Item
1. Financial Statements.
My
Size Inc. and Subsidiaries
Condensed
Consolidated
Interim
Financial
Statements
As
of September 30, 2019
(unaudited)
U.S.
Dollars in Thousands
MY
SIZE, INC. AND ITS SUBSIDIARIES
Condensed
Consolidated Interim Financial Statements as of September 30, 2019 (Unaudited)
Contents
MY
SIZE, INC. AND ITS SUBSIDIARIES
Condensed
Consolidated Interim Balance Sheets
U.S.
dollars in thousands (except share data and per share data)
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
2,561
|
|
|
|
5,140
|
|
Restricted cash
|
|
|
|
|
262
|
|
|
|
90
|
|
Restricted deposit
|
|
|
|
|
-
|
|
|
|
181
|
|
Short-term deposit
|
|
|
|
|
-
|
|
|
|
1,209
|
|
Other receivables and prepaid expenses
|
|
|
|
|
431
|
|
|
|
218
|
|
Total current assets
|
|
|
|
|
3,254
|
|
|
|
6,838
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
76
|
|
|
|
71
|
|
Right of use assets
|
|
2d
|
|
|
30
|
|
|
|
-
|
|
Investment in marketable securities
|
|
|
|
|
74
|
|
|
|
208
|
|
|
|
|
|
|
180
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
3,434
|
|
|
|
7,117
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
|
|
488
|
|
|
|
295
|
|
Accounts payable
|
|
|
|
|
306
|
|
|
|
276
|
|
Warrants and derivatives
|
|
|
|
|
700
|
|
|
|
1,252
|
|
Operating lease liabilities
|
|
2d
|
|
|
17
|
|
|
|
-
|
|
Total current liabilities
|
|
|
|
|
1,511
|
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
2d
|
|
|
13
|
|
|
|
-
|
|
Total non-current liabilities
|
|
|
|
|
13
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
1,524
|
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Stock Capital -
|
|
|
|
|
|
|
|
|
|
|
Common stock of $ 0.001 par value - Authorized: 100,000,000 shares;
Issued and outstanding: 29,883,639 and 29,852,389 as of September 30, 2019 and December 31, 2018, respectively
|
|
|
|
|
30
|
|
|
|
30
|
|
Additional paid-in capital
|
|
|
|
|
29,683
|
|
|
|
29,116
|
|
Accumulated other comprehensive loss
|
|
|
|
|
(543
|
)
|
|
|
(835
|
)
|
Accumulated deficit
|
|
|
|
|
(27,260
|
)
|
|
|
(23,017
|
)
|
Total stockholders’ equity
|
|
|
|
|
1,910
|
|
|
|
5,294
|
|
Total liabilities and stockholders’ equity
|
|
|
|
|
3,434
|
|
|
|
7,117
|
|
The
accompanying notes are an integral part of the condensed consolidated financial statements.
MY
SIZE, INC. AND ITS SUBSIDIARIES
Condensed
Consolidated Interim Statements of Comprehensive Loss
U.S.
dollars in thousands (except share data and per share data)
|
|
Nine-Months Ended
September 30,
|
|
|
Three-Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
31
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
Cost of revenues
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
30
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(1,066
|
)
|
|
|
(807
|
)
|
|
|
(395
|
)
|
|
|
(311
|
)
|
Marketing, general and administrative
|
|
|
(3,389
|
)
|
|
|
(3,103
|
)
|
|
|
(1,210
|
)
|
|
|
(771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(4,455
|
)
|
|
|
(3,910
|
)
|
|
|
(1,605
|
)
|
|
|
(1,082
|
)
|
Operating loss
|
|
|
(4,425
|
)
|
|
|
(3,910
|
)
|
|
|
(1,599
|
)
|
|
|
(1,082
|
)
|
Financial income (expenses), net
|
|
|
182
|
|
|
|
(1,483
|
)
|
|
|
249
|
|
|
|
(479
|
)
|
Net loss
|
|
|
(4,243
|
)
|
|
|
(5,393
|
)
|
|
|
(1,350
|
)
|
|
|
(1,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
292
|
|
|
|
(477
|
)
|
|
|
58
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
(3,951
|
)
|
|
|
(5,870
|
)
|
|
|
(1,292
|
)
|
|
|
(1,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
(0.14
|
)
|
|
|
(0.19
|
)
|
|
|
(0.05
|
)
|
|
|
(0.05
|
)
|
Basic and diluted weighted average number of shares outstanding
|
|
|
29,872,879
|
|
|
|
28,870,135
|
|
|
|
29,883,639
|
|
|
|
29,709,009
|
|
The
accompanying notes are an integral part of the interim condensed consolidated financial statements
MY
SIZE, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (deficit) (Unaudited)
U.S.
