white label application and a small application located on each page of the retailer’s website. First,
the customer downloads the TrueSize app, branded to a specific retailer’s website, and signs in, using the same credentials
used for the online store. The application will then guide the customer through the process.
Using
the TrueSize app, the customer next takes accurate measurements of an item of clothing from their wardrobe by placing the smartphone
first on one end of the item and then on the other end. The app. will then prompt the user to take several different measurements
to get a complete reading. The information pertaining to each item is then saved, but can be updated at any time. Measurements
are next stored in the cloud and a recommended size for the user is calculated. The user may continue shopping directly from the
app by clicking the “Go Shopping” button, which will direct them to the retailer’s mobile website.
The
chart below illustrates how consumers can interact with the prompts from the TrueSize application.
Shopping
with TrueSize
A
“TrueSize” widget in the form of a button is located in proximity to the size selection feature on each product page
of the retailer’s website. If the customer has signed in to the website and has already downloaded the TrueSize app and
taken measurements, a recommended size will automatically appear in the widget. Users then have the option to manually update
their size parameters – height, weight, and an item’s parameters – at any time by simply clicking on the widget.
If the customer has not yet signed into the website, a prompt will appear requesting the customer to do so.
TRUCCO
– RealSize
RealSize
is a white label measurement application developed based on the Company’s TrueSize technology.
The
first customer to use the TrueSize technology is IN SITU S.A., the owner of the rights to the fashion brand-name TRUCCO.
TRUCCO
is a women’s clothing brand and has over 240 points of sale in more than 20 countries all over the world including, but
not limited to, Andorra, Chile, China, Costa Rica, Czech Republic, Dominican Republic, France, Guatemala, Israel, Kuwait, Libya,
Malaysia, Mexico, Panama, Paraguay, Peru, Portugal, Qatar, Russia, Singapore, Slovakia, Spain, Taiwan and Thailand.
The
Market - Courier Services
When
an individual wishes to ship boxes from place to place, they often call a courier service and request a pick up. The individual
is then usually asked about the dimensions of the package to be shipped. Unfortunately, the response given to the courier can
be rather vague (big, medium, small, etc.). This is often the cause of much confusion between the shipper and the courier. This
confusion can lead to the courier sending out the wrong vehicle for the pick-up and/or a large price differential than what was
originally quoted by the courier causing customer dissatisfaction.
How
My Size Can be Utilized for Courier Services
My
Size operates based on the use of existing sensors in smart phones which enable, through a specific purpose application, measurement
of the dimensions of packages by moving the cellular phone along packages (length, height and width) to be sent via courier. The
measurements are then be saved on the Company’s cloud database and shared with the courier. This allows for:
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Courier services
to provide accurate pricing to their consumers with little to no confusion; and
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Courier services
can send the proper sized vehicle to pick up package(s).
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Accordingly
to Market Realist, the courier service market in the United States alone had revenues of over $90 billion in 2014. Accordingly,
the Company views this as an excellent opportunity to create value in the courier market.
Agreement
with Katz Delivery Services, LTD
On
November 20, 2015, My Size entered into an agreement (the “Katz Agreement”) with Katz Deliveries, LTD (“Katz”),
one of the largest courier services in Israel. Katz delivers approximately five million parcels per year, the most in Israel.
Katz has more than 250 vehicles. Pursuant to the Katz Agreement, the parties have agreed to mutually work together to develop
and integrate My Size technology with the technology of Katz to accurately monitor the volume of all parcels delivered to it for
shipment by its clients. The goal is for Katz to use our technology to help with planning its distribution lines, thus reducing
operational costs by adjusting the distribution vehicles to the volume of the shipments. My Size expects to generate revenues
from this endeavor by the second half of 2018, but is still in negotiations with Katz regarding the terms of the Katz Agreement.
SizeUp
My
Size is working on additional consumer applications. One of these applications is in the category of DIY. In this application,
users will be able to visualize how an object or a piece of furniture will fit in an existing room in their home or office. As
many people have difficulty with spatial recognition, the Company hopes this will help alleviate the problem.
In
the third quarter of 2015, My Size launched the SizeUp application, a smart tape measure for the business to consumer market.
SizeUp is a project that My Size has already completed and launched. This application allows users to utilize their smartphone
as a tape measurer. The application provides measurements with an accuracy plus or minus 2 centimeters. In the first quarter of
2016, a second version of SizeUp for the iOS operating system was released. This release included the ability to measure both
horizontal and vertical measurements. In January 2017, a third version of SizeUp for the iOS operating system was released. This
release included an innovative air measurement algorithm which allows the user to measure over the air without the need to slide
the phone over the surface during the measurement. Through February 13, 2018, there have been over 730,000 downloads of the SizeUp
app.
The
first version of the SizeUp app for Android was released in March 2016 and included vertical measurement. An update to the app
was released in June, 2017 which update includes a one-time calibration process for ensuring high accuracy. Currently both versions
of the SizeUp app (for Android and iOS) are available for free for the first 30 days, where after a user will be required to pay
a one-time fee of $1.99 to continue using the application. To date, the Company has accumulated immaterial revenues from the mentioned
fee.
Research
and Development
The
Company has incurred research and development expenses of $727,000 in 2016 and $301,000 in 2015, and $624,000 in the nine month
period ended September 30, 2017, relating to the development of its applications and technologies.
Income
Sources - Projected Income
The
Company’s business model currently contemplates five methods of producing revenue through its products:
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Fees - The Company
intends to charge sellers a fee for every garment and clothing item purchased using its services, which fees are currently
anticipated to be in the range of 1% to 3% of royalties on product sales, depending on volume, resulting from usage of the
MySizeID platform.
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Advertisements -
the Company may generate revenue by using specialized ads using its database to identify the user’s exact needs.
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“Offline Shopping”
- the Company may offer its services for clothing and fashion stores, for real-time use by their customers. The service may
allow the store to immediately offer the customer a fitting garment suitable for his or her size.
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4.
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Pay Per API call
– every time a user is looking onto an item in the retailers website and clicks the “what’s my size”
button to find out his size the retailer will be charged a fixed amount based on the SDK pricing matrix.
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5.
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SizeUp – SizeUp
is the first B2C app that MySize has released in the Apple App Store and on Google Play. The Company charges a one-time fee
of $1.99 for every download of the app from either store.
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Competition
Management
of the Company believes that its technology and applications are a win-win solution for consumers, retailers, couriers and individuals.
The Company’s technology is protected by three issued patents, one in each of Russia, Japan and the U.S., one patent-pending
submission and an additional patent application which is in process. My Size’s products are designed to allow users to measure
themselves simply by sliding a smartphone over their body, and the measurements are recorded by the My Size application.
Unlike
other products claiming similar capabilities, there is no need for additional accessories (no webcam, photos, measuring tape,
etc.). Users of the My Size apps will have their information protected and a unique identification number is provided that matches
personal sizes with retailer size charts. When consumers get the right size products, there are fewer returns of such products
involved.
My
Size’s advantage lies in its easy to use application in recording body measurements. Using special algorithmic equations,
the software is able to determine which sizes will best fit the customer. The collection of this data, and tracking shoppers’
preferences, allows for a unique shopping experience both online and in brick and mortar stores where the technology can instantly
match clothes the customer likes in sizes that will fit them.
