My Size, Inc. 10-Q

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, 2020, filed with the Securities and Exchange Commission on March 29, 2021, or the Annual Report, including the consolidated annual financial statements as of December 31, 2020 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: ● 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; ● risks related to the COVID-19 pandemic; ● 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; ● our ability to enhance our brand and increase market awareness; ● our ability to introduce new products and continually enhance our product offerings; ● the success of our strategic relationships with third parties; ● information technology system failures or breaches of our network security; ● competition from competitors; ● our reliance on key members of our management team; ● current or future litigation; and ● the impact of the political and security situation in Israel on our business. 12 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, Topspin Medical (Israel) Ltd and My Size LLC. 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. 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. 13 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 from time to time 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, the COVID-19 pandemic has had a particularly adverse impact on the retail industry and this has resulted in an adverse impact on our marketing and sales activities. For example, we have three ongoing pilots with international retailers that have been halted, we are unable to participate physically in industry conferences, our ability to meet with potential customers is limited, and in certain instances sales processes have been delayed or cancelled. The extent to which COVID-19 continues to impact our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain COVID-19 or treat its impact. Results of Operations The table below provides our results of operations for the periods indicated. Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 (dollars in thousands) (dollars in thousands) Revenues $ 30 $ 21 $ 57 $ 51 Cost of revenues - - - (1 ) Gross profit 30 21 57 50 Research and development expenses (3,007 ) (340 ) (3,380 ) (688 ) Sales and marketing (731 ) (452 ) (1,277 ) (1,077 ) General and administrative (605 ) (562 ) (1,229 ) (1,078 ) Operating loss (4,313 ) (1,333 ) (5,829 ) (2,793 ) Financial income (expenses), net (27 ) 29 32 30 Net loss $ (4,340 ) $ (1,304 ) $ (5,797 ) $ (2,763 ) Six and Three Months Ended June 30, 2021 Compared to Six and Three Months Ended June 30, 2020 Revenues We started to generate revenue in 2019 and we expect to incur additional losses to increase our sales and marketing efforts and to perform further research and development activities. Our revenues for the six months ended June 30, 2021 amounted to $57,000 compared to $51,000 for the six months ended June 30, 2020. Our revenues for the three months ended June 30, 2021 amounted to $30,000 compared to $21,000 for the three months ended June 30, 2020. The increase from both six and three months corresponding period primarily resulted from increase in traffic, as measured by the MySizeID engine per the license agreements. 14 Research and Development Expenses Our research and development expenses for the six months ended June 30, 2021 amounted to $3,380,000 compared to $688,000 for the six months ended June 30, 2020. The increase from the corresponding period primarily resulted from share based payment in amount of $2,618,000 attributed to the share issuance to Shoshana Zigdon under that certain Amendment to Purchase Agreement dated May 26, 2021. Our research and development expenses for the three months ended June 30, 2021 amounted to $3,007,000 compared to $340,000 for the three months ended June 30, 2020. The increase from the corresponding period primarily resulted from share based payment in amount of $2,618,000 attributed to the share issuance to Shoshana Zigdon under that certain Amendment to Purchase Agreement dated May 26, 2021. Sales and Marketing Expenses Our sales and marketing expenses for the six months ended June 30, 2021 amounted to $1,277,000 compared to $1,077,000 for the six months ended June 30, 2020. The increase in comparison with the corresponding period was mainly due to an increase in payments to consultants, share-based payments and hiring new sales consultants offset by decrease in travel and marketing expenses. Our sales and marketing expenses for the three months ended June 30, 2021 amounted to $731,000 compared to $452,000 for the three months ended June 30, 2020. The increase in comparison with the corresponding period was mainly due to an increase in payments to consultants, hiring new sales consultants and increase in share-based payments was offset by decrease in marketing expenses. General and Administrative Expenses Our general and administrative expenses for the six months ended June 30, 2021 amounted to $1,229,000 compared to $1,078,000 for the six months ended June 30, 2020. The increase in comparison with the corresponding period was mainly due to an increase in insurance expenses. Our general and administrative expenses for the three months ended June 30, 2021 amounted to $605,000 compared to $562,000 for the three months ended June 30, 2020. The increase in comparison with the corresponding period was mainly due to an increase in insurance expenses. Operating Loss As a