dollars in thousands (except share data and per share data)
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
loss
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019
|
|
|
29,852,389
|
|
|
|
30
|
|
|
|
29,116
|
|
|
|
(835
|
)
|
|
|
(23,017
|
)
|
|
|
5,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options granted to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
519
|
|
|
|
-
|
|
|
|
-
|
|
|
|
519
|
|
Issuance of shares to consultants
|
|
|
31,250
|
|
|
|
(*
|
)
|
|
|
48
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
292
|
|
|
|
(4,243
|
)
|
|
|
(3,951
|
)
|
Balance as of September 30, 2019
|
|
|
29,883,639
|
|
|
|
30
|
|
|
|
29,683
|
|
|
|
(543
|
)
|
|
|
(27,260
|
)
|
|
|
1,910
|
|
|
(*)
|
Represents
an amount less than $1
|
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
equity
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
loss
|
|
|
deficit
|
|
|
(deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2018
|
|
|
22,238,745
|
|
|
|
22
|
|
|
|
16,008
|
|
|
|
(134
|
)
|
|
|
(17,048
|
)
|
|
|
(1,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to employees
|
|
|
-
|
|
|
|
-
|
|
|
|
110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110
|
|
Issuance of shares to consultants
|
|
|
312,400
|
|
|
|
1
|
|
|
|
320
|
|
|
|
-
|
|
|
|
-
|
|
|
|
321
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(477
|
)
|
|
|
(5,393
|
)
|
|
|
(5,870
|
)
|
Exercise of warrants and options
|
|
|
3,846,515
|
|
|
|
4
|
|
|
|
8,644
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,648
|
|
Liability reclassified to equity
|
|
|
82,368
|
|
|
|
(*
|
)
|
|
|
104
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104
|
|
Issuance and receipts on account of shares, net of issuance cost of $351
|
|
|
3,230,000
|
|
|
|
3
|
|
|
|
3,544
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,547
|
|
Balance as of September 30, 2018
|
|
|
29,710,028
|
|
|
|
30
|
|
|
|
28,730
|
|
|
|
(611
|
)
|
|
|
(22,441
|
)
|
|
|
5,708
|
|
|
(*)
|
Represents
an amount less than $1.
|
The
accompanying notes are an integral part of the interim condensed consolidated financial statements
MY
SIZE, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity
U.S.
dollars in thousands (except share data and per share data)
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
loss
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2019
|
|
|
29,883,639
|
|
|
|
30
|
|
|
|
29,538
|
|
|
|
(601
|
)
|
|
|
(25,910
|
)
|
|
|
3,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options granted to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58
|
|
|
|
(1,350
|
)
|
|
|
(1,292
|
)
|
Balance as of September 30, 2019
|
|
|
29,883,639
|
|
|
|
30
|
|
|
|
29,683
|
|
|
|
(543
|
)
|
|
|
(27,260
|
)
|
|
|
1,910
|
|
|
(*)
|
Represents
an amount less than $1.
|
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
loss
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2018
|
|
|
29,678,778
|
|
|
|
30
|
|
|
|
28,430
|
|
|
|
(642
|
)
|
|
|
(20,880
|
)
|
|
|
6,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to employees
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Issuance of shares to consultants
|
|
|
31,250
|
|
|
|
(*
|
)
|
|
|
106
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
(1,561
|
)
|
|
|
(1,530
|
)
|
Exercise of warrants and options
|
|
|
-
|
|
|
|
-
|
|
|
|
190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190
|
|
Balance as of September 30, 2018
|
|
|
29,710,028
|
|
|
|
30
|
|
|
|
28,730
|
|
|
|
(611
|
)
|
|
|
(22,441
|
)
|
|
|
5,708
|
|
The
accompanying notes are an integral part of the interim condensed consolidated financial statements
|
(*)
|
Represents
an amount less than $1.
|
MY
SIZE, INC. AND ITS SUBSIDIARIES
Condensed
Consolidated Interim Statements of Cash Flows
U.S.
dollars in thousands
|
|
Nine-Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
|
(4,243
|
)
|
|
|
(5,393
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21
|
|
|
|
24
|
|
Revaluation of warrants, derivatives, stock-based compensation liabilities and convertible loan
|
|
|
(629
|
)
|
|
|
2,299
|
|
Interest and revaluation of short-term deposit
|
|
|
55
|
|
|
|
(8
|
)
|
Interest received from short-term deposit
|
|
|
16
|
|
|
|
-
|
|
Interest payment of short-term loan
|
|
|
-
|
|
|
|
(192
|
)
|
Revaluation of investment in marketable securities
|
|
|
146
|
|
|
|
(338
|
)
|
Stock based compensation- equity
|
|
|
567
|
|
|
|
431
|
|
Stock based compensation- liability
|
|
|
-
|
|
|
|
475
|
|
Change in embedded derivative and warrants
|
|
|
-
|
|
|
|
(59
|
)
|
Decrease (increase) in other receivables and prepaid expenses
|
|
|
(188
|
)
|
|
|
8
|
|
Increase in trade payable
|
|
|
165
|
|
|
|
13
|
|
Increase (decrease) in accounts payable
|
|
|
8
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,082
|
)
|
|
|
(2,798
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from restricted deposits
|
|
|
181
|
|
|
|
-
|
|
Proceeds from (investment in) short-term deposits
|
|
|
1,200
|
|
|
|
(2,380
|
)
|
Purchase of property and equipment
|
|
|
(21
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
1,360
|
|
|
|
(2,404
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants and options
|
|
|
-
|
|
|
|
3,945
|
|
Proceeds from issuance of shares, warrants, short term loan and convertible loan
|
|
|
-
|
|
|
|
5,923
|
|
Repayment of short term loan, net
|
|
|
-
|
|
|
|
(555
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
9,313
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
315
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
(2,407
|
)
|
|
|
3,611
|
|
Cash, cash equivalents and restricted cash at the beginning of the period
|
|
|
5,230
|
|
|
|
1,872
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at the end of the period
|
|
|
2,823
|
|
|
|
5,483
|
|
|
|
|
|
|
|
|
|
|
Non cash transactions:
|
|
|
|
|
|
|
|
|
Exercise of warrants and share based compensation to equity
|
|
|
-
|
|
|
|
4,703
|
|
Derivative liability reclassified to equity
|
|
|
-
|
|
|
|
104
|
|
The
accompanying notes are an integral part of the interim condensed consolidated financial statements.