However,
My Size does face competition in helping retailers increase conversation rate and reduce shipping costs.
Competitive
Landscape
The
following chart lists some but not all of our competitors:
Name
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Technology
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User
Action
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Product
/ Service
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True Fit
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Algorithm driven engine matches
manufacturer specs and data points with customer profile
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Answer questions to create
profile
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Based on statistics; doesn’t
reflect real measurement
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Fits.me
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Software solution based on a personal avatar;
Algorithm driven engine matches manufacturer specs and data points with customer profile
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Answer questions to create profile
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Virtual
fitting room size
Recommendations
based on statistics
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Virtusize
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Compares a reference item the silhouette of
the garment they are looking to buy
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Reference items: a previous purchase or a favorite
item. Measure it manually and enter results to the app
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Garment-to-garment comparison with tape measure
(manually)
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EasyMeasure
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Uses camera and motion sensors
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User needs to photograph according to the instructions
and conditions of the app. (i.e certain lighting conditions)
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Allows the user to measure large objects and
from far away (i.e. a building). Low accuracy requires optimal lighting conditions
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Only on iOS platform
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Very intuitive
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AR MeasureKit
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AR kit and motion sensors
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Allows the user to measure objects from a distance
with the camera
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Requires bright light, and a contrast between
the object and the background
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When measuring small objects it can be difficult
to “mark” them
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Only on iOS platform
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Smart Measure
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Camera and motion sensors
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Allows the user to measure objects from a distance
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Easy
to use
Requires
the user to know the height of the device
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Requires optimal lighting conditions
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Only on Android platform
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Some
of our competitors have significantly greater financial, marketing, personnel and other resources than we do, and many of our
competitors are well established in markets in which we have existing retailers or intend to locate new retailers. We may also
need to evolve our concepts in order to compete with popular new retail formats or concepts that develop from time to time, and
we cannot offer any assurance that we will be successful in doing so or that modifications to our concepts will not reduce our
profitability.
Legal
Proceedings
On
May 3, 2017, Lightcom (Israel) Ltd., an Israeli company, alleging that it is a shareholder of the Company, filed a motion with
the Tel Aviv District Court (Financial Division) to approve an action against the Company and the Company’s officers and
directors, as a shareholders’ class action. The complaint alleges, inter alia, that the Company’s report dated April
19, 2017 regarding its engagement with the Israeli Post was false and misleading, and that as a result thereof financial damages
have been incurred by two purported classes of shareholders: (i) any shareholder who sold Company’s shares as of April 20,
2017 and until April 27, 2017, with respect to damage directly caused by such sale and (ii) any shareholder which held shares
on April 20, 2017 and subsequent to April 27, 2017 with respect to damage caused by permanent adverse effect to the shares’
value. The alleged financial damage caused to members of both classes is estimated at NIS 18.8 million. The Company reviewed the
Motion initially with its legal counsel and retained an expert to review and analyze the allegations and data upon which the motion
is based. The Company’s management, after considering the conclusions of a report issued by a third party expert and an
opinion of U.S. legal counsel, is of the opinion that the chances that the class motion will be denied exceed the risk that it
will be approved In the event that the class motion will be approved, the complaint will become a class action which will be heard
by the court on its merits. Should this occur, the Company will respond to the class motion in the time frame ordered by the court.
On November 15, 2017 the Company filed its response to the class motion and a motion to dismiss the class motion. On November
15, 2017, the Court ordered the respondent (the original plaintiff) to respond to the motion to dismiss within 30 days, which
response was filed by the respondent on November 29, 2017. On December 28, 2017, the Court ordered that a hearing on the foregoing
matter will be held after the ruling on the Company's appeal before the Nasdaq Hearings Panel regarding the delisting of the Company's
securities from NASDAQ Capital Market. As previously reported by the Company on January 25, 2018, Nasdaq informed the Company
that the Company is in compliance with all applicable listing standards, and that, as a result, the scheduled hearing before the
Hearings Panel has been cancelled. The Company‘s common stock will continue to trade on The NASDAQ Stock Market under the
symbol “MYSZ. A hearing on the Company's motion to dismiss is currently scheduled to be held on April 26, 2018. As of the
date of this letter, the motion to dismiss is still pending.
On
September 9, 2015, fourteen shareholders filed a complaint against the Company and its CEO Mr. Ronen Luzon, alleging that in accordance
with agreements signed between plaintiffs and the Company, the plaintiffs are entitled to register their shares for sale with
the stock market, while the Company allegedly breached its obligation and refrained from doing its duty to register the plaintiffs’
shares. On November 5, 2015, the Company filed its defense and a counter claim against the plaintiffs and against two additional
defendants (who are not plaintiffs) Mr. Asher Shmuelevitch and Mr. Eitan Nahum. In its counter claim, the Company alleged that
the agreements by force of which the counter defendants hold their shares are defunct, based on fraud, as the counter defendants
never paid and never intended to pay the agreed consideration for their shares. The Company further alleged that Mr. Shmuelevitch
used his position as a director and controlling stockholder of the Company to knowingly cause the Company to enter such defunct
agreements. On September 5, 2017, the court rendered a judgment pursuant to which the complaint against the Company was accepted,
the complaint against Mr. Ronen Luzon was rejected and the Company’s counter-claim was rejected. The judgment included:
(1) a declaratory remedy, under which the Company breached its contractual undertakings toward the plaintiffs, to list their shares
both on TASE and on NASDAQ; (2) an order that the Company take any and all actions required for the listing of the plaintiffs
shares, including instructing the Company’s transfer agent to remove the legend or any other restriction from the plaintiffs
stock certificate and to issue them with new stock certificates free and clear from any restriction; (3) an order that the registration
company of Bank Hapoalim electronically list all of the plaintiffs’ shares detailed in the complaint on the electronic trading
system; and (4) an order that the Company pay the plaintiffs costs in the amount of NIS 70,000. On October 3, 2017, the Company
appealed the judgment with the Supreme Court of Israel, and simultaneously, filed with the Supreme Court a Motion for Stay of
Execution of the judgement, pending the outcome of the appeal. On November 8, 2017, the Supreme Court upheld the Motion to Stay
and ordered that the execution of the judgment will be stayed pending the outcome of the appeal, provided that the Company deposit
in the Supreme Court’s treasury an autonomous Israeli CPI linked bank guarantee in an amount of NIS 1,700,000, to cover
the respondents’ potential damages should the appeal be ultimately denied. The Company did not deposit the bank guarantee
in the amount of NIS 1,700,000 and will instead register the shares held by the plaintiffs on TASE and on NASDAQ and will issue
such shares free of any restrictive legends. In the event that the Company is successful in its appeal, the Company may seek relief
from the shareholders which have sold their shares either in private or public sales in the amount of the proceeds from such sales.
Although the Company has appealed such matter, there can be no assurance that the appeal will result in a judgment favorable to
the Company. If the judgment rendered on appeal is not favorable to the Company, the Company may be ordered to pay the respondents
legal costs in connection with the appeal. On November 16, 2017, the Company deposited NIS 45,000 with the Supreme Court to cover
respondents’ potential legal costs if the appeal is ultimately denied.