result of the foregoing, for the six month ended June 30, 2021, our operating loss was $5,829,000, an increase of $3,036,000, or 109%, compared to our operating loss for the six month ended June 30, 2020 of $2,793,000. The increase from the corresponding period primarily resulted from share based payment in amount of $2,618,000 attributed to the share issuance to Shoshana Zigdon under that certain Amendment to Purchase Agreement dated May 26, 2021. As a result of the foregoing, for the three month ended June 30, 2021, our operating loss was $4,313,000, an increase of $2,980,000, or 223%, compared to our operating loss for the three month ended June 30, 2020 of $1,333,000. The increase from the corresponding period primarily resulted from share based payment in amount of $2,618,000 attributed to the share issuance to Shoshana Zigdon under that certain Amendment to Purchase Agreement dated May 26, 2021. Financial Income, Net Our financial income, net for the six months ended June 30, 2021 amounted to $32,000 as opposed to financial income of $30,000 for the six months ended June 30, 2020. During the six months ended June 30, 2021, financial income derived mainly from investment in marketable and from exchange rate expenses. Our financial expense, net for the three months ended June 30, 2021 amounted to $27,000 compared to financial income of $29,000 for the three months ended June 30, 2020. During the three months ended June 30, 2021, financial expenses mainly derived from revaluation of investment in marketable securities whereas in the corresponding period we had financial income mainly from investment in marketable and from exchange rate expenses. 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, 2021 was $5,797,000 compared to net loss of $2,763,000 for the six months ended June 30, 2020, the increase 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, 2021 was $4,340,000, compared to net loss of $1,304,000 for the three months ended June 30, 2020, the increase 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, 2021, we had cash, cash equivalents, restricted cash of $5,093,000 compared to $1,774,000 of cash, cash equivalents and restricted cash as of December 31, 2020. This increase primarily resulted from the public offerings that we completed in January and March 2021, including the overallotment that closed in May 2021, and proceeds from warrants that were exercised, as further described below. On March 25, 2021, we completed an underwritten public offering of our common stock pursuant to which we issued 2,618,532 shares of our common stock at a public offering price of $1.26 per share for gross proceeds of approximately $3,300,000. We received net proceeds of approximately $2,872,000, after deducting the underwriting discounts and commissions and estimated offering expenses. On May 7, 2021, we issued an additional 392,780 shares of our common stock in connection with the full exercise of the underwriter’s overallotment option granted in the March 2021 public offering. These additional shares were sold to the underwriter at a public offering price of $1.26 per share, resulting in additional net proceeds, after deducting the underwriting discount, of $463,260. Prior to that, on January 8, 2021, we completed an underwritten public offering of our common stock pursuant to which we issued 1,569,179 shares of our common stock at a public offering price of $1.28 per share for gross proceeds of approximately $2,008,000. We received net proceeds of approximately $1,700,000, after deducting the underwriting discounts and commissions and estimated offering expenses. Furthermore, in January and February 2021, a holder of warrants exercised warrants to purchase 725,000 of our ordinary shares in exchange for $797,000. Cash used in operating activities amounted to $2,669,000 for the six months ended June 30, 2021, compared to $2,625,000 for the six months ended June 30, 2020. Net cash provided by investing activities was $172,000 for the six months ended June 30, 2021, compared to $200,000 (used in) investing activities for the six months ended June 30, 2020. Net cash provided by financing activities was $5,832,000 for the six months ended June 30, 2021, compared to $6,011,000 for the six months ended June 30, 2020. The cash flow from financing activities for the six months ended June 30, 2021 resulted from the public offerings that occurred in January 2021 and March 2021, including the full exercise of the underwriter’s overallotment option that occurred in May 2021 and from proceeds that were received from an investor for warrants that were exercised. 15 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, 2021, management is of the opinion that our existing cash will be sufficient to fund operations until the end of March 2022. 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: ● 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 COVID-19 pandemic, economic conditions shareholder activism 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. 16 Revenue from Contracts with Customers The Company implemented ASC 606, Revenue from Contract with Customers. To recognize revenue under ASC 606, the Company applies the following five steps: 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. 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. 17 Item 3. Quantitative and Qualitative Disclosure About Market Risk. Not required for a smaller reporting company.