MY
SIZE, INC. AND ITS SUBSIDIARIES
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
U.S.
dollars in thousands (except share data and per share data)
Note
1 - General
|
a.
|
My
Size, Inc. is developing unique measurement technologies based on algorithms with applications in a variety of areas,
from the apparel e-commerce market, to the courier services market and to the Do It Yourself smartphone and tablet apps
market. The technology is driven by proprietary algorithms which are able to calculate and record measurements in a variety
of novel ways.
The
Company has two subsidiaries, My Size Israel 2014 Ltd. and Topspin Medical (Israel) Ltd., both of which are incorporated
in Israel. References to the Company include the subsidiaries unless the context indicates otherwise.
|
|
|
|
|
b.
|
During
the nine month period ended September 30, 2019, the Company has incurred significant losses and negative cash flows from
operations and has an accumulated deficit of $27,260. The Company has financed its operations mainly through fundraising
from various investors.
The Company’s management expects
that the Company will continue to generate losses and negative cash flows from operations for the foreseeable future. Based on
the projected cash flows and cash balances as of September 30, 2019, management is of the opinion that its existing cash will be
sufficient to fund operations until the end of the first quarter of 2020. As a result, there is substantial doubt about the Company’s
ability to continue as a going concern.
Management’s
plans include the continued commercialization of the Company’s products and securing sufficient financing through
the sale of additional equity securities, debt or capital inflows from strategic partnerships. Additional funds may not
be available when the Company needs them, on terms that are acceptable to it, or at all. If the Company is unsuccessful
in commercializing its products and securing sufficient financing, it may need to cease operations.
The
financial statements include no adjustments for measurement or presentation of assets and liabilities, which may be required
should the Company fail to operate as a going concern.
|
Note
2 - Significant Accounting Policies
|
a.
|
Unaudited condensed
consolidated financial statements:
|
The
accompanying unaudited condensed consolidated interim financial statements included herein have been prepared by the Company in
accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited
condensed consolidated financial statements are comprised of the financial statements of the Company. In management’s opinion,
the interim financial data presented includes all adjustments necessary for a fair presentation. All intercompany accounts and
transactions have been eliminated. Certain information required by U.S. generally accepted accounting principles (“GAAP”)
has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the nine months ended
September 30, 2019 are not necessarily indicative of the results that may be expected for any future period or for the year ending
December 31, 2019.
These
unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated
financial statements and the notes thereto for the year ended December 31, 2018.
The
preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect
the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially
from these estimates.
MY
SIZE, INC. AND ITS SUBSIDIARIES
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
U.S.
dollars in thousands (except share data and per share data)
Note
2 - Significant Accounting Policies (cont’d)
|
c.
|
Revenue
from contracts with customers:
|
The
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue
from Contracts with Customers (Topic 606) (ASU 2014-09), an updated standard on revenue recognition and issued subsequent amendments
to the initial guidance in March 2016, April 2016, May 2016 and December 2016 within ASU 2016-08, 2016-10, 2016-12 and 2016-20,
respectively (collectively, “ASC 606”). The core principle of the new standard is for companies to recognize revenue
to depict the transfer of services to customers in amounts that reflect the consideration to which the company expects to be entitled
in exchange for those goods and services. In addition, the new standard requires expanded disclosures. The Company has adopted
the standard effective January 1, 2018. The reported results for the nine months ended September 30, 2019 reflect the application
of ASC 606 guidance.
To
recognize revenue under ASC 606, the Company applies the following five steps:
|
1.
|
Identify
the contract with a customer. A contract with a customer exists when the Company enters into an enforceable contract with a customer
and the Company determines that collection of substantially all consideration for the services is probable.
|
|
2.
|
Identify
the performance obligations in the contract.
|
|
3.
|
Determine
the transaction price. The transaction price is determined based on the consideration to which the Company will be entitled in
exchange for providing the service to the customer.
|
|
4.
|
Allocate
the transaction price to performance obligations in the contract. If a contract contains a single performance obligation, the
entire transaction price is allocated to the single performance obligation.
|
|
5.
|
Recognize
revenue when or as the Company satisfies a performance obligation. When the Company provides a service, revenue is recognized
over the service term.
|
|
d.
|
Impact
of recently adopted accounting standard:
|
|
|
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 is intended to increase transparency and comparability of accounting for lease transactions. For all leases with terms greater than twelve months, the new guidance requires lessees to recognize right-of-use assets and corresponding lease liabilities on the balance sheet and to disclose qualitative and quantitative information about lease transactions. The new standard maintains a distinction between finance leases and operating leases. As a result, the effect of leases in the statement of operations and statement of cash flows is largely unchanged. ASU 2016-02 is effective January 1, 2019. In July 2018, the FASB issued ASU 2018-11, Leases - Targeted Improvements, to allow a company to elect an optional modified retrospective transition method that applies the new lease requirements through a cumulative-effect adjustment in the period of adoption. Effective January 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. The Company leases include an office space lease agreement and three-year cancelable operating lease agreements on behalf of personnel vehicles. Adoption of the new standard resulted in the recording of operating lease right-to-use assets and operating lease liabilities on the Company’s consolidated balance sheets, but did not have an impact on the Company’s beginning balance of retained earnings, consolidated statement of operations or statement of cash flows. The most significant impact was the recognition of right-to-use assets and lease liabilities on account of the Company’s operating leases. The Company recognized $127 of right of use assets and operating lease liabilities at January 1, 2019. As of September 30, 2019, the total of right-of-use assets related to the Company’s operating leases was $30 and operating lease liabilities and operating lease liabilities non-current were approximately $17 and $13, respectively.
|
MY
SIZE, INC. AND ITS SUBSIDIARIES
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
U.S.
dollars in thousands (except share data and per share data)
Note
3 - Financial Instruments
Fair
value of financial instruments:
Accounting
Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, relating to fair value measurements,
defines fair value and established a framework for measuring fair value. ASC 820 fair value hierarchy distinguishes between market
participant assumptions developed based on market data obtained from sources independent of the reporting entity and the reporting
entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, essentially an exit price. In addition, the fair value of assets
and liabilities should include consideration of non-performance risk, which for the liabilities described below includes the Company’s
own credit risk.