The
Company received legal advice from its counsel that the burden of proof that the judgment is wrong and should be reversed lies
with the appellant. Consequently, the Company believes that it is more likely than not that the appeal will be denied rather than
being accepted. In the event that the appeal is denied, no direct financial liability will be imposed on the Company (other than
legal costs which the court may order the losing side to pay).
It
should be noted that the plaintiffs may file a complaint against the Company seeking reimbursement of economic loss or damages
due to the fact that their shares remained restricted, in breach of the Company’s contractual undertakings. A formal demand
has not yet been filed, but in their response to the Company’s motion to stay the judgment, the plaintiffs argued, that
they suffered economic loss in the sum of NIS 12,100,000. As of the date of this filing no formal request or complaint were filed;
however, we are unable to assess the financial risk inherent in such a claim since, among other things, the estimate of alleged
damage is dependent upon the actual revenues to be received by the plaintiffs from the future sale of the shares, the method of
calculating the damage and data relating to the Company's share price and trading volume of stock. Needless to say, that in the
event that the Company is successful in its appeal, there will be no grounds to such reimbursement.
On
December 27, 2015, a legal complaint was filed against the Company. The defendants named in the complaint are the Company, the
members of the Board of Directors of the Company, Mrs. Shoshana Zigdon, a shareholder and related party in the Company, as well
as two additional defendants who are not shareholders of the Company. The plaintiff alleges that the Company violated its obligation
to register his shares (the “Original Shares”) for trade with the TASE causing damage in total amount of NIS 2,622,500.
The plaintiff seeks relief against the defendants through financial compensation in the sum of the aforementioned alleged damage;
additional compensation in the sum of NIS 400,000 for mental anguish; and if and to the extent that until such time as the plaintiff
may be able to sell its shares on TASE ("the Exercise Date"), the price of a Company share will be in excess of NIS
20.98 ("the Base Price"), an additional amount equal to the difference between the Base Price and the highest price
of a Company share between the time the claim was submitted and the Exercise Date for each share held by the plaintiff. The plaintiff
has also requested costs of trial and attorney's fees. Following the recommendation of the court, on March 20, 2016, the plaintiff
filed a notice of deletion of certain defendants including board and management members, excluding the chairman of the Board and
the CEO of the Company from the statement of claim. Pursuant to the Israeli court's recommendation, the case was referred to mediation
and the Company and the plaintiff entered into a settlement agreement (the "Settlement") dated June 20, 2017. Pursuant
to the Settlement, (i) the Company shall pay the plaintiff the sum of NIS325,000 (the "Down Payment") within 30 days
from the date of the Settlement, (ii) the Company is obligated to register the Original Shares within a specified time frame and
(ii) the Company will issue, within 60 days, 80,358 additional shares of common stock (the “New Shares”) to the plaintiff
which shares shall be registered, deposited in escrow and sold for the benefit of the plaintiff. Such New Shares shall be sold
at a maximum aggregate price of NIS10,000 or an amount constituting no more than 2% of the average volume of trades within the
last 90 days, according to the higher amount, in one single trading day. To the extent the Company does not issue the unrestricted
New Shares within 60 days, the plaintiff has a right, at his exclusive discretion, to resume the legal proceedings pursuant to
the complaint, provided that the Down Payment is deposited by him in an escrow account, pending the court's final adjudication
of the complaint. Additionally, the Settlement provides that to the extent the aggregate proceeds from the sale of the Original
Shares and the New Shares is less than NIS1,600,000, the Company will either complement the difference in cash or shall issue
to the plaintiff additional shares of common stock in lieu thereof, at the Company's sole discretion. . The Company issued to
the Plaintiff the New shares. Consequently, and as provided under the Settlement Agreement, on January 25, 2018, the Court rendered
the Settlement Agreement a status of a Judgment. On January 30, 2018, the Plaintiff informed the Company that all the shares (the
Original Shares and the New Shares), were sold for an aggregate amount of NIS1,061,533. Therefore, the Plaintiff is entitled to
receive from the Company, within 30 days, an additional amount of NIS 213,467 payable either in cash or in kind. The Company has
not determined yet whether to pay the outstanding balance in cash or in kind.
Employees
and Independent Contractors
We
currently have 10 employees and 8 independent contractors.
Company
Information
The
Company was incorporated in the State of Delaware and commenced operations in September 1999 under the name Topspin Medical, Inc.
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. Our principal executive offices are located at 3 Arava St., pob 1026, Airport City, Israel 7010000,
and our telephone number is +972-3-600-9030. Our website address is www.MySizeID.com. The information on our website is not part
of this prospectus. We have included our website address as a factual reference and do not intend it to be an active link to our
website.
Background
The
Company (under the name Topspin Medical, Inc.) was a privately held company that was engaged, through 2012, in research and development
of a medical magnetic resonance imaging (“MRI”) technology for interventional cardiology and in the development of
MRI technology for use in the diagnosis and treatment of prostate cancer.
On
September 1, 2005, the Company issued securities to the public in Israel according to a prospectus and became publicly traded
on the Tel Aviv Stock Exchange (“TASE”). In 2007, and until August 2012, the Company registered some of its securities
with the U.S. Securities and Exchange Commission (“SEC”).
In
January 2012, after having received the approval at the general meeting of shareholders of the Company, the Company consummated
a transaction whereby it acquired Metamorefix Ltd. (“Metamorefix”). Pursuant to such transaction, Metamorefix became
wholly-owned by the Company. Metamorefix was incorporated in 2007, and was engaged in the development of innovative solutions
for the rehabilitation of tissues, particularly skin tissues.
On
August 21, 2012, the Company’s board of directors (the “Board”) approved the suspension of the Company’s
reporting obligations under Section 13(a) and 15(d) of the Securities Exchange Act of 1934 (the “De-Registration”).
The Company thereafter filed a Form 15 with the SEC on September 5, 2012 to effect the De-Registration. Upon the filing of the
Form 15, the Company’s obligation to file periodic and current reports with the SEC, including Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on form 8-K, was immediately suspended.
By
the end of 2012, in view of the Company’s cash flow, the Company ceased its above operations and shortly thereafter the
Company’s employees were laid off. In January 2013, the Company sold its entire ownership interest in Metamorefix.
Change
in Control Transaction
In
September 2013, Ronen Luzon, the Company’s current Chief Executive Officer, purchased control of the Company from Mr. Asher
Shmuelevitch (the “Transaction”). Mr. Luzon purchased 1,755,950 shares of common stock from Mr. Shmuelevitch, which
shares represented approximately 40% of the issued and outstanding capital stock of the Company at such time, and thus Mr. Luzon
became a controlling shareholder of the Company.
Within
the framework of the Transaction, Mr. Luzon reached a settlement with the Company’s creditors pursuant to which the main
creditor, Mr. Asher Shmuelevitch, was paid a total sum of New Israeli Shekel (“NIS”) 0.5 million (approximately $140,000)
in consideration for a full and final waiver of any and all his claims that he may have relating to any monetary indebtedness
of the Company to the creditors.
As
a result of the various investment rounds in the Company, Mr. Luzon’s beneficial ownership in the Company has been diluted
and currently represent approximately 11% of the issued and outstanding shares of common stock of the Company on a fully diluted
basis.
