My Size, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULT OF OPERATIONS You should read the following discussion along with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions, including those discussed under “Risk Factors.” Our actual results, performance and achievements may differ materially from those expressed in, or implied by, these forward-looking statements. Overview We are a creator of mobile device measurement solutions that has developed innovative solutions designed to address shortcomings in multiple verticals, including the e-commerce fashion/apparel, shipping/parcel and do it yourself, or DIY, industries. Utilizing our sophisticated algorithms within our proprietary technology, we can calculate and record measurements in a variety of novel ways, and most importantly, increase revenue for businesses across the globe. Our solutions can be utilized to accurately take measurements of a variety of items via a mobile device. By downloading the application to a smartphone, the user is then able to run the mobile device over the surface of an item the user wishes to measure. The information is then automatically sent to a cloud-based server where the dimensions are calculated through our proprietary algorithms, and the highly 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 2022 from MySizeID . 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. In February 2022, we completed the acquisition of Orgad, which operates an omnichannel e-commerce platform (see “Item 1. Business-Recent Developments-Orgad Share Purchase Agreement”). We expect our revenues and corresponding expenses to increase as result of the Orgad acquisition however we are unable to predict the extent to which we will recognize revenue. The ultimate success of this acquisition will depend, in part, on our ability to realize the anticipated synergies and growth opportunities from integrating the Orgad business into our existing business. Since the acquisition occurred after fiscal year end, our consolidated financial statements for the years ended December 31, 2021 and 2020 do not reflect the results of operation of Orgad. 40 Results of Operations The table below provides our results of operations for the periods indicated. Year ended December 31 2021 2020 (dollars in thousands) Revenues 131 142 Cost of revenues - (2 ) Gross profit 131 140 Research and development expenses (4,248 ) (1,523 ) Sales and marketing (2,336 ) (2,196 ) General and administrative (4,124 ) (2,567 ) Operating loss (10,577 ) (6,146 ) Financial income (expenses), net 57 (11 ) Net loss $ (10,520 ) $ (6,157 ) Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Revenues From inception through December 31, 2018, we did not generate any revenue from operations and we expect to continue to incur additional losses to perform further research and development activities. We started to generate revenues only in 2019. Our revenues for the year ended December 31, 2021 amounted to $131,000 compared to $142,000 for year ended December 31, 2020. The decrease from the corresponding period primarily resulted from fees from customer projects in the corresponding period compared to none, offset by increase in recurring revenues generated by traffic, as measured by the MySizeID engine per its license agreements. Research and Development Expenses Our research and development expenses for the year ended December 31, 2021 amounted to $4,248,000 an increase of $2,725,000, or approximately 179%, compared to $1,523,000 for the year ended December 31, 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 the Amendment to Purchase Agreement dated May 26, 2021 offset by a reduction in share based payment expenses to employees. Sales and Marketing Expenses Our sales and marketing expenses for the year ended December 31, 2021 amounted to $2,336,000, an increase of $140,000, 6.4%, compared to $2,196,000 for the year ended December 31, 2020. The increase in comparison with the corresponding period was mainly due to an increase in payments to consultants. General and Administrative Expenses Our general and administrative expenses for the year ended December 31, 2021 amounted to $4,124,000, an increase of $1,557,000, 60.6%, compared to $2,567,000 for the year ended December 31, 2020. The increase in comparison with the corresponding period was mainly due to an increase in professional expenses, mainly attributed to shareholder activism including settlement expenses with the Lazar Parties offset by a decrease in shared-based payments. During 2021, we had an expense of $98,000 in respect of stock-based payments, compared to an expense of $276,000 in 2020. Operating Loss As a result of the foregoing, for the year ended December 31, 2021, our operating loss was $10,577,000, an increase of $4,431,000, or 72%, compared to our operating loss for the year ended December 31, 2020 of $6,146,000. 