In
accordance with ASC 820 when measuring the fair value, an entity shall take into account the characteristics of the asset or liability
if a market participant would take those characteristics into account when pricing the asset or liability at the measurement date.
Such characteristics include, for example:
|
a.
|
The
condition and location of the asset.
|
|
b.
|
Restrictions,
if any, on the sale or the use of the asset.
|
As
a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used
in the valuation methodologies in measuring fair value:
|
Level
1 -
|
Valuations based
on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments
and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and
regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
|
|
|
|
Level 2 -
|
Valuations based
on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly
or indirectly.
|
|
|
|
|
Level 3 -
|
Valuations based
on inputs that are unobservable and significant to the overall fair value measurement.
|
The
expected volatility of the share prices reflects the assumption that the historical volatility of the share prices is reasonably
indicative of expected future trends.
The
carrying amounts of cash and cash equivalents, other receivables, trade payables and accounts payable approximate
their fair value due to the short-term maturities of such instruments.
The
Company holds share certificates in iMine Corporation (“iMine”) formerly known as Diamante Minerals, Inc., a publicly-traded
company on the OTCQB.
Due
to sales restrictions on the sale of the iMine share, the fair value of the shares was measured on the basis of the quoted market
price for an otherwise identical unrestricted equity instrument of the same issuer that trades in a public market, adjusted to
reflect the effect of the sales restrictions and is therefore, ranked as Level 2 assets.
|
|
September 30, 2019
|
|
|
|
Fair value hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in marketable securities (*)
|
|
|
-
|
|
|
|
74
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Fair value hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and derivatives
|
|
|
-
|
|
|
|
700
|
|
|
|
-
|
|
MY
SIZE, INC. AND ITS SUBSIDIARIES
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
U.S.
dollars in thousands (except share data and per share data)
Note
3 - Financial Instruments (Cont.)
|
|
December 31, 2018
|
|
|
|
Fair value hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in marketable securities (*)
|
|
|
-
|
|
|
|
208
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Fair value hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and derivatives
|
|
|
-
|
|
|
|
1,252
|
|
|
|
-
|
|
|
(*)
|
For the nine and three month periods ended September 30, 2019 and 2018, the recognized gain (loss) (based
on quoted market prices with a discount due to security - restrictions on IMine shares) of the marketable securities was $(146),
$(42) and $338, $(87), respectively.
|
Note
4 - Stock Based Compensation
The
stock based expense recognized in the financial statements for services received is related to research and development, marketing,
general and administrative expenses and shown in the following table:
|
|
Nine months ended
September 30,
|
|
|
Three months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense - equity awards
|
|
|
567
|
|
|
|
431
|
|
|
|
145
|
|
|
|
110
|
|
Stock-based compensation expense - liability awards
|
|
|
-
|
|
|
|
475
|
|
|
|
-
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567
|
|
|
|
906
|
|
|
|
145
|
|
|
|
135
|
|
MY
SIZE, INC. AND ITS SUBSIDIARIES
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
U.S.
dollars in thousands (except share data and per share data)
Note
4 - Stock Based Compensation (Cont.)
Options
issued to consultants:
In
January 2019, the Company entered into an agreement with a consultant (“Consultant12”) to provide services to the
Company including promoting the Company’s products and services via potential sources of media. Pursuant to said agreement
and in partial consideration for such consulting services, the Company agreed to issue to Consultant12 a warrant to purchase up
to 50,000 shares of the Company’s common stock upon execution of the agreement and after six months, a further warrant to
purchase 100,000 shares of the Company’s common stock. The warrants are exercisable at $1.00 per share and have a term of
12 months from the date of issuance.
During
the nine and three month period ended September 30, 2019, amounts of $42 and $4, respectively, were recorded by the Company as
stock-based equity awards with respect to Consultant12.
In April 2019, the Company entered
into a twelve month agreement with a consultant (“Consultant13”) to provide services to the Company including assisting
the Company to promote, market and sell the Company’s technology to potential customers. Pursuant to said agreement and in
partial consideration for such consulting services, the Company agreed to issue to Consultant13 options to purchase up to 40,000
shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $1.00 per share and
shall vest in 4 equal installments every three months starting July 2019. Unexercised options shall expire 2 years from the effective
date.
During the nine and three month period
ended September 30, 2019, an amount of $6 and $3, was recorded by the Company as stock-based equity awards with respect to Consultant13.
In July 2019, the Company entered
into a three year agreement with a consultant (“Consultant14”) to provide services to the Company including assisting
the Company to promote, market and sell the Company’s technology to potential customers. Pursuant to such agreement and in
partial consideration for such consulting services, the Company agreed to issue to Consultant14 options to purchase up to 40,000
shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $1.00 per share and
shall vest in 3 equal installments every twelve months starting June 2020. Unexercised options shall expire 4 years from the effective
date.
