Item
1. Financial Statements.
My
Size Inc. and Subsidiaries
Condensed
Consolidated
Interim
Financial
Statements
As
of June 30, 2020
(unaudited)
U.S.
Dollars in Thousands
MY
SIZE, INC. AND ITS SUBSIDIARIES
Condensed
Consolidated Interim Financial Statements as of June 30, 2020 (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)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Assets
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
4,549
|
|
|
|
1,203
|
|
Restricted cash
|
|
|
93
|
|
|
|
263
|
|
Restricted deposits
|
|
|
182
|
|
|
|
-
|
|
Accounts receivable
|
|
|
27
|
|
|
|
38
|
|
Other receivables and prepaid expenses
|
|
|
274
|
|
|
|
321
|
|
Total current assets
|
|
|
5,125
|
|
|
|
1,825
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
128
|
|
|
|
141
|
|
Right-of-use assets
|
|
|
921
|
|
|
|
966
|
|
Investment in marketable securities
|
|
|
41
|
|
|
|
26
|
|
Total non-current assets
|
|
|
1,090
|
|
|
|
1,133
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
6,215
|
|
|
|
2,958
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Operating lease liability
|
|
|
115
|
|
|
|
102
|
|
Trade payables
|
|
|
348
|
|
|
|
440
|
|
Accounts payable
|
|
|
361
|
|
|
|
378
|
|
Warrants and derivatives
|
|
|
-
|
|
|
|
328
|
|
Total current liabilities
|
|
|
824
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
|
598
|
|
|
|
659
|
|
Total non-current liabilities
|
|
|
598
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,422
|
|
|
|
1,907
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Stock Capital -
|
|
|
|
|
|
|
|
|
Common stock of $ 0.001 par value - Authorized: 100,000,000 shares;
Issued and outstanding: 7,157,836 and 2,085,900 as of June 30, 2020 and December 31, 2019, respectively
|
|
|
7
|
|
|
|
2
|
|
Additional paid-in capital
|
|
|
36,599
|
|
|
|
30,102
|
|
Accumulated other comprehensive loss
|
|
|
(536
|
)
|
|
|
(539
|
)
|
Accumulated deficit
|
|
|
(31,277
|
)
|
|
|
(28,514
|
)
|
Total stockholders’ equity
|
|
|
4,793
|
|
|
|
1,051
|
|
Total liabilities and stockholders’ equity
|
|
|
6,215
|
|
|
|
2,958
|
|
The
accompanying notes are an integral part of the condensed consolidated interim 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)
|
|
Six-Months Ended
June 30,
|
|
|
Three-Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
$ thousands (Unaudited)
|
|
|
$ thousands (Unaudited)
|
|
|
$ thousands (Unaudited)
|
|
|
$ thousands (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
51
|
|
|
|
25
|
|
|
|
21
|
|
|
|
5
|
|
Cost of revenues
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
50
|
|
|
|
24
|
|
|
|
21
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(688
|
)
|
|
|
(671
|
)
|
|
|
(340
|
)
|
|
|
(379
|
)
|
Sales and marketing
|
|
|
(1,077
|
)
|
|
|
(861
|
)
|
|
|
(452
|
)
|
|
|
(479
|
)
|
General and administrative
|
|
|
(1,078
|
)
|
|
|
(1,318
|
)
|
|
|
(562
|
)
|
|
|
(710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(2,843
|
)
|
|
|
(2,850
|
)
|
|
|
(1,354
|
)
|
|
|
(1,568
|
)
|
Operating loss
|
|
|
(2,793
|
)
|
|
|
(2,826
|
)
|
|
|
(1,333
|
)
|
|
|
(1,563
|
)
|
Financial income (expenses), net
|
|
|
30
|
|
|
|
(67
|
)
|
|
|
29
|
|
|
|
197
|
|
Net loss
|
|
|
(2,763
|
)
|
|
|
(2,893
|
)
|
|
|
(1,304
|
)
|
|
|
(1,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences
|
|
|
3
|
|
|
|
234
|
|
|
|
4
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
(2,760
|
)
|
|
|
(2,659
|
)
|
|
|
(1,300
|
)
|
|
|
(1,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
(0.72
|
)
|
|
|
(1.5
|
)
|
|
|
(0.25
|
)
|
|
|
(0.75
|
)
|
Basic and diluted weighted average number of shares outstanding
|
|
|
3,835,651
|
|
|
|
1,991,161
|
|
|
|
5,166,772
|
|
|
|
1,992,151
|
|
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 January 1, 2020
|
|
|
2,085,900
|
|
|
|
2
|
|
|
|
30,102
|
|
|
|
(539
|
)
|
|
|
(28,514
|
)
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options granted to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
Issuance of shares, net of issuance cost of $1,160
|
|
|
2,439,802
|
|
|
|
3
|
|
|
|
5,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,995
|
|
Exercise of warrants and pre funded warrants
|
|
|
2,632,134
|
|
|
|
2
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Liability reclassified to equity (*)
|
|
|
-
|
|
|
|
-
|
|
|
|
328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
328
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
(2,763
|
)
|
|
|
(2,760
|
)
|
Balance as of June 30, 2020
|
|
|
7,157,836
|
|
|
|
7
|
|
|
|
36,599
|
|
|
|
(536
|
)
|
|
|
(31,277
|
)
|
|
|
4,793
|
|
|
|
Common stock
|
|
|
Additional
paid-in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
loss
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2019
|
|
|
1,990,159
|
|
|
|
2
|
|
|
|
29,144
|
|
|
|
(835
|
)
|
|
|
(23,017
|
)
|
|
|