In
December 2013, the Company changed its name to Knowledgetree Ventures Inc. Thereafter, in January, 2014, the Board approved a
transaction with Shoshana Zigdon, a related party, with respect to a technology venture through a new subsidiary, as discussed
in the Shoshana Zigdon Agreement below (see “February 2014 Purchase Agreement”). Subsequently, on February 16, 2014,
the Company changed its name to My Size, Inc.
February
2014 Purchase Agreement
In
February 2014, the Company entered into a Purchase Agreement (the “Purchase Agreement’) with Shoshana Zigdon (“Seller”),
with respect to the acquisition of certain rights in a venture for the accumulation of physical data of human beings by portable
electronic devices (including smart phones, tablets and other portable devices) for the purpose of locating, based on the accumulated
data, articles of clothing in internet apparel stores, which will fit the person whose measurements were so accumulated (the “Venture”).
Prior to entering into the Purchase Agreement, in January 2014, the Purchase Agreement was approved by shareholders of the Company
as the Seller was also a beneficial owner of over 20% of the outstanding capital of the Company.
Pursuant
to the Purchase Agreement, the Company purchased the all of Seller’s rights, title and interest in and to the Venture, including,
but not limited to, the method (the “Method”) and the certain patent application that had been filed by Seller (PCT/IL2013/050056)
(the “Patent”, and collectively with the Method, the “Assets”).
In
consideration for the sale of the Assets, the Company agreed to pay to Seller, 18% of the Company’s operating profit, directly
or indirectly connected with the Venture and/or the Method and/or the commercialization of the Patent together with value-added
tax (“VAT”) in accordance with the law (the “Consideration”) for a period of seven years from the end
of the development period of the Venture. The parties further agreed that Seller’s right to receive the Consideration will
apply even in the event the Patent is revoked/rejected/expires and/or the non-receipt of the Patent for any reason. Down payments
on account of the Consideration are to be paid to the Seller quarterly, within 14 days from the approval of the reviewed financial
reports of the Company, with the exception of the fourth quarter which will be paid after the approval of the audited financial
reports of the Company. Payment will be made against a duly issued tax invoice as prescribed by law.
The
Agreement may be terminated by either party in the event of a breach of the obligations of the other party and the failure to
cure a default within a specified period of time. The Agreement further provides that Seller is entitled to repurchase the Assets
from the Company upon the occurrence of one or more of the following events: (a) if an application for liquidation of the Company
and/or an application for appointment of a receiver for the Company and/or for a significant part of its assets has been filed,
and/or an attachment has been imposed on a significant part of the Company’s assets, and the application or attachment –
as the case may be – has not been not canceled within 60 days from the date on which they are filed; or (b) if upon the
date that is seven years from the date of execution of the Agreement, the amount of Company’s income, directly and/or indirectly
accumulated from the Venture and/or the Method and/or the commercialization of the Patent is less than NIS 3.6 million (approximately
$1 million) (a “Repurchase Event”).
If
a Repurchase Event occurs, Seller shall have a 90 day right, subject to delivery of written notice to the Company of Seller’s
intention to exercise such right, to repurchase the Assets from the Company. The repurchase price will be based upon a market
price to be determined by an external and independent valuer, 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 valuer. In the absence of agreement on
the identity of the valuer, the valuer shall be appointed by the President of the Institute of Certified Public Accountants in
Israel. If one of the parties appeals against the valuation, with the Company’s decision to appeal being made by the Audit
Committee of the Company, the parties shall approach another agreed valuer from one of the four large accounting firms in Israel
(and in the absence of agreement he shall be chosen by the President of the Institute of Certified Public Accountants) and an
average shall be taken of the two valuations which are received. The parties shall bear the valuers’ fees and all the expenses
of the valuation in equal shares. Unless Seller gives the Company written notice of the retraction of Seller’s intention
to repurchase the Assets, the Seller shall be obligated to repurchase the Assets within 60 days from the date of receipt of the
valuation. Seller shall have the right to retract its intention to repurchase the Assets, provided Seller gives written notice
to the Company within 30 days of receiving the valuation and subject to Seller refunding the Company the expenses borne by the
Company in respect of the valuation (provided that the Company gives Seller details of the expenses borne by it).
In
addition to the foregoing, the Agreement provides that all developments, improvements knowledge and know-how developed and/or
accumulated by the Company after the execution of the Agreement will be owned by the Company. Further, the Seller agreed not to
compete, directly or indirectly, with the Company in any matter relating to the Assets and/or the Venture and/or the Method for
a period of seven years from the end of the development period of the Venture.
On
July 25, 2016, the Company’s common stock began publicly trading on the NASDAQ Capital Market under the symbol “MYSZ”.
Recent
Developments
December
2017 Public Offering
On
December 22, 2017, we completed a public offering of 3,832,500 shares of our common stock and five-year warrants to purchase an
aggregate of 2,874,375 shares of common stock at an exercise price of $0.851 per share. The gross proceeds to us were approximately
$2.5 million, before deducting placement agent fees and other offering expenses.
February
2018 Public Offering
On
February 2, 2018, we completed a public offering of 3,000,000 shares of our common stock and five-year warrants to purchase an
aggregate of 1,500,000 shares of common stock at an exercise price of $2.65 per share. The gross proceeds to us were approximately
$6.0 million, before deducting placement agent fees and other offering expenses.
Corporate
Actions Approved at the Special Meeting of Stockholders held on February 12, 2018
On
February 12, 2018, we held a special meeting of stockholders with respect to the following proposals: (i) approval of an amendment
to our 2017 Consultant Equity Incentive Plan to increase the reservation of common stock for issuance thereunder to 4,500,000
shares from 3,000,000 shares; (ii) to approve an amendment to our Amended and Restated Certificate of Incorporation (to increase
the authorized number of shares of our common stock from 50,000,000 shares to 100,000,000 shares; (iii) to grant discretionary
authority to our Board to effectuate a reverse stock split of our outstanding common stock at a ratio within the range from 1-for-2
up to 1-for-10 until December 18, 2018; (iv) to approve the issuance of securities in one or more non-public offerings where the
maximum discount at which securities will be offered will be equivalent to a discount of 20% below the market price of our common
stock; and (v) to approve the issuance of securities in one or more non-public offerings where the maximum discount at which securities
will be offered will be equivalent to a discount of 15% below the market price of our common stock (collectively, the “Corporate
Actions”). On February 12, 2018, our stockholders approved all of the Corporate Actions.
RISK
FACTORS
An
investment in our securities involves a high degree of risk. This prospectus contains a discussion of the risks applicable to
an investment in our securities. Prior to making a decision about investing in our securities, you should carefully consider the
specific factors discussed under the heading “Risk Factors” in this prospectus, together with all of the other information
contained or incorporated by reference in the prospectus supplement or appearing or incorporated by reference in this prospectus.
You should also consider the risks, uncertainties and assumptions discussed under Item 1A, “Risk Factors,” in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and any updates described in our Quarterly Reports on Form
10-Q, all of which are incorporated herein by reference, and may be amended, supplemented or superseded from time to time by other
reports we file with the SEC in the. The risks and uncertainties we have described are not the only ones we face. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations. The occurrence
of any of these known or unknown risks might cause you to lose all or part of your investment in the offered securities.
Risks
Related To Our Company And Our Business
We
may never successfully develop any products or generate revenues.