During
the nine and three month period ended September 30, 2019, an amount of $1 was recorded by the Company as stock-based equity awards
with respect to Consultant14.
Stock
Option Plan for Employees:
In
March 2017, the Company adopted a stock option plan (the “Plan”) pursuant to which the Company’s Board of Directors
may grant stock options to officers and key employees. The total number of options which may be granted to directors, officers,
employees under this plan, is limited to 3,000,000 options. Stock options can be granted with an exercise price equal to or less
than the stock’s fair market value at the grant date.
During
the nine month period ended September 30, 2019, 1,553,950 options were granted, no options were exercised and 60,000 options expired.
The total stock option compensation
expense during the nine and three month period ended September 30, 2019 which were recorded as research and development was $125
and $34, respectively.
The total stock option compensation
expense during the nine and three month period ended September 30, 2019 which was recorded as marketing and general and administrative
expenses was $307 and $90, respectively.
MY
SIZE, INC. AND ITS SUBSIDIARIES
Notes
to Condensed Consolidated Interim Financial Statements (unaudited)
U.S.
dollars in thousands (except share data and per share data)
Note
5 - Contingencies and Commitments
|
a.
|
On August 7, 2018, the Company commenced an action against North Empire LLC (“North Empire”)
in the Supreme Court of the State of New York, County of New York for breach of a Securities Purchase Agreement (the “Agreement”)
in which it is seeking damages in an amount to be determined at trial, but in no event less than $616,000. On August 2, 2018, North
Empire filed a Summons with Notice against the Company, also in the same Court, in which they allege damages in an amount of $11.4
million arising from an alleged breach of the Agreement. On September 6, 2018 North Empire filed a Notice of Discontinuance of
the action it had filed on August 2, 2018. On September 27, 2018, North Empire filed an answer and asserted counterclaims in the
action commenced by the Company against them, alleging that the Company failed to deliver stock certificates to North Empire causing
damage to North Empire in the amount of $10,958,589. North Empire also filed a third-party complaint against the Company’s
CEO and now former Chairman of the Board asserting similar claims against them in their individual capacities. On October 17, 2018,
the Company filed a reply to North Empire’s counterclaims. On November 15, 2018, the Company’s CEO and now former Chairman
of the Board filed a motion to dismiss North Empire’s third-party complaint. The parties are now engaging in discovery in
connection with the claims and counterclaims, and are awaiting the court’s decision on the motion to dismiss North Empire’s
third-party complaint.
The
Company believes it is more likely than not that the counterclaims will be denied.
|
|
b.
|
On January 22, 2019, the Company was notified by the Nasdaq Stock Market, LLC (“Nasdaq”) that
the Company 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 July 22, 2019, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of
the Company’s common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business
days. If the Company does not regain compliance by July 22, 2019.
The
Company did not regain compliance with the Rule by July 22, 2019 and, as a result, on July 23, 2019, the Company received
notice from the Staff that, based upon the Company’s continued non-compliance with the Rule, the Staff had determined
to delist the Company’s common stock from Nasdaq unless the Company timely requests a hearing before the Nasdaq
Hearings Panel (the “Panel”). The hearing occurred on September 19, 2019.
On
October 1, 2019, the Panel granted the Company’s request for continued listing of the Company’s common stock on
the Nasdaq Capital Market pursuant to an extension through January 20, 2020, subject to the condition that the Company regain
compliance with the Bid Price Rule by such date and that the Company demonstrate compliance with all requirements for
continued listing on the Nasdaq. Previously, on August 5, 2019, at the annual meeting of the Company’s
stockholders, discretionary authority was granted to the Company’s board of directors to effect a reverse stock split
at any time until August 5, 2020 at a ratio within the range from 1-for-2 up to 1-for-30. The Company plans to effect a
reverse stock split to regain compliance with the Bid Price Rule. If the Company does not regain compliance with the Bid
Price Rule by January 20, 2020 or it is unable to demonstrate compliance with all requirements for continued listing on the
Nasdaq, or, based on any significant events that occur during the extension period, the Panel reconsiders the extension,
Nasdaq would delist the Company’s common stock from the Nasdaq Capital Market.
|
|
|
|
|
c.
|
In
August 2019, the Company entered into an office space lease agreement. The lease term is for 36 months beginning on August
20, 2019 and ending on August 20, 2022, with an option to extend for an additional 36 months. Monthly rent payments including
utilities amount to approximately NIS 35,000 per month.
As at September 30, 2019, the Company had not moved into its new office space.
|
Note 6 - Significant Events During the Reporting Period
|
a.
|
On September 13, 2019, the Company entered into an At The Market Offering Agreement (the “Offering Agreement”)
with H.C. Wainwright & Co., LLC, as sales agent (“H.C. Wainwright”), pursuant to which the Company may offer and
sell, from time to time through H.C. Wainwright shares of the Company’s common stock, par value $0.001 per share, having
an aggregate offering price of up to $5,500,000 (the “Shares”). Pursuant to the Offering Agreement, H.C. Wainwright
may sell the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415
of the Securities Act. The Company is not obligated to make any sales of the Shares under the Offering Agreement. The offering
of Shares pursuant to the Offering Agreement will terminate upon the earliest of (a) the sale of all of the Shares subject to the
Offering Agreement, (b) the termination of the Offering Agreement by H.C. Wainwright or the Company, as permitted therein, or (c)
September 13, 2022
|
|
|
|
|
b.
|
During the three months ended September 30,
2019, the Company began an examination of changing its functional currency from New Israeli Shekels to U.S. dollars.