5,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options granted to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374
|
|
Issuance of shares to consultants
|
|
|
2,084
|
|
|
|
(**)
|
|
|
|
48
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
234
|
|
|
|
(2,893
|
)
|
|
|
(2,659
|
)
|
Balance as of June 30, 2019
|
|
|
1,992,243
|
|
|
|
2
|
|
|
|
29,566
|
|
|
|
(601
|
)
|
|
|
(25,910
|
)
|
|
|
3,057
|
|
|
(**)
|
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 April 1, 2020
|
|
|
2,600,701
|
|
|
|
3
|
|
|
|
32,193
|
|
|
|
(540
|
)
|
|
|
(29,973
|
)
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options granted to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
93
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93
|
|
Issuance of shares, net of issuance cost of $848
|
|
|
1,925,001
|
|
|
|
2
|
|
|
|
4,299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,301
|
|
Exercise of warrants and pre funded warrants
|
|
|
2,632,134
|
|
|
|
2
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
(1,304
|
)
|
|
|
(1,300
|
)
|
Balance as of June 30, 2020
|
|
|
7,157,836
|
|
|
|
7
|
|
|
|
36,599
|
|
|
|
(536
|
)
|
|
|
(31,277
|
)
|
|
|
4,793
|
|
|
|
Common stock
|
|
|
Additional
paid-in
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
loss
|
|
|
deficit
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 1, 2019
|
|
|
1,990,159
|
|
|
|
2
|
|
|
|
29,244
|
|
|
|
(671
|
)
|
|
|
(24,544
|
)
|
|
|
4,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation related to options granted to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
274
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274
|
|
Issuance of shares to consultants
|
|
|
2,084
|
|
|
|
(**)
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
|
|
(1,366
|
)
|
|
|
(1,296
|
)
|
Balance as of June 30, 2019
|
|
|
1,992,243
|
|
|
|
2
|
|
|
|
29,566
|
|
|
|
(601
|
)
|
|
|
(25,910
|
)
|
|
|
3,057
|
|
|
(**)
|
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 Cash Flows
U.S.
dollars in thousands
|
|
Six-Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
|
(2,763
|
)
|
|
|
(2,893
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
19
|
|
|
|
13
|
|
Amortization of operating lease right-of-use asset
|
|
|
21
|
|
|
|
-
|
|
Revaluation of warrants and derivatives
|
|
|
(19
|
)
|
|
|
(269
|
)
|
Interest and revaluation of short-term deposit
|
|
|
-
|
|
|
|
54
|
|
Interest received from short-term deposit
|
|
|
-
|
|
|
|
16
|
|
Revaluation of investment in marketable securities
|
|
|
(15
|
)
|
|
|
104
|
|
Stock based compensation
|
|
|
163
|
|
|
|
422
|
|
Decrease in accounts receivables
|
|
|
11
|
|
|
|
-
|
|
Decrease in other receivables and prepaid expenses
|
|
|
64
|
|
|
|
127
|
|
Decrease in trade payable
|
|
|
(90
|
)
|
|
|
(89
|
)
|
(Decrease) increase in accounts payable
|
|
|
(16
|
)
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,625
|
)
|
|
|
(2,424
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term deposits
|
|
|
-
|
|
|
|
1,200
|
|
(Investing in) proceeds from restricted deposits
|
|
|
(170
|
)
|
|
|
181
|
|
Investment in right-of-use asset
|
|
|
(25
|
)
|
|
|
-
|
|
Purchase of property and equipment
|
|
|
(5
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(200
|
)
|
|
|
1,366
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of shares and pre-funded warrants, net of issuance costs
|
|
|
6,011
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6,011
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
(10
|
)
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
Increase in cash, cash equivalents and restricted cash
|
|
|
3,176
|
|
|
|
(818
|
)
|
Cash, cash equivalents and restricted cash at the beginning of the period
|
|
|
1,466
|
|
|
|
5,230
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at the end of the period
|
|
|
4,642
|
|
|
|
4,412
|
|
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 three subsidiaries, My Size Israel 2014 Ltd. and Topspin Medical (Israel) Ltd., both of which are incorporated
in Israel and My Size LLC which was incorporated in Russian Federation. References to the Company include the subsidiaries unless
the context indicates otherwise.
|
|
|
|
|
b.
|
During
the six month period ended June 30, 2020, the Company has incurred significant losses
and negative cash flows from operations and has an accumulated deficit of $31,277. 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 June 30, 2020, management is of the opinion that its existing cash will be sufficient to fund operations
until the end of the second quarter of 2021. 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 six months ended
June 30, 2020 are not necessarily indicative of the results that may be expected for any future period or for the year ending
December 31, 2020.
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, 2019.