41 Financial Income (Expenses), net Our financial income, net for the year ended December 31, 2021 amounted to $57,000 as opposed to financial expenses, net of $11,000 for the year ended December 31, 2020. In 2021, we had financial income mainly derived from revaluation of investment in marketable securities whereas in the corresponding period we had financial expenses mainly from exchange rate differences offset by income from revaluation of investment in marketable securities. Net Loss As a result of the foregoing, research and development, marketing general and administrative expenses, and initial revenues, our net loss for the year ended December 31, 2021 was $10,520,000 compared to net loss of $6,157,000 for the year ended December 31, 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 Israel and in the U.S. As of December 31, 2021, we had cash, cash equivalents and restricted cash of $10,943,000 compared to $1,774,000 cash, cash equivalents, restricted cash as of December 31, 2020 and 184,000 short-term restricted deposit as of December 31, 2020. This increase primarily resulted from public offerings that we completed in January and March 2021, including the overallotment that closed in May 2021, private and public offerings that we completed in October 2021 and proceeds from warrants that were exercised, as further described below. On October 26, 2021, holders of warrants exercised an aggregate of 2,625,908 shares of common stock in consideration for $2,889,000. Also on October 26, 2021, we entered into the RD Purchase Agreements with the Purchasers, pursuant to which the Company agreed to sell and issue an aggregate of 2,514,800 RD Shares, and, in a concurrent private placement, an aggregate of 1,886,100 RD Warrants, at an offering price of $1.352 per share and associated warrant. In addition, we entered into the PIPE Purchase Agreements, with the Purchasers pursuant to which we agreed to sell and issue in a PIPE Offering an aggregate of 3,772,208 PIPE Shares, and 2,829,156 PIPE Warrants at the same purchase price as in the RD Offering. See “Item 1. Business-Recent Developments-October 2021 Financing” for more information regarding this transaction. In addition, on March 25, 2021, we completed an underwritten public offering of our common stock pursuant to which we issued 2,618,532 shares of our common stock at a public offering price of $1.28 per share for gross proceeds of $3,300,000. We received net proceeds of approximately $2,904,000, after deducting the underwriting discounts and commissions and estimated offering expenses. Subsequently 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 from the March 2021 public offering resulting in additional net proceeds of approximately $463,000, after deducting underwriting discounts and commissions. Prior to that, on January 8, 2021, we completed an underwritten public offering of our common stock pursuant to which we issued 1,569,179 shares of our common stock at a public offering price of $1.28 per share for gross proceeds of $2,008,000. We received net proceeds of approximately $1,700,000, after deducting the underwriting discounts and commissions and estimated offering expenses. Furthermore, in January and February 2021, a holder of warrants exercised warrants to purchase 725,000 of our ordinary shares in exchange for $0.8 million. Net cash used in operating activities was $7,297,000 for the year ended December 31, 2021 compared to $5,679,000 for the year ended December 31, 2020. The increase in cash used in operating activity is derived mainly from increase in the net loss. Net cash provided by investing activities for the year ended December 31, 2021 was $161,000 as opposed to net cash used in investing activities of $211,000 for the year ended December 31, 2020. The net cash provided by investing activities for the year ended December 31, 2021 was mainly attributed to proceeds from short term restricted deposits as opposed to investment in short-term restricted deposits during the year ended December 31, 2020. 42 We had positive cash flow from financing activities net of issuance costs of $16,292,000 for the year ended December 31, 2021 compared to $6,094,000 for the year ended December 31, 2020. The cash flow from financing activities for the year ended December 31, 2021 was due to the proceeds from public offerings of our securities and proceeds from the exercise of outstanding warrants. We do not have any material commitments for capital expenditures during the next twelve months. Taking into account the proceeds from warrant exercises and our financing in October 2021, managements believes that cash on hand will be sufficient to meet its obligations. Nevertheless, due to the recent acquisition of Orgad (see “Item 1. Business-Recent Developments Orgad Share Purchase Agreement”) there is uncertainty regarding the expected cash burn in the foresee future, and as such there is substantial doubt about our ability to continue as a going concern. We will need to raise additional capital, which may not be available on reasonable terms or at all. Additional capital would be used to accomplish the following: ● finance our current operating expenses; ● pursue growth opportunities; ● hire and retain qualified management and key employees; ● respond to competitive pressures; ● comply with regulatory requirements; and ● maintain compliance with applicable laws. Current conditions in the capital markets are such that traditional sources of capital may not be available to us when needed or may be available only on unfavorable terms. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions, the impact of the COVID-19 pandemic, the Russian invasion of Ukraine, 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. 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. 43 Recently Issued Accounting Pronouncements Certain recently issued accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles issued by the Financial Accounting Standards Board, or FASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies were revenue from contracts with customers which are more fully described in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K. We believe that these accounting policies discussed 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information. 44