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our
results of operations and financial condition for the periods described. This discussion should be read together with our condensed
consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report
on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form
10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 27, 2019, or the Annual
Report, including the consolidated annual financial statements as of December 31, 2018 and their accompanying notes included therein.
This
Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements
in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance
are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use
of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,”
“intend,” “plan” and “would.” For example, statements concerning financial condition, possible
or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for
our common stock and future management and organizational structure are all forward-looking statements. Forward-looking statements
are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results,
levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements
expressed or implied by any forward-looking statement.
Any
forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this Quarterly
Report on Form 10-Q. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include but are not limited to:
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our
history of losses and needs for additional capital to fund our operations and our inability to obtain additional capital on
acceptable terms, or at all;
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our ability to
continue as a going concern;
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the new and unproven
nature of the measurement technology markets;
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our ability to
achieve customer adoption of our products;
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our dependence
on assets we purchased from a related party and the risk that such assets may in the future be repurchased;
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our ability to
enhance our brand and increase market awareness;
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our ability to
introduce new products and continually enhance our product offerings;
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the success of
our strategic relationships with third parties;
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information technology
system failures or breaches of our network security;
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competition from
competitors;
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our reliance
on key members of our management team;
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current or future litigation;
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the impact of the political and security
situation in Israel on our business; and
our ability to remain listed on the Nasdaq
Capital Market.
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The
foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any
forward-looking statements. You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and
have filed as exhibits to the Quarterly Report on Form 10-Q completely and with the understanding that our actual future results
may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report on
Form 10-Q is accurate as of the date hereof. Because the risk factors referred to on page 12 of our Annual Report, could cause
actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf,
you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of
the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time
to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor
on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. We qualify all of the information presented in this Quarterly Report on Form
10-Q, and particularly our forward-looking statements, by these cautionary statements.
Unless
the context otherwise requires, all references to “we,” “us,” “our” or “the Company”
in this Quarterly Report on Form 10-Q are to My Size, Inc. a Delaware corporation, and its subsidiaries, including MySize Israel
2014 Ltd. taken as a whole.
Overview
We
are a creator of mobile device measurement solutions that has developed innovative solutions designed to address shortcomings
in multiple verticals, including the e-commerce fashion/apparel, shipping/parcel and do it yourself, or DIY, industries. Utilizing
our sophisticated algorithms within our proprietary technology, we can calculate and record measurements in a variety of novel
ways, and most importantly, increase revenue for businesses across the globe.
Our
solutions can be utilized to accurately take measurements of a variety of items via a mobile device. By downloading the application
to a smartphone, the user is then able to run the mobile device over the surface of an item the user wishes to measure. The information
is then automatically sent to a cloud-based server where the dimensions are calculated through our proprietary algorithms, and
the accurate measurements (+ or - 2 centimeters) are then sent back to the user’s mobile device. We believe that the commercial
applications for this technology are significant in many areas.
Currently,
we are focusing on the following market segments:
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E-commerce
fashion/apparel industry – our main target-market;
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While
we are currently devoting much of our focus on the applications for the e-commerce apparel industry, management believes that
all of the above-mentioned applications will be useful to users, retailers and vendors alike.
We are in the commercialization
phase of our products although have only generated minimal revenues to date. In recent months, Isay, a Danish fashion brand, selected
MySizeID as a measuring solution, we announced the planned launch of MySizeID in Australia with a global retail marketplace operator
that is set to introduce an integrated, technology-based app for the custom apparel and merchandise industry, we entered into a
license agreement for MySizeID with Penti, a leading multi-category retail fashion underwear brand, we successfully integrated
and launched the MySizeID smart measurement solution software development kit (SDK) for DeMoulin, a music performance group apparel
company, and we are proceeding with the global integration of MySizeID into the e-commerce platform of one of the largest apparel
companies in the world, which has since been expanded worldwide. In addition, we have also executed agreements with a number of
additional retailers either directly or through our recently announced collaboration with Shopify and Lightspeed. We also recently
announced that BoxSize has been approved for Honeywell’s global vendor program and are continuing to make progress with Katz
Corporation, one of the largest package delivery companies in Israel, as they have started rolling out BoxSize within the organization.
While we rollout our
products to major retailers and apparel companies, there is a lead time for new customers to ramp up before we can recognize revenue.
This lead time varies between customers, especially when the customer is a tier 1 retailer, where the integration process may take
longer. Generally, first we integrate our product into a customer’s online platform, which is followed by piloting and implementation,
and, assuming we are successful, commercial roll-out, all of which takes time before we expect it to impact our financial results
in a meaningful way. While we have begun generating initial sales revenue, we do not expect to generate meaningful revenue during
the upcoming quarters. Because of the numerous risks and uncertainties associated with the success of our market penetration and
our dependence on the extent to which MySizeID is adopted and utilized, we are unable to predict the extent to which we will recognize
revenue. We may be unable to successfully develop or market any of our current or proposed products or technologies, those products
or technologies may not generate any revenues, and any revenues generated may not be sufficient for us to become profitable or
thereafter maintain profitability.
Results
of Operations
The
table below provides our results of operations for the periods indicated.