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)
The
Company reassessed its functional currency and determined to change its functional currency to the U.S. dollar from the NIS as
of January 1, 2020. The change in functional currency was accounted for prospectively from that date. In 2019, the Company went
through a strategic shift which involved a significant change in its business model, that clearly indicates that the functional
currency has changed, beginning January 2020. In previous years, the Company acted as a platform to fund its operational subsidiary,
My Size Israel, which conducts its research and development activities in NIS. Accordingly, the Company has not been substantially
focused on its operating activities for that period. By the end of 2018, the Company transitioned to a new business model (B2B2C)
and concluded that the main market that the Company should focus on would be the apparel market in the US. Consequently, the Company
established marketing and distribution channels in the US along with having a new pricing model denominated in USD. Throughout
2019, the Company itself hired sales personnel which are based in the US and signed agreements with customers for which it began
generating revenue in USD for the first time since it began its operations. Accordingly, by the end of 2019, the Company is no
longer considered a ‘holding company’ for the matter of determining its functional currency under ASC 830 based on
the currency of its operating entities. As a result of being an operational company that enters into operational agreements and
generates revenues on an ongoing basis, the management of the Company has concluded that as of January 1 2020, the currency that
most faithfully portrays the economic results of the Company's operations is the U.S. dollar.
My
Size Israel functional currency remains the NIS.
As
a result of the change in the Company’s functional currency, the Company reclassified its warrants that were outstanding
as a financial liability in an amount of $328 as at December 31, 2019 to equity.
Certain
amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial
statements. These reclassifications had no effect on the previously reported net loss.
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, accounts receivable, 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.
|
|
June 30, 2020
|
|
|
|
Fair value hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in marketable securities (*)
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
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, 2019
|
|
|
|
Fair value hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in marketable securities (*)
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
December 31, 2019
|
|
|
|
Fair value hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and derivatives
|
|
|
-
|
|
|
|
328
|
|
|
|
-
|
|
|
(*)
|
For
the six and three month periods ended June 30, 2020 and 2019, the recognized gain (loss) (based on quoted market prices with
a discount due to security restrictions on iMine shares) of the marketable securities was $15 and $3, and $104 and $(425),
respectively.
|
Note
4 - Stock Based Compensation
The
stock-based expense- equity awards recognized in the financial statements for services received is related to Research and Development,
Sales and Marketing and General and Administrative expenses as shown in the following table:
|
|
Six months ended
June 30,
|
|
|
Three months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense - Research and development
|
|
|
51
|
|
|
|
92
|
|
|
|
31
|
|
|
|
84
|
|
Stock-based compensation expense - Sales and marketing
|
|
|
46
|
|
|
|
155
|
|
|
|
24
|
|
|
|
118
|
|
Stock-based compensation expense - General and administrative
|
|
|
66
|
|
|
|
175
|
|
|
|
38
|
|
|
|
120
|
|
|
|
|
163
|
|
|
|
422
|
|
|
|
93
|
|
|
|
322
|
|
Options
issued to consultants:
During the six month period
ended June 30, 2020, the Company granted 13,500 options to consultants. No such options were exercised and 8,338 options expired.
The total stock option
compensation expense during the six and three month period ended June 30, 2020 and 2019 which was recorded under sales and
marketing was $5, $1, $59 and $6 respectively and under general and administrative was $12, $6, $55 and $27,
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
4 - Stock Based Compensation (Cont.)
Warrants
issued to consultants:
|
a.
|
On
January 15, 2020, the Company conducted a registered direct offering pursuant to which it issued 514,801 shares of its common
stock and in a concurrent private placement issued warrants to purchase up to 514,801 shares of common stock at an exercise
price of $3.76 per share for gross proceeds of $2,000. The term of the warrants are five and a half years. The Company received
net proceeds of $1,694 after deducting placement agent fees and other offering expenses.
|
In
addition to the fees above, the Company issued to the placement agent warrants on substantially the same terms as the investors
in the offering in an amount equal to 6% of the aggregate number of shares of common stock sold in the offering, or 30,888 shares
of common stock, at an exercise price of $4.8563 per share and a term expiring on January 15, 2025.
The
warrants were measured at fair value of $52.
|
b
|
On May 8, 2020 the Company completed a
public offering of (i) 1,925,001 units, each unit consisting of one share of common stock, and one warrant to purchase one share
of common stock at a price of $1.10, and (ii) 2,620,453 pre-funded units, each pre-funded unit consisting of one pre-funded warrant
to purchase one share of common stock and one warrant, at a price of $1.099 per pre-funded unit. The net proceeds to the Company
from the offering were approximately $4.3 million, after deducting placement agent’s fees and other offering expenses payable
by the Company.
The warrants to purchase an aggregate of
4,545,454 shares of common stock are immediately exercisable and may be exercised at a consideration of $1.10 per share. The term
of the warrants are five and a half years. Pre-funded warrants were immediately exercisable and were exercisable at a nominal consideration
of $0.001 per share. During May, 2020, the pre-funded warrants were exercised in full and therefore are no longer outstanding.
|
In
addition to the fees above, the Company issued to the placement agent warrants on substantially the same terms as the investors
in the offering in an amount equal to 6% of the aggregate number of shares of common stock sold in the offering, or 272,727 shares
of common stock, at an exercise price of $1.375 per share and a term expiring on May 6, 2025.
The
warrants were measured at fair value of $160.
Pursuant to the anti-dilution adjustment
provisions in outstanding warrants to purchase 144,277 shares of common stock, the per share exercise price was reduced to $0.9289,
following the issuance of the securities in the public offering.
|
c.
|
Further
to Note 11a of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019:
|
In
March 2020, warrants to purchase up to 66,667 shares of common stock of the Company that were not exercised expired.
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 200,000 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. . In August 2020, the Company’s shareholders approved an increase in the number of shares
available for issuance under the Plan to 1,450,000 (see note 7 below).