We
are a pre-revenue stage company with research, development, marketing and general and administrative expenses. 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. We have only generated very minimal revenues to date.
We
have historically incurred significant losses and there can be no assurance when, or if, we will achieve or maintain profitability.
During
the twelve months ended December 31, 2016, the Company realized a net loss of $4,334,000 compared with a net loss of $3,437,000
for the year ended December 31, 2015. Our net loss from continuing operations for the nine months ended September 30, 2017 was
$3,519,000. Because of the numerous risks and uncertainties associated with the development of the Company’s 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, stockholders’ 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, diversify our portfolio of staffing companies, or continue our operations. A decline in our
value could also cause you to lose all or part of your investment in our Company.
Based
on the projected cash flows and the cash balances as of the date of
t
his prospectus, our management is of the opinion that
without further fund raising we will not have sufficient resources to enable the Company to continue its operating activities,
including the development and marketing of our products, for a period of at least 12 months from the date of filing of
t
his
prospectus. As a result, there is substantial doubt about our ability to continue as a going concern.
Management’s
plans include the continued commercialization of our products and securing sufficient financing through the sale of additional
equity securities, debt or capital inflows from strategic partnerships. There can be no assurances, however, that we will be successful
in obtaining the level of financing needed for our operations. If we are unsuccessful in commercializing our products and securing
sufficient financing, we may need cease operations.
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.
In
order to meet our business objectives, 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:
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finance our current
operating expenses;
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pursue growth opportunities;
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hire and retain
qualified management and key employees;
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respond to competitive
pressures;
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comply with regulatory
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maintain compliance
with applicable laws.
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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, which would have a material adverse effect on our business, financial
condition and results of operations.
The
success of our business is highly dependent on being able to predict which applications and technologies will be successful, and
on the market acceptance and timely release of those applications and technologies. If we do not accurately predict which applications
and technologies will be successful, our financial performance will be materially adversely affected.
We
expect to derive most of our revenue by charging fees in connection with the usage of our applications and technologies. We must
make product development decisions and commit significant resources well in advance of the anticipated introduction of new applications
and technologies. The release of our applications and technologies may be delayed, may not succeed or may have a shorter life
cycle than anticipated. If the applications are not released when anticipated or do not attain wide market acceptance, our revenue
growth may never materialize, we may be unable to fully recover the resources we have committed, and our financial performance
will be harmed.
We
are substantially dependent on assets we purchased from an affiliated 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 harmed,
and our business, financial condition and results of operations would be materially and adversely affected.
In
February 2014, we entered into the Purchase Agreement with Shoshana Zigdon pursuant to which we acquired certain rights in a venture
for the accumulation of physical data of human beings by portable electronic devices (including smart phones, tablets and other
portable devices) for the purpose of locating, based on the accumulated data, articles of clothing in internet apparel stores,
which will fit the person whose measurements were so accumulated. In addition, pursuant to the Purchase Agreement, we acquired
the right, title and interest to the method and the certain patent application that had been filed by Shoshana Zigdon (PCT/IL2013/050056).
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 right to the Method or Patent application described above, our ability to develop existing and new applications would
be harmed.
In
consideration for the sale of the Method and Patent application, we agreed to pay to Shoshana Zigdon, 18% of the Company’s
operating profit, directly or indirectly connected with the Venture and/or the Method and/or the commercialization of the Patent
together with value-added tax in accordance with the law for a period of seven years from the end of the development period of
the Venture. Shoshana Zigdon’s right to receive such consideration will apply even in the event the Patent is revoked/rejected/expires
and/or the non-receipt of the Patent for any reason.
The
Purchase Agreement may be terminated by either party in the event of a breach of the obligations of the other party and the failure
to cure the default within a specified period of time. Further, Shoshana Zigdon has the right to repurchase the Method and Patent
application from us upon the occurrence of one or more of the following events: (a) if an application for liquidation of the Company
and/or an application for appointment of a receiver for the Company and/or for a significant part of its assets has been filed,
and/or an attachment has been imposed on a significant part of the Company’s assets, and the application or attachment –
as the case may be – has not been not canceled within 60 days from the date on which they are filed; or (b) if upon the
date that is seven years from the date of execution of the Purchase Agreement, the amount of Company’s income, directly
and/or indirectly accumulated from the Venture and/or the method and/or the commercialization of the Patent is less than New Israeli
Shekel (“NIS”) 3.6 million (approximately $1 million). If Shoshana Zigdon repurchases the Method and Patent application,
our ability to develop our proposed products would be significantly harmed. Furthermore, we may lose the ability to commercialize
any products that we have already developed.
Changes
in economic conditions could materially affect our business, financial condition and results of operations.
Because
our target customers are retailers, we, together with the rest of the retail industry, will depend upon consumer discretionary
spending once we develop our proposed products. 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 an adverse effect on our business, financial
condition and results of operations.
Damage
to our reputation or lack of acceptance of our brand in existing and new markets could negatively impact our business, financial
condition and results of operations.
We
intend to build a strong reputation for the quality of our technology, and we must protect and grow the value of our brand to
be successful. 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
addition, our ability to successfully develop new retailers in new markets may be adversely affected by a lack of awareness or
acceptance of our brand in these new markets. To the extent that we are unable to foster name recognition and affinity for our
brand in new markets, our growth may be significantly delayed or impaired.
As
a result, adverse economic conditions in any of these areas could have a material adverse effect on our overall results of operations.
In recent years, certain of these markets have been more negatively impacted by the housing decline, high unemployment rates and
the overall economic crisis than other geographic areas. In addition, given our geographic concentration, negative publicity regarding
any of our retailers in these areas could have a material adverse effect on our business and operations, as could other regional
occurrences such as local strikes, terrorist attacks, increases in energy prices, adverse weather conditions, hurricanes, droughts
or other natural or man-made disasters.
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.
Technology
changes rapidly in our business, and if we fail to anticipate new technologies, the quality, timeliness and competitiveness of
our products will suffer.
Rapid
technology changes require us to anticipate which technologies and/or distribution platforms our products must take advantage
of in order to make them competitive in the market at the time they are released. Therefore, we usually start our product development
with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or
our competition may be able to achieve them more quickly than we can. In either case, our products may be technologically inferior
to competitive products, or less appealing to consumers, or both. If we cannot achieve our technology goals within the original
development schedule of our products, then we may delay products until these technology goals can be achieved, which may delay
or reduce revenue and increase our development expenses.
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 to distribute our technologies. If disruptions or capacity constraints
occur, the Company 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 mobile applications and customer satisfaction. Our mobile applications
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.
We
could be harmed by improper disclosure or loss of sensitive or confidential Company, employee, associate or customer data, including
personal data.
In
connection with the operation of our business, we plan to store, process and transmit data, including personal and payment information,
about our employees, customers, associates and candidates, 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 services and offerings, such as mobile technology. 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.
We
might not be able to successfully market our products.