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Three months ended
September
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Nine months ended
September
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2019
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2018
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2019
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2018
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(dollars in thousands)
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(dollars in thousands)
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Revenues
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6
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-
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$
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31
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$
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—
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Cost of revenues
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-
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-
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(1
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)
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—
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Gross profit
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6
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-
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30
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—
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Research and development expenses
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(395
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)
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(311
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)
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(1,066
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)
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(807
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)
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Marketing, general and administrative expenses
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(1,210
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)
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(771
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)
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(3,389
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)
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(3,103
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)
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Operating loss
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(1,599
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)
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(1,082
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)
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(4,425
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)
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(3,910
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Financial income (expenses), net
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249
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(479
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)
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182
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(1,483
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)
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Net loss
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(1,350
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)
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(1,561
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)
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$
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(4,243
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)
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$
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(5,393
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)
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Nine
and three Months Ended September 30, 2019 Compared to Nine and three Months Ended September 30, 2018
Revenues
From inception through
December 31, 2018, we did not generate any revenue from operations and we continue to expect to incur additional losses to
perform further research and development activities. We started to generate revenues only in 2019. Our revenues for the nine months
ended September 30, 2019 amounted to $31,000 compared to none for the nine months ended September 30, 2018. The increase from the
corresponding period primarily resulted from pilot and license agreements. Our revenues for the three months ended September 30,
2019 amounted to $6,000 compared to none for the three months ended September 30, 2018. The increase from the corresponding period
primarily resulted from a new license agreement.
Research
and Development Expenses
Our
research and development expenses for the nine months ended September 30, 2019 amounted to $1,066,000 compared to $807,000 for
the nine months ended September 30, 2018. The increase from the corresponding period primarily resulted from the hiring of new
employees and expenses associated with share-based payments to our employees offset by a decrease in payments to subcontractors.
Our
research and development expenses for the three months ended September 30, 2019 amounted to $395,000 compared to $311,000 for
the three months ended September 30, 2018. The increase from the corresponding period primarily resulted from the hiring of new
employees and expenses associated with share-based payments to our employees offset by a decrease in payments to subcontractors.
Marketing,
General and Administrative Expenses
Our marketing, general
and administrative expenses for the nine months ended September 30, 2019 amounted to $3,389,000 compared to $3,103,000 for the
nine months ended September 30, 2018. The increase in comparison with the corresponding period was mainly due to an increase in
payroll expenses due to the hiring of a sales team in the US and an increase in sales and marketing expenses which were offset
by a reduction in share-based payment expenses of consultants and employees and professional services expenses. For the nine months
ended September 30, 2019, we had an expense of $417,000 in respect of share-based payments, in comparison with an expense of $872,000
in respect of share-based payments for the nine months ended September 30, 2018.
Our marketing, general
and administrative expenses for the three months ended September 30, 2019 amounted to $1,210,000 compared to $771,000 for the three
months ended September 30, 2018. The increase in comparison with the corresponding period was mainly due to an increase in insurance
expenses and payroll expenses due to the hiring of a sales team in the US and an increase in sales and marketing expenses.
Financial
Expenses, Net
Our financial income, net for the nine months ended September 30, 2019 amounted to $182,000 compared to
financial expenses, net of $1,483,000 for the nine months ended September 30, 2018. The decrease in comparison with the corresponding
period was mainly due to income of $619,000 for the nine months ended September 30, 2019 from change in fair value of warrants
as opposed to expenses of $2,264,000 for the nine months ended September 30, 2018 offset by an expense of $143,000 for the nine
months ended September 30, 2019 from revaluation investment in marketable securities as opposed to an income of $338,000 for the
nine months ended September 30, 2018.
Our
financial income, net for the three months ended September 30, 2019 amounted to $249,000 compared to financial expenses, net of
$479,000 for the three months ended September 30, 2018. The decrease compared to the corresponding period was mainly due to income
of $359,000 for the three months ended September 30, 2019 from change in fair value of warrants compared to an expense of $339,000
for the three months ended September 30, 2018.
Net
Loss
As a result of the
foregoing research and development, marketing general and administrative expenses, and financial expenses, our net loss for the
nine months ended September 30, 2019 was $4,243,000, compared to net loss of $5,393,000 for the nine months ended September 30,
2018. The decrease in net loss is due to the reduction of share-based payment expenses and professional services expenses, and
income from the revaluation of warrants, derivatives and stock based compensation liabilities, which is offset by an increase in
payroll expenses due to the hiring of a sales team in the US and an overall increase in sales and marketing expenses.
As
a result of the foregoing research and development, marketing general and administrative expenses, and financial expenses, our
net loss for the three months ended September 30, 2019 was $1,350,000, compared to net loss of $1,561,000 for the three months
ended September 30, 2018. The decrease in net loss is due to the increase in income from the revaluation of warrants and stock
based compensation liabilities offset by an increase of sales and marketing expenses.
Liquidity
and Capital Resources
Since
our inception, we have funded our operations primarily through public and private offerings of debt and equity in the State of
Israel and in the U.S.
As
of September 30, 2019, we had cash, cash equivalents and restricted cash of $2,823,000 and no short term deposit compared to $5,230,000
of cash, cash equivalents and restricted cash, $181,000 in a short-term restricted deposit and $1,209,000 in a short-term deposit
as of December 31, 2018. This decrease primarily resulted from our operating activities.
On
September 13, 2019, we entered into an At The Market Offering Agreement with H.C. Wainwright & Co., LLC, as agent (“H.C.
Wainwright”), pursuant to which we may sell from time to time, at our option, up to $5.5 million of our shares of common
stock through an “at-the-market” equity offering program under which H.C. Wainwright will act as sales agent. The
issuance and sale of shares of common stock by us under the program will be made pursuant to our effective “shelf”
registration statement on Form S-3 (Registration Statement No. 333-222535) filed with the SEC on January 1, 2018, and declared
effective on January 25, 2018. No shares of common stock have been sold under the program.