On May 25, 2020, the
Compensation Committee of the Board of Directors of the Company reduced the exercise price of outstanding options of employees
and directors of the Company for the purchase of an aggregate of 140,237 shares of common stock of the Company (with exercise prices
ranging between $18.15 and $9.15) to $1.04 per share, which was the closing price for the Company’s common stock on May 22,
2020, and extended the term of foregoing options for an additional one year from the original date of expiration. The incremental
compensation cost resulting from the repricing was $53, and the expenses during both the six and three months ended June 30, 2020
were $43.
During the six and three month
period ended June 30, 2020, there were no grants of stock options under the Plan, no such options were exercised and options to
purchase 22,000 and 21,667 shares of common stock expired, respectively. In August 2020, the Company granted options to purchase
an aggregate of up to 917,000 shares of common stock to directors, officers and employees of the Company (see note 7 below).
The
total stock option compensation expense during the six and three month period ended June 30, 2020 and 2019 which was recorded
was $103 and $42, and $311 and $294, 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. On January 6, 2020, the
Court granted the motion and dismissed the third-party complaint. The parties are now
engaging in discovery in connection with the claims and counterclaims.
The
Company believes it is more likely than not that the counterclaims will be denied.
|
|
|
|
|
b.
|
Further
to Note 13b of the Company’s Annual Report on Form 10-K for the year ended December
31, 2019:
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.
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 one for two up to one for thirty.
On
November 19, 2019, the Company received formal notice from Nasdaq that the Company’s non-compliance with the minimum
$2.5 million stockholders’ equity requirement, as set forth in Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’
Equity Rule”), as of September 30, 2019, could serve as an additional basis for delisting.
On
February 7, 2020, the Company received the formal decision of the Panel, in which the Panel determined that the Company
has evidenced full compliance with the minimum $1.00 per share bid price requirement, and granted the Company’s
request for continued listing on Nasdaq pursuant to an extension, through May 18, 2020, to demonstrate compliance with
the minimum $2.5 million stockholders’ equity requirement.
On
May 12, 2020, the Company received the formal decision of the Panel, in which the Panel determined that the Company has
evidenced full compliance with the Stockholders’ Equity Rule. Accordingly, the Panel has determined to continue
the listing of the Company’s securities on the Nasdaq Stock Market and is closing this matter.
|
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
6 - Significant Events During the Reporting Period
|
a.
|
On
January 15, 2020, the Company conducted a public offering of its securities pursuant to which it issued 514,801 shares of
its common stock and warrants to purchase up to 514,801 shares of common stock at an exercise price of $3.76 per share for
gross proceeds of $2,000. The term of the warrants are five and a half years. The Company received net proceeds of $1,694
after deducting placement agent fees and other offering expenses.
|
|
b.
|
On
May 8, 2020, the Company conducted a public offering of its securities pursuant to which
it issued 1,925,001 shares of its common stock, pre funded warrants to purchase up to
2,620,453 shares of common stock at an exercise price of $0.001 per share and five-year
warrants to purchase up to 4,545,454 shares of common stock at an exercise price of $1.10
per share for gross proceeds of $5,000. The net proceeds to the Company from the offering
were approximately $4,300, after deducting placement agent’s fees and other offering
expenses payable by the Company. In addition, the Company issued to the placement agent
five-year placement agent warrants to purchase 272,727 shares of common stock at an exercise
price of $1.375 per share.
|
|
c.
|
In late 2019, a novel strain of COVID-19, also known as coronavirus,
was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it has now spread to several other
countries, including Israel, and infections have been reported globally. Many countries around the world, including in Israel,
have significant governmental measures being implemented to control the spread of the virus, including temporary closure of businesses,
severe restrictions on travel and the movement of people, and other material limitations on the conduct of business. These
measures have resulted in work stoppages and other disruptions. The Company has implemented remote working and work place protocols
for its employees in accordance with government requirements. In addition, while the Company has seen an increased demand for MySizeID,
certain marketing and sales activities have been adversely affected by the coronavirus outbreak. For example, the Company has three
ongoing pilots with international retailers that have been halted, the Company is unable to participate physically in industry
conferences and its ability to meet with potential customers is limited. The extent to which the coronavirus impacts the Company’s
operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the
duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. In
particular, the continued spread of the coronavirus globally, could materially adversely impact the Company’s operations
and workforce, including its marketing and sales activities and ability to raise additional capital, which in turn could have a
material adverse impact on the Company’s business, financial condition and results of operation.
|
Note
7 – Events Subsequent To The Reporting Period
On August 10, 2020, the Company’s
shareholders approved an increase in the shares available for issuance under the Plan from 200,000 to 1,450,000 shares.