We
expend significant resources in our marketing efforts, using a variety of media, including social media venues such as Facebook,
LinkedIn and Twitter. In addition, we use targeted marketing on certain websites and have engaged two sales people in Europe and
three sales people in the U.S. to market our products. We expect to continue to conduct brand awareness programs and guest initiatives
to attract potential users. These initiatives may not be successful, resulting in expenses incurred without the benefit of substantial
revenues. Additionally, some of our competitors have greater financial resources, which enable them to purchase significantly
more advertising than we are able to purchase. Should our competitors increase spending on advertising and promotions or our advertising
funds decrease for any reason, or should our advertising and promotions be less effective than our competitors, there could be
a material adverse effect on our 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. We currently do not have an employment agreement
in place with these 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.
Our growth may strain our infrastructure
and resources, which could slow our development of new retailers and adversely affect our ability to manage our existing retailers.
Our future growth may strain our retail
management systems and resources, financial controls and information systems. Those demands on our infrastructure and resources
may also adversely affect our ability to manage our existing retailers. If we fail to continue to improve our infrastructure or
to manage other factors necessary for us to meet our expansion objectives, our operating results could be materially and adversely
affected. Likewise, if sales decline, we may be unable to reduce our infrastructure quickly enough to prevent sales deleveraging,
which would adversely affect our profitability.
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 do not maintain theft or casualty
insurance and only maintain modest liability and property insurance coverage and therefore could incur losses as a result of an
uninsured loss.
We do not maintain theft or casualty insurance
and only maintain modest liability and property insurance coverage. We cannot provide any assurance that we will not incur uninsured
liabilities and losses as a result of the conduct of our business. Any such uninsured loss or liability could have a material adverse
effect on our results of operations.
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 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 three patents, one of each in of Russia, Japan and
the U.S., have one patent-pending submission and an additional patent application which is in process. No assurance can be given
that our patent-pending submission or the additional patent application which is in process will be approved. If our patent-pending
submission or the additional patent application which is in process 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.
Information technology system failures
or breaches of our network security could interrupt our operations and adversely affect our business.
We will rely on our computer systems and
network infrastructure across our operations. 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.
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.
We may require additional capital
to finance our operations in the future, but that capital may not be available when it is needed and could be dilutive to existing
stockholders.
We may require additional capital for future
operations. We plan to finance anticipated ongoing expenses and capital requirements with funds generated from the following sources:
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cash provided by operating activities;
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available cash and cash investments; and
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capital raised through debt and equity offerings.
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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 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 liquidity, financial condition, results of operations
and prospects. Further, if we raise capital by issuing stock, the holdings of our existing stockholders will be diluted.
If we raise capital by issuing debt securities,
such debt securities would rank senior to our common stock upon our bankruptcy or liquidation. In addition, we may raise capital
by issuing equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions,
which may adversely affect the market price of our common stock. Finally, upon bankruptcy or liquidation, holders of our debt securities
and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common
stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common
stock, or both.
Our business is dependent upon continued
market acceptance by consumers.
We are substantially dependent on continued
market acceptance of our products by customers, and such customers are dependent upon regulatory and legislative forces. We cannot
predict the future growth rate and size of this market. If we do not gain market acceptance of our applications, our business may
be materially affected.
If we are able to expand our operations,
we may be unable to successfully manage our future growth.
Since inception, we have been planning
for the expansion of our brand. 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
and results of operations.
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. Risks associated with legal liability are difficult
to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. To date we have obtained
directors and officers liability (“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 the Company. 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. While neither Delaware law nor our Amended and Restated Certificate of Incorporation (“Certificate
of Incorporation”) or Amended and Restated Bylaws (“Bylaws”) require us to indemnify or advance expenses to our
officers and directors involved in such a legal action, we expect that we would do so to the extent permitted by Delaware law.
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 the Company 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 8 for more information regarding the Company’s involvement in ongoing litigation matters.
Our prior operating results may not
be indicative of our future results.
You should not consider prior operating
results to be indicative of our future operating results. The timing and amount of future revenues will depend almost entirely
on our ability to engage new retailers while maintaining a relationship with our existing retailers. Our future operating results
will depend upon many other factors, including, but not limited to:
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the level of product and price competition;
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our success in expanding our business network and managing our growth;
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the ability to hire qualified employees; and
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the timing of such hiring and our ability to control costs.
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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.
Our management controls a large block
of our common stock that will allow them to control us.
As
of the date of this prospectus, members of our management team beneficially own approximately 8.05% of our outstanding common
stock. In addition, one stockholder owns approximately 12.07% of our outstanding common stock. As such, management and the stockholder
own approximately, in the aggregate, 20.12
%
of our voting power. As a result, management and the stockholder may have the ability to control substantially all matters submitted
to our stockholders for approval including:
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election of our board of directors;
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removal of any of our directors;
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amendment of our Certificate of Incorporation or Bylaws; and
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adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.
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In addition, management’s and the stockholder’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting
to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our
stock price. Any additional investors will own a minority percentage of our common stock and will have minority voting rights.
The auditors of our 2015 financial
statements may discontinue their business.
We have been advised by the auditors for
our 2015 financial statements that they plan to discontinue their business of providing financial and accounting services. Following
any such discontinuance of their practice, it may be difficult, if not impossible, to obtain consents for the inclusion of their
financial statements in our filings. Should we not be able to obtain their consents, there could be a delay in our ability to enter
into future financing transactions prior to the filing of our 2017 financial statements in our Annual Report on Form 10-K in 2018
unless our 2015 financial statements have been re-audited by another independent accounting firm in accordance with the applicable
rules and regulations of the Securities and Exchange Commission. We intend to work with the auditors for our 2016 financial statements
for the audit of our 2017 financial statements, and we believe that we will be able to timely complete and file such financial
statements and remain current in our financial and other reporting obligations with the SEC.
Tax reform may affect the Company
and its stockholders.
On December 22, 2017, President Trump
signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reforms the Internal Revenue Code of 1986, as
amended (the “Code”). The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant
additional limitations on the deductibility of interest and restricts the use of net operating loss carryforwards arising after
December 31, 2017, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide”
system of taxation to a territorial system. We do not expect tax reform to have a material impact to our net operating losses.
We continue to examine the impact this tax reform legislation may have on our business. The impact of this tax reform on holders
of our securities is uncertain. This prospectus does not discuss any such tax legislation or the manner in which it might affect
purchasers of our securities. We urge our stockholders, including purchasers of securities in this offering, to consult with their
legal and tax advisors with respect to such legislation and the potential tax consequences of investing.
Risks Related To Our Operations In Israel
The Company
has facilities located in Israel, and therefore, political conditions in Israel may affect the Company’s operations and results.
The Company has
facilities located in Israel. Accordingly, political, economic and military conditions in Israel will directly or indirectly affect
the Company’s operations and results. Since the establishment of the State of Israel, a number of armed conflicts have taken
place between Israel and its Arab neighbors. An ongoing state of hostility, varying in degree and intensity has led to security
and economic problems for Israel. For a number of years there have been continuing hostilities between Israel and the Palestinians.
This includes hostilities with the Islamic movement Hamas in the Gaza Strip, which have adversely affected the peace process and
at times resulted in armed conflicts. Such hostilities have negatively influenced Israel’s economy as well as impaired Israel’s
relationships with several other countries. Israel also faces threats from Hezbollah militants in Lebanon, from ISIS and rebel
forces in Syria, from the government of Iran and other potential threats from additional countries in the region. Moreover, some
of Israel’s neighboring countries have recently undergone or are undergoing significant political changes. These political,
economic and military conditions in Israel could have a material adverse effect on the Company’s business, financial condition,
results of operations and future growth.