Cash
used in operating activities was $4,082,000 for the nine months ended September 30, 2019, compared to $2,798,000 for the nine
months ended September 30, 2018.
Net
cash provided by investing activities was $1,360,000 for the nine months ended September 30, 2019, compared to cash used in investing
activities of $2,404,000 for the nine months ended September 30, 2018. The net cash provided by investing activities for the nine
months ended September 30, 2019 was mainly due to the proceeds from short-term and restricted deposits in comparison to the cash
used to invest in short-term deposits during the nine months ended September 30, 2018.
We
had no cash flow from financing activities for the nine months ended September 30, 2019, compared to $9,313,000 for the nine months
ended September 30, 2018. The cash flow from financing activities for the nine months ended September 30, 2018 was due to a public
offering of our securities and proceeds from the exercise of the warrants.
We
do not have any material commitments for capital expenditures during the next twelve months.
We expect to continue to
generate losses and negative cash flows from operations for the foreseeable future. Based on the projected cash flows and cash
balances as of September 30, 2019, management is of the opinion that our existing cash will be sufficient to fund operations until
the end of the first quarter 2020 without further fund raising. As a result, there is substantial doubt about the Company’s
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. 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
requirements; and
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maintain compliance with applicable laws and exchange rules.
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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 business, results of operations
and financial condition.
To
the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities
could result in substantial dilution for our current stockholders. The terms of any securities issued by us in future capital
transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants
or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then-outstanding.
We may issue additional shares of our common stock or securities convertible into or exchangeable or exercisable for our common
stock in connection with hiring or retaining personnel, option or warrant exercises, future acquisitions or future placements
of our securities for capital-raising or other business purposes. The issuance of additional securities, whether equity or debt,
by us, or the possibility of such issuance, may cause the market price of our common stock to decline and existing stockholders
may not agree with our financing plans or the terms of such financings. In addition, we may incur substantial costs in pursuing
future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing
and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities
we issue, such as convertible notes and warrants, which may adversely impact our financial condition. Furthermore, any additional
debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain
such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced
to sell assets, perhaps on unfavorable terms, or we may have to cease our operations, which would have a material adverse effect
on our business, results of operations and financial condition.
Off-Balance
Sheet Arrangements
We
have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained
interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities
or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market
risk or credit risk support.
Application
of Critical Accounting Policies and Estimates
Our
management’s discussion and analysis of our financial condition and results of operations is based on our financial statements,
which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting
periods. Actual results may differ from these estimates under different assumptions or conditions.
While
our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this
report, we believe that the accounting policies discussed below are critical to our financial results and to the understanding
of our past and future performance, as these policies relate to the more significant areas involving management’s estimates
and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information
was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2)
changes in the estimate could have a material impact on our financial condition or results of operations.
Revenue
from Contracts with Customers
We
account for our revenue from contracts with customers in our financial statements based on ASC 606.
To
recognize revenue under ASC 606, we apply the following five steps:
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1.
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Identify the contract
with a customer. A contract with a customer exists when the Company enters into an enforceable contract with a customer and
the Company determines that collection of substantially all consideration for the license and/or services is probable.
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2.
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Identify the performance
obligations in the contract.
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3.
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Determine the transaction
price. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for
providing the service to the customer.
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4.
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Allocate the transaction
price to performance obligations in the contract. If a contract contains a single performance obligation, the entire transaction
price is allocated to the single performance obligation.
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5.
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Recognize revenue
when or as the Company satisfies a performance company provides a service, revenue is recognized over the service term.
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Research
and development expenses
Research
expenses are recognized as expenses when incurred. Costs incurred on development projects are recognized as intangible assets
as of the date as of which it can be established that it is probable that future economic benefits attributable to the asset will
flow to us considering its commercial feasibility. This is generally the case when regulatory approval for commercialization is
achieved and costs can be measured reliably. Given the current stage of the development of our products, no development expenditures
have yet been capitalized. Intellectual property-related costs for patents are part of the expenditure for the research and development
projects. Therefore, registration costs for patents are expensed when incurred as long as the research and development project
concerned does not meet the criteria for capitalization.
Equity-based
compensation
We
account for our employees’ share-based compensation as an expense in the financial statements based on ASC 718. All awards
are equity classified and therefore the cost is measured at the grant date fair value of the award. We estimate share option grant
date fair value using the Binomial option pricing model.
We recorded stock options issued to non-employees at fair value, remeasured to reflect the current fair
value at each reporting period and recognized expenses over the service period. We elected to early implement ASU 2018-07, Stock
Compensation: Improvements to non-employee Share-Based Payment Accounting, from October 1, 2018.
In
accordance with ASU 2018-07, we measured stock options at the implementation date and reclassified the share based payments from
a liability share based payments awards to equity share based payments awards. The fair value as of the implementation date will
be recognized over the remaining service period. We estimate share option grant date fair value using the Binomial option pricing
model.
The
expected volatility of the share price reflects the assumption that the historical volatility of the share price is reasonably
indicative of expected future trends.
The
risk-free interest rate for grants with exercise price denominated in NIS is based on the yield from Israel treasury zero-coupon
bonds with an equivalent term. The risk-free interest rate for grants with exercise price denominated in USD is based on the yield
from US treasury zero-coupon bonds with an equivalent term.
We
have historically not paid dividends and have no foreseeable plans to pay dividends.