As a result and pursuant to approval
of the Company’s compensation committee that was contingent on the foregoing shareholder approval, the following occurred
on August 10, 2020: (i) the number of shares available for issuance under the Company’s 2017 Consultant Incentive Plan reduced
from 466,667 to 216,667 shares: (ii) the Company to the Company’s Chief Executive Officer (A) five-year options to purchase
up to 160,000 ordinary shares at an exercise price of $1.04 per share. One quarter of such options vest on November 26, 2020, one
quarter vest on May 26, 2021, one quarter vest on November 26, 2021 and one quarter vest on May 26, 2022, and (B) 80,000 performance-based
restricted stock units, each representing the right to receive one share of common stock, which vest (x) upon the Company generating
revenue of at least $50,000 in the Russian Federation during the year ending 2020, or (y) upon the Company generating revenue of
at least $500,000 in the Russian Federation during the year ending 2021; (iii) the Company granted five-year options to purchase
up to 130,000 ordinary shares to the Company’s Chief Financial Officer at an exercise price of $1.04 per share. One quarter
of such options vest on November 26, 2020, one quarter vest on May 26, 2021, one quarter vest on November 26, 2021 and one quarter
vest on May 26, 2022; (iv) the Company granted five-year options to purchase up to 130,000 ordinary shares to the Company’s
Chief Operating Officer and Chief Product Officer at an exercise price of $1.04 per share. One quarter of such options vest on
November 26, 2020, one quarter vest on May 26, 2021, one quarter vest on November 26, 2021 and one quarter vest on May 26, 2022;
(v) the Company granted five-year options to purchase up to 325,893 ordinary shares to other employees of the Company at an exercise
price of $1.04 per share. One quarter of such options vest on November 26, 2020, one quarter vest on May 26, 2021, one quarter
vest on November 26, 2021 and one quarter vest on May 26, 2022; and (vi) the Company granted five-year options to purchase up to
30,000 ordinary shares to each of the Company’s non-employee board members at an exercise price of $1.04 per share. These
options vest on November 26, 2020.
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, 2019, filed with the Securities and Exchange Commission on March 19, 2020, or the Annual
Report, including the consolidated annual financial statements as of December 31, 2019 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;
|
|
●
|
our
ability to continue as a going concern;
|
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●
|
risks
related to the outbreak of coronavirus;
|
|
●
|
the
new and unproven nature of the measurement technology markets;
|
|
●
|
our
ability to achieve customer adoption of our products;
|
|
●
|
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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●
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our
ability to enhance our brand and increase market awareness;
|
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●
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our
ability to introduce new products and continually enhance our product offerings;
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●
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the
success of our strategic relationships with third parties;
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●
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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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●
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our
reliance on key members of our management team;
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●
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current
or future litigation;
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●
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the
impact of the political and security situation in Israel on our business; and
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●
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our
ability to remain listed on the Nasdaq Capital Market.
|
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 mainly focusing on the e-commerce fashion/apparel industry. In addition, our solutions address the shipping/parcel and
DIY uses markets.
We
are in the commercialization phase of our products, although we have only generated minimal revenues to date. MySizeID has been
incorporated into a number of major retailers including DeMoulin, U.S. Polo Assn., Slam and Refrigiwear, and MySizeID is also
available on leading e-commerce websites including WooCommerce, Shopify and Lightspeed. In recent months, we announced an increase
in online apparel sales and reduction in returns of online orders of Penti customers utilizing MySizeID; we reported that in June
2020 that we generated over 1.2 million size recommendations; we opened a subsidiary in Russia; two French retail brands, La Pièce
and Habillez-moi, are integrating MySizeID into their e-commerce websites; we integrated MySizeID into Sweet Fit, a virtual fitting
mirror; we received a notice of allowance from the USPTO for our patent application, titled: “A system for and a method
of measuring a path length using a handheld electronic device”; we hired two new sales executives in France; we developed
a contactless shopping feature for the MySizeID application; we released the new OneClick feature for the BoxSize application;
and we received a notice of allowance from the Russian Patent & Trademark Office for our patent application, titled: “A
system for and a method of measuring a path length using a handheld electronic device.”
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. In addition, the coronavirus outbreak has resulted in work stoppages
and disruptions and our marketing and sales activities have been adversely affected. For example, we have three ongoing pilots
with international retailers that have been halted, we are unable to participate in industry conferences and our ability to meet
with potential customers is limited. Because of the numerous risks and uncertainties associated with the coronavirus outbreak,
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.
We
recently entered into a non-binding letter of intent with Logystico LLC, or Logystico, a third party logistics fulfillment company
that specializes in automating the order fulfillment process, to form a joint venture. Under the terms of the letter of intent,
the joint venture will exclusively operate and manage micro-fulfilment centers using our BoxSize platform for retail vendors in
the United States and we will initially have a 68% stake and Logystico will initially have a 32% stake in the joint venture entity.
Establishment of the joint venture is subject to the entry into a definitive binding agreement.
Important
Information about COVID-19
In late 2019, a novel
strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was largely concentrated
in China, it has now spread to Israel and the United States, and infections have been reported globally. Many countries around
the world, including in Israel, have significant governmental measures implemented to control the spread of the virus, including
temporary closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on the
conduct of business. These measures have resulted in work stoppages and other disruptions. We implemented remote working and work
place protocols for our employees in accordance with Israeli government requirements. In addition, while we have seen an increased
demand for MySizeID, certain marketing and sales activities have been adversely affected by the coronavirus outbreak. For example,
we have three ongoing pilots with international retailers that have been halted, we are unable to participate physically in industry
conferences and our ability to meet with potential customers is limited. The extent to which the coronavirus impacts our operations
will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration
and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. In particular,
the continued spread of the coronavirus globally, could have a material adverse impact on our operations and workforce, including
our marketing and sales activities and ability to raise additional capital, which in turn could have a material adverse impact
on our business, financial condition and results of operation.
May
2020 Public Offering
On
May 8, 2020, we completed a public offering of (i) 1,925,001 units, each unit consisting of one share of common stock and one
warrant to purchase one share of common stock at a price of $1.10, and (ii) 2,620,453 pre-funded units, each pre-funded unit
consisting of one pre-funded warrant to purchase one share of common stock and one warrant, at a price of $1.099 per
pre-funded unit. In connection with the public offering, we issued warrants to purchase an aggregate of 4,545,454 shares of
common stock. The warrants have an exercise price of $1.10 per share of common stock, are exercisable upon issuance and will
expire five years from the date of issuance. The exercise price of the warrants is subject to adjustment for stock splits,
reverse splits, and similar capital transactions as described in the warrants.
The
pre-funded warrants were immediately exercisable and was exercisable at a nominal consideration of $0.001 per share of common
stock any time until all of the pre-funded warrants are exercised in full. During May 2020, all pre-funded warrants were exercised.
A holder will not have the right to exercise any portion of the warrants if the holder (together with its affiliates) would beneficially
own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately
after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants.
However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice to us,
provided that any increase in such percentage shall not be effective until 61 days after such notice.
The
net proceeds from the public offering were approximately $4.3 million, after deducting placement agent’s fees and other
estimated offering expenses payable by us.
In connection with the public offering, we paid the placement agent a fees and expenses of $517,900 and issued to the placement
agent’s designees placement agent warrants to purchase up to 272,727 shares of common stock. The placement agent warrants
are substantially the same terms as the warrants, except they have an exercise price equal to 125% of the per share purchase price,
or $1.375 per share, and expire on the five year anniversary of the effective date of the registration statement.
Pursuant
to the anti-dilution adjustment provisions in outstanding warrants to purchase 144,277 shares of common stock, the per share exercise
price was reduced to $0.9289, following the issuance of the securities in the public offering.
Nasdaq
Continued Listing Deficiency
On
January 22, 2019, we were notified by the Nasdaq Stock Market, LLC, or Nasdaq, that we were 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 we 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 our common stock must have a closing bid price of
at least $1.00 per share for a minimum of 10 consecutive business days. We did not regain compliance with the Rule by July 22,
2019, and, as a result, on July 23, 2019, we received notice from the Staff that, based upon our continued non-compliance with
the Rule, the Staff had determined to delist our common stock from Nasdaq unless we timely request a hearing before the Nasdaq
Hearings Panel, or the Panel.
On
October 1, 2019, the Panel granted our request to continue the listing of our common stock on the Nasdaq Capital Market, subject
to our satisfaction of certain conditions including, among other things, compliance with the minimum $1.00 bid price requirement
by no later than January 20, 2020. In order to satisfy the minimum $1.00 bid price requirement and to make our common stock more
attractive to certain institutional investors and thereby strengthen our investor base, we implemented a 1-for-15 reverse stock
split of our outstanding shares of common stock. The reverse stock split was effective for Nasdaq Capital Market purposes at the
open of business on November 19, 2019. Additionally, on November 19, 2019, we received formal notice from Nasdaq of our non-compliance
with the minimum $2.5 million stockholders’ equity requirement, as set forth in Nasdaq Listing Rule 5550(b)(1). In accordance
with the Nasdaq Listing Rules, we subsequently presented our plan to regain compliance with the stockholders’ equity rule
for the Panel’s consideration. On February 7, 2020, we received a notification from the Staff that the Panel granted our
request for continued listing on the Nasdaq Stock Market until May 18, 2020. On May 12, 2020, we received written notice from
Nasdaq informing us that we have regained compliance with the continued listing requirements under the stockholders’ equity
rule, and this matter is now closed.
Reverse
Stock Split
We
implemented a 1-for-15 reverse stock split of our outstanding shares of common stock that was effective for Nasdaq Capital Market
purposes at the open of business on November 19, 2019. All share and related option and warrant information presented in this
prospectus supplement have been retroactively adjusted to reflect the reduced number of shares and the increase in the share price
which resulted from this action.
Results
of Operations
The
table below provides our results of operations for the periods indicated.
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Three months ended
June 30
|
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Six months ended
June 30
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2020
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2019
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2020
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2019
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(dollars in thousands)
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|
|
(dollars in thousands)
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Revenues
|
|
$
|
21
|
|
|
$
|
5
|
|
|
$
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51
|
|
|
$
|
25
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
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)
|
|
|
(1
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)
|
Gross profit
|
|
|
21
|
|
|
|
5
|
|
|
|
50
|
|
|
|
24
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|
Research and development expenses
|
|
|
(340
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)
|
|
|
(379
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)
|
|
|
(688
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)
|
|
|
(671
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
(452
|
)
|
|
|
(479
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)
|
|
|
(1,077
|
)
|
|
|
(861
|
)
|
General and administrative
|
|
|
(562
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)
|
|
|
(710
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)
|
|
|
(1,078
|
)
|
|
|
(1,318
|
)
|
Operating loss
|
|
|
(1,333
|
)
|
|
|
(1,563
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)
|
|
|
(2,793
|
)
|
|
|
(2,826
|
)
|
Financial income (expenses), net
|
|
|
29
|
|
|
|
197
|
|
|
|
30
|
|
|
|
(67
|
)
|
Net loss
|
|
$
|
(1,304
|
)
|
|
$
|
(1,366
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)
|
|
$
|
(2,763
|
)
|
|
$
|
(2,893
|
)
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Six
and Three Months Ended June 30, 2020 Compared to Six and Three Months Ended June 30, 2019
Revenues
From
inception through December 31, 2018, we did not generate any revenue from operations and we continue to expect to incur additional
losses to increase our sales and marketing efforts and to perform further research and development activities. We started to generate
revenues only in 2019. Our revenues for the six months ended June 30, 2020 amounted to $51,000 compared to $25,000 for the six
months ended June 30, 2019.
