My Size, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021 U.S. DOLLARS IN THOUSANDS INDEX Page Report of Independent Registered Public Accounting Firm (PCAOB ID: ID 1057 ) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Comprehensive Loss F-4 Consolidated Statements of Shareholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 - F-27 F- 1 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors My Size, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of My Size, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive loss, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1d to the consolidated financial statements, the Company has incurred significant losses and negative cash flows from operations and has an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1d. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Somekh Chaikin Somekh Chaikin Member Firm of KPMG International We have served as the Company’s auditor since 2017. Tel Aviv, Israel March 18, 2022 F- 2 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except share data) Note 2021 2020 December 31, Note 2021 2020 Assets Current assets: Cash and cash equivalents 3 10,670 1,689 Restricted cash 273 85 Restricted deposit - 184 Accounts receivable 40 28 Other receivables and prepaid expenses 4 579 482 Total current assets 11,562 2,468 Property and equipment, net 5 112 128 Right-of-use asset 6 776 911 Investment in marketable securities 8 108 59 Total non-current asset 996 1,098 Total assets 12,558 3,566 Liabilities and shareholders’ equity Current liabilities: Operating lease liability 6 138 129 Trade payables 635 381 Accounts payable 453 400 Warrants and derivatives 8 2 1 Total current liabilities 1,228 911 Operating lease liability 6 473 579 Total non-current liabilities 473 579 CONTINGENCIES AND COMMITMENTS 12 - Total Liabilities 1,701 1,490 SHAREHOLDERS’