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 the Company to operate its business and could adversely affect its business.
Some of
the Company’s employees and officers are obligated to perform military reserve duty in Israel.
Generally, Israeli
adult male citizens and permanent residents are obligated to perform annual military reserve duty up to a specified age. They also
may be called to active duty at any time under emergency circumstances, which could have a disruptive impact on the Company’s
workforce
.
It may be
difficult to enforce a non-Israeli judgment against the Company or its officers and directors.
The operating
subsidiary of the Company is incorporated in Israel. All of the Company’s executive officers and directors are not residents
of the United States, and a substantial portion of the Company’s assets and the assets of its executive officers and directors
are located outside the United States. Therefore, a judgment obtained against the Company, or any of these persons, including a
judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States
and may not necessarily be enforced by an Israeli court. It also may be difficult to affect service of process on these persons
in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be
difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel.
Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the
most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law often involves the testimony of expert witnesses, which can be a time consuming and costly process. Certain matters of
procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described
above. As a result of the difficulty associated with enforcing a judgment against the Company in Israel, it may be impossible to
collect any damages awarded by either a U.S. or foreign court.
Our international operations could
expose us to additional risks, including exchange rate fluctuations, legal regulations and political or economic instability that
could harm our business and operating results.
Our international
operations expose us to the following risks which may have a material adverse effect on our business and operating results:
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devaluations and fluctuations in currency exchange rates including fluctuations between the U.S. dollar and the NIS;
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costs of compliance with local laws, including labor laws and intellectual property laws;
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compliance with domestic and foreign government policies, including compliance with Israeli securities laws and TASE;
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changes in trade regulations and procedures affecting approval, production, pricing, marketing, reimbursement for and access to, our products;
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compliance with applicable foreign anti-corruption laws, anti-trust/competition laws, anti-Boycott Israel law and anti-money laundering laws; and
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economic and geopolitical developments and conditions, including ongoing instability in global economies and financial markets, international hostilities, acts of terrorism and governmental reactions, inflation, and military and political alliances.
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Risks Related To The Common Stock
A more active, liquid trading market
for our common stock may not develop, and the price of our common stock may fluctuate significantly.
Although our common stock is listed on
The Nasdaq Capital Market, it has only been traded on The Nasdaq Capital Market since July 25, 2016. There has been relatively
limited trading volume in the market for our common stock, and a more active, liquid public trading market may not develop or may
not be sustained. Limited liquidity in the trading market for our common stock may adversely affect a stockholder’s ability
to sell its shares of common stock at the time it wishes to sell them or at a price that it considers acceptable. If a more active,
liquid public trading market does not develop, we may be limited in our ability to raise capital by selling shares of common stock
and our ability to acquire other companies or assets by using shares of our common stock as consideration. In addition, if there
is a thin trading market or “float” for our stock, the market price for our common stock may fluctuate significantly
more than the stock market as a whole. Without a large float, our common stock would be less liquid than the stock of companies
with broader public ownership and, as a result, the trading prices of our common stock may be more volatile and it would be harder
for you to liquidate any investment in our common stock. Furthermore, the stock market is subject to significant price and volume
fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including:
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our quarterly or annual operating results;
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changes in our earnings estimates;
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investment recommendations by securities analysts following our business or our industry;
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additions or departures of key personnel;
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changes in the business, earnings estimates or market perceptions of our competitors;
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our failure to achieve operating results consistent with securities analysts’ projections;
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changes in industry, general market or economic conditions; and
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announcements of legislative or regulatory changes.
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The stock market has experienced extreme
price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies,
including companies in the staffing industry. The changes often appear to occur without regard to specific operating performance.
The price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations
could materially reduce our stock price.
Sales by our stockholders of a substantial
number of shares of our common stock in the public market could adversely affect the market price of our common stock.
A substantial portion of our total outstanding
shares of common stock may be sold into the market at any time. Most of these shares are held by three stockholders, one of which
is also an executive officer of the Company. Although we believe that such executive officer has no current intention to sell a
significant number of shares of our stock, we cannot provide any such assurance. In addition, we cannot provide assurance that
the other two large stockholders of the Company have no current intention to sell a significant number of shares of our stock.
If any of the three stockholders which hold most of our shares were to decide to sell large amounts of stock over a short period
of time (presuming such sales were permitted) such sales could cause the market price of our common stock to drop significantly,
even if our business is doing well.
Further, the market price of our common
stock could decline as a result of the perception that such sales could occur. These sales, or the possibility that these sales
may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate.
Our securities are traded on more
than one market which may result in price variations
.
Our securities have been trading on The
Nasdaq Capital Market since July 2016 and on TASE since September 2005. Trading in our securities on such exchanges occurs in different
currencies (U.S. dollars on NASDAQ and NIS on the TASE), and at different times (due to different time zones, trading days and
public holidays in the United States and Israel). The trading prices of our securities on the two exchanges may differ due to the
foregoing and other factors. Any decrease in the price of our shares on the TASE could cause a decrease in the trading price of
our shares on NASDAQ and vice versa.
We are a smaller reporting company
and, as a result of the reduced disclosure and governance requirements applicable to such companies, our common stock may be less
attractive to investors.
We are a smaller reporting company, (i.e.
a company with “public float” held by non-affiliates with a market value of less than $75 million) and we are eligible
to take advantage of certain exemptions from various reporting requirements applicable to other public companies. We have elected
to adopt these reduced disclosure requirements. We cannot predict if investors will find our common stock less attractive as a
result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our
choices, there may be a less active trading market for our common stock and our stock price may be more volatile.
We do not expect to pay any cash
dividends in the foreseeable future
.
We have never declared or paid cash dividends
on our common stock. We intend to retain our future earnings, if any, in order to reinvest in the development and growth of our
business and, therefore, do not intend to pay dividends on our common stock for the foreseeable future. Any future determination
to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital
requirements, and such other factors as our Board deems relevant. Accordingly, you may need to sell your shares of our common
stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them.
We can sell additional shares of
common stock without consulting stockholders and without offering shares to existing stockholders, which would result in dilution
of stockholders’ interests in the company and could depress our stock price.
Our Certificate of Incorporation currently
authorizes 50,000,000 shares of common stock, of which 28,996,927 are currently outstanding, and our Board is authorized to issue
additional shares of our common stock.
Although our Board intends to utilize
its reasonable business judgment to fulfill its fiduciary obligations to our then existing stockholders in connection with any
future issuance of our capital stock, the future issuance of additional shares of our capital stock would cause immediate, and
potentially substantial, dilution to our existing stockholders, which could also have a material effect on the market value of
the shares.
Further, our shares do not have preemptive
rights, which means we can sell shares of our capital stock to other persons without offering purchasers in this offering the
right to purchase their proportionate share of such offered shares. Therefore, any additional sales of stock by us could dilute
your ownership interest in our Company.
Our quarterly operating results may
fluctuate significantly
.
We expect our operating results to be subject
to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
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variations in the level of expenses related to our development programs;
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any intellectual property infringement lawsuit in which we may become involved;
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regulatory developments affecting our products; and
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our execution of any collaborative, licensing or similar arrangements, and the timing of payments under these arrangements.
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If our quarterly operating results fall
below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore,
any quarterly fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially.
If we fail to comply with the rules
under the Sarbanes Oxley Act of 2002 related to accounting controls and procedures, or if we discover material weaknesses and deficiencies
in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more
difficult.
If we fail to comply with the rules under
the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other
deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital
could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our
internal control over financial reporting and a report by our independent auditors addressing these assessments. If material weaknesses
or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control,
we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce
reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports
or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial
information, and the trading price of our common stock could drop significantly.
Our Certificate of Incorporation,
Bylaws and Delaware law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause
our stock price to decline.
Our Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial
to our stockholders. Provisions of our Certificate of Incorporation, Bylaws and Delaware law also could have the effect of discouraging
potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder
might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management.
In particular, the Certificate of Incorporation, Bylaws and Delaware law, as applicable, among other things:
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provide the Board with the ability to alter the Bylaws without stockholder approval;
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place limitations on the removal of directors; and
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provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum.
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We are subject to Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a publicly-held
Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial
owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder
became an interested stockholder. These provisions are expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our Board. These provisions
may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock and the value
of our securities to decline. In addition, rules applicable to TASE listed companies also limit the terms permitted with respect
to a new class of shares and prohibit any such new class of shares from having superior voting rights to the rights of the class
of shares listed on TASE.
If we fail
to comply with the continued listing requirements of the NASDAQ Capital Market, our common stock may be delisted and the price
of our common stock and our ability to access the capital markets could be negatively impacted.
On September 26, 2017, the Company was
notified by The Nasdaq Stock Market, LLC (“Nasdaq”) that it was not in compliance with the minimum bid price requirements
set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2)
requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that
a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business
days. The notification provided that the Company had 180 calendar days, or until March 26, 2018, to regain compliance with Nasdaq
Listing Rule 5550(a)(2).
In addition, on June 5, 2017, the Company
received written notice from the Nasdaq Listing Qualifications Department notifying the Company that for the preceding 30 consecutive
business days, the Company’s common stock did not maintain a minimum Market Value of Listed Securities of $35 million (“MVLS
Requirement”) per share as required by Nasdaq Listing Rule 5550(b)(2). The notification provided that the Company had 180
calendar days, or until December 4, 2017, to regain compliance with Nasdaq Listing Rule 5550(b)(2). On December 5, 2017, the Company
received a second written notice from the Listing Qualifications Department of Nasdaq notifying the Company that its failure to
regain compliance with Nasdaq Listing Rule 5550(b)(2) by December 4, 2017 would result in the Company’s securities being
delisted from The Nasdaq Capital Market effective as of the open of business on December 14, 2017 unless the Company requested
an appeal of such determination. The Company thereafter requested an appeal before the Hearings Panel, thereby staying the delisting
of the Company’s securities pending the Hearings Panel’s decision.
On January 22, 2018, the Nasdaq Staff concluded
that the Company had regained compliance with its Rule 5550(a)(2) based on the closing bid price of the Company’s common
stock having been at $1.00 per share or greater for10 consecutive business days from January 5, 2018 to January 19, 2018.
In addition, on January 26, 2018, the Nasdaq
Hearings Advisor informed the Company that the Nasdaq Staff had informed them that the Company’s Market Value of Listed Securities
deficiency (as set forth in its Rule 5550(b)(2)) had been cured, and that the Company is in compliance with all applicable listing
standards. As a result, the scheduled hearing before the Hearings Panel was cancelled.
No assurance can be given that we will
continue to meet applicable Nasdaq continued listing standards. Failure to meet applicable Nasdaq continued listing standards could
result in a delisting of our common stock. A delisting of our common stock from Nasdaq could materially reduce the liquidity of
our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could
harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in
the potential loss of confidence by investors, employees and fewer business development opportunities.
The exercise of outstanding warrants
and stock options will have a dilutive effect on the percentage ownership of our capital stock by existing stockholders.
As of September
30, 2017, we had outstanding warrants to acquire 2,480,605 shares of our common stock and stock options to purchase 3,115,500 shares
of our common stock (not including options to purchase an aggregate of 1,380,000 shares of common stock which are subject to approval
by TASE and an increase in the common stock reserve pursuant to the Company’s 2017 Consultant Equity Incentive Plan), in
addition to the warrants that we are offering hereunder. The expiration of the term of such options and warrants range from December
2017 to July 2022. If a significant number of such warrants and stock options are exercised by the holders, the percentage of our
common stock owned by our existing stockholders will be diluted.
Our stock price could fall and we
could be delisted from Nasdaq in which case because they may be considered penny stocks and thus be subject to the penny stock
rules, which could result in U.S. broker-dealers becoming discouraged from effecting transactions in shares of our common stock.
The SEC has adopted a number of rules to
regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended.
These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities
with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted
on the Nasdaq Stock Market if current price and volume information with respect to transactions in such securities is provided
by the exchange or system). Our securities have in the past constituted, and may again in the future constitute, “penny stock”
within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may
discourage such broker-dealers from effecting transactions in shares of our common stock, which could severely limit the market
liquidity of such shares and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess
of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks.”
Stockholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales
persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Sales of our currently issued and
outstanding stock may become freely tradable pursuant to rule 144 and may dilute the market for your shares and have a depressive
effect on the price of the shares of our common stock
A substantial majority of our outstanding
shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted
shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or
other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides
in essence that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer who has held restricted securities for a
period of at least six months (one year after filing Form 10 information with the SEC for shell companies and former shell companies)
may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the
greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar
weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTC Bulletin Board). Rule 144 also
permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate of the
Company and who has satisfied a one-year holding period. A sale under Rule 144 or under any other exemption from the Act, if available,
or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares
of common stock in any active market that may develop. Pursuant to lock-up Agreements entered into by our executive officers, directors,
and a stockholder holding over 5% of our common stock, subject to certain exceptions, additional shares of common stock may not
be sold by such persons until the earlier of (i) March 31, 2018 and (ii) the date that we file our Annual Report on Form 10-K for
the year ended December 31, 2017.
You may experience dilution of your
ownership interest because of the future issuance of additional shares of our common stock.
In the future, we may issue our authorized
but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We
are currently authorized to issue an aggregate of 50,000,000 shares of common stock.
We may also issue additional shares of
our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining
employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business
purposes. The future issuance of any such additional shares of our common stock or other securities may create downward pressure
on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants
or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future acquisitions,
future sales of our securities for capital raising purposes or for other business purposes, including at a price (or exercise prices)
below the price at which shares of our common stock are trading.
We do not expect to pay dividends
and investors should not buy our common stock expecting to receive dividends.
We have not paid any dividends on our common
stock in the past, and do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, investors
will only realize an economic gain on their investment in our common stock if the price appreciates. Investors should not purchase
our common stock expecting to receive cash dividends. Because we do not pay dividends, and there may be limited trading, investors
may not have any manner to liquidate or receive any payment on their investment. Therefore, our failure to pay dividends may cause
investors to not see any return on investment even if we are successful in our business operations. In addition, because we do
not pay dividends we may have trouble raising additional funds, which could affect our ability to expand our business operations.