Our revenues for the
three months ended June 30, 2020 amounted to $21,000 compared to $5,000 for the three months ended June 30, 2019. The increase
from both the six and three month corresponding period primarily resulted from increase in traffic, as measured by the MySizeID
engine per the license agreements.
Research
and Development Expenses
Our
research and development expenses for the six months ended June 30, 2020 amounted to $688,000 compared to $671,000 for the six
months ended June 30, 2019. The increase from the corresponding period primarily resulted from the hiring of new employees offset
by expenses associated with share-based payments to our employees.
Our
research and development expenses for the three months ended June 30, 2020 amounted to $340,000 compared to $379,000 for the three
months ended June 30, 2019. The decrease from the corresponding period primarily resulted from decrease in expenses associated
with share-based payments to our employees.
Sales
and Marketing Expenses
Our
sales and marketing expenses for the six months ended June 30, 2020 amounted to $1,077,000 compared to $861,000 for the six
months ended June 30, 2019. The increase in comparison with the corresponding period was mainly due to an increase in
payments to marketing consultants and hiring new sales consultants.
Our sales and marketing
expenses for the three months ended June 30, 2020 amounted to $452,000 compared to $479,000 for the three months ended June 30,
2019. The decrease in comparison with the corresponding period was mainly due to a decrease in shared based payments and in travel
expenses offset by an increase in payments to consultants and hiring new sales consultants and increase in marketing.
General
and Administrative Expenses
Our general and administrative
expenses for the six months ended June 30, 2020 amounted to $1,078,000 compared to $1,318,000 for the six months ended June 30,
2019. The decrease in comparison with the corresponding period was mainly due to a decrease in payroll expenses and share-based
payments offset by an increase in insurance expenses.
Our general and administrative
expenses for the three months ended June 30, 2020 amounted to $562,000 compared to $710,000 for the three months ended June 30,
2019. The decrease in comparison with the corresponding period was mainly due to a decrease in payroll expenses and share-based
payments offset by an increase in insurance expenses.
Operating
Loss
As a result of the
foregoing, for the six months ended June 30, 2020, our operating loss was $2,793,000, a decrease of $33,000, or 1%, compared to
our operating loss for the six months ended June 30, 2019 of $2,826,000.
As a result of the
foregoing, for the three months ended June 30, 2020, our operating loss was $1,333,000, a decrease of $230,000, or 15%, compared
to our operating loss for the three months ended June 30, 2019 of $1,563,000.
Financial
Income (Expenses), Net
Our
financial income, net for the six months ended June 30, 2020 amounted to $30,000 as opposed to financial expenses of $67,000 for
the six months ended June 30, 2019. During the six months ended June 30, 2020, we had financial income mainly from hedging activities
and revaluation of investment in marketable securities whereas in the corresponding period we had financial expenses of $67,000
primarily due to exchange rate differences and revaluation of warrants.
Our
financial income, net for the three months ended June 30, 2020 amounted to $29,000 compared to financial income of $197,000 for
the three months ended June 30, 2019. During the three months ended June 30, 2020, we had financial income mainly from hedging
activities whereas in the corresponding period we had financial income primarily due to the revaluation of warrants and revaluation
of investment in marketable securities.
Net
Loss
As
a result of the foregoing research and development, sales and marketing, general and administrative expenses initial revenues,
and financial expenses, our net loss for the six months ended June 30, 2020 was $2,763,000, compared to net loss of $2,893,000
for the six months ended June 30, 2019, the decrease in the net loss was mainly due to the reasons mentioned above.
As
a result of the foregoing research and development, sales and marketing, general and administrative expenses initial revenues,
and financial expenses, our net loss for the three months ended June 30, 2020 was $1,304,000, compared to net loss of $1,366,000
for the three months ended June 30, 2019, the decrease in the net loss was mainly due to the reasons mentioned above.
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 June 30, 2020, we had cash, cash equivalents, restricted cash and restricted deposits of $4,824,000 compared to $1,466,000
of cash, cash equivalents and restricted cash as of December 31, 2019. This increase primarily resulted from the registered direct
offering and concurrent private placement resulting in net proceeds of $1,694,000 that was conducted in January 2020 and a public
offering that resulted in net proceeds of $4,300,000 that was conducted in May 2020 offset by our operating activities.
On September 13, 2019,
we entered into an At the Market Offering Agreement with H.C Wainwright, LLC or Wainwright. According to the agreement, we may
offer and sell, from time to time, our shares of common stock having an aggregate offering price of up to $5.5 million through
Wainwright or the ATM Prospectus Supplement. From September 13, 2019 until January 15, 2020, we issued 87,756 shares of common
stock at an average price of $4.77 per share through the ATM Prospectus Supplement, resulting in net proceeds of $418,524. We paid
a commission equal to 3% of the gross proceeds from the sale of our shares of common stock under the ATM Prospectus Supplement.
On January 15, 2020, we terminated the ATM Prospectus Supplement, but the offering agreement remains in full force and effect.
Cash used in operating
activities amounted to $2,625,000 for the six months ended June 30, 2020, compared to $2,424,000 for the six months ended June
30, 2019. The increase in cash used in operating activities was mainly due to stock based compensation offset by revaluation of
warrants and derivatives.
Net cash provided by
investing activities was $200,000 for the six months ended June 30, 2020, compared to cash used in investing activities of $1,366,000
for the six months ended June 30, 2019. The change from the corresponding period was mainly due to increase in restricted deposits
compared with proceeds from restricted deposits and from short term deposits in the corresponding period.
Net
cash provided by financing activities was $6,011,000 for the six months ended June 30, 2020, compared to none for the six months
ended June 30, 2019. The cash flow from financing activities for the six months ended June 30, 2020 resulted from the registered
direct offering and concurrent private placement of our securities in January 2020 and the public offering of our securities in
May 2020.
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 and expect to need to obtain additional
funds in the future. Based on the projected cash flows and cash balances as of June 30, 2020, management is of the opinion that
our existing cash will be sufficient to fund operations until the end of second quarter 2021. As a result, there is substantial
doubt about the Company’s ability to continue as a going concern. However, we will need to raise additional capital, which
may not be available on reasonable terms or at all. Additional capital would be used to accomplish the following:
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●
|
finance
our current operating expenses;
|
|
●
|
pursue
growth opportunities;
|
|
●
|
hire
and retain qualified management and key employees;
|
|
●
|
respond
to competitive pressures;
|
|
●
|
comply
with regulatory requirements; and
|
|
●
|
maintain
compliance with applicable laws and exchange rules.
|
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, the coronavirus outbreak, 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.
Functional
Currency
We
reassessed our functional currency and determined to change its functional currency to the U.S. dollar from the NIS as of January
1, 2020. The change in functional currency was accounted for prospectively from that date. In 2019, we went through a strategic
shift which involved a significant change in our business model, that clearly indicates that the functional currency has changed,
beginning January 2020. In previous years, we acted as a platform to fund our operational subsidiary, My Size Israel, which conducts
our research and development activities in NIS. Accordingly, we has not been substantially focused on our operating activities
for that period. By the end of 2018, we transitioned to a new business model (B2B2C) and concluded that the main market that we
should focus on would be the apparel market in the US. Consequently, we established marketing and distribution channels in the
US along with having a new pricing model denominated in USD. Throughout 2019, we hired sales personnel which are based in the
US and signed agreements with customers for which we began generating revenue in USD for the first time since it began its operations.
Accordingly, by the end of 2019, we are no longer considered a ‘holding company’ for the matter of determining its
functional currency under ASC 830 based on the currency of its operating entities. As a result of being an operational company
that enters into operational agreements and generates revenues on an ongoing basis, our management has concluded that as of January
1 2020, the currency that most faithfully portrays the economic results of our operations is the U.S. dollar.
My
Size Israel functional currency remains the NIS.
Our
presentation currency of the financial statements was and will remain U.S. dollar.
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
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. The Company has adopted the standard effective January 1, 2018.
To
recognize revenue under ASC 606, the Company applies 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 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 obligation. When the Company provides a service, revenue is recognized
over the service term.
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The
Company’s revenue is derived from the sale of cloud-enabled software subscriptions, associated software maintenance and
support.
Revenue
is recognized when a contract exists between the Company and a customer (business) and upon transfer of control of promised products
or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
The Company enters into contracts that can include various combinations of products and services, which may be capable of being
distinct and accounted for as separate performance obligations. In case of offerings such as cloud-enabled subscription, other
service elements in the contract are generally delivered concurrently with the subscription services and therefore revenue is
recognized in a similar manner as the subscription services.
Product,
Subscription and Services Offerings
Such
performance obligations includes cloud-enabled subscriptions, software maintenance, training and technical support.
Fully
hosted subscription services (SaaS) allow customers to access hosted software during the contractual term without taking possession
of the software. Cloud-hosted subscription services are sold on a fee-per-subscription that is based on consumption or usage (per
fit recommendation).
We
recognize revenue ratably over the contractual service term for hosted services that are priced based on a committed number of
transactions where the delivery and consumption of the benefit of the services occur evenly over time, beginning on the date the
services associated with the committed transactions are first made available to the customer and continuing through the end of
the contractual service term. Over-usage fees and fees based on the actual number of transactions are billed in accordance with
contract terms as these fees are incurred and are included in the transaction price of an arrangement as variable consideration.
Fees based on a number of transactions or impressions per month, are allocated to the period in which the transactions occur.
Revenue for subscriptions sold as a fee per period is recognized ratably over the contractual term as the customer simultaneously
receives and consumes the benefit of the underlying service.
Equity-based
compensation
The
Company accounts for its employees’ stock-based compensation as an expense in the financial statements based on ASC 718.
All awards are equity classified and therefore such costs are measured at the grant date fair value of the award and graded vesting
attribution approach to recognize compensation cost over the vesting period. The Company estimates stock option grant date fair
value using the Binomial option pricing-model.
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. The Company elected to early implement ASU 2018-07, Stock Compensation: Improvements
to Nonemployee stock-Based Payment Accounting, from October 1, 2018.
In
accordance with ASU 2018-07, we measured stock options at the implementation date and reclassified the stock based payments from
a liability stock-based payments awards to equity stock-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 prices reflects the assumption that the historical volatility of the share prices is reasonably
indicative of expected future trends.
The
risk-free interest rate for grants with an exercise price denominated in USD for employees and several consultants is based on
the yield from US treasury zero-coupon bonds with an equivalent term.
The
Company has historically not paid dividends and has no foreseeable plans to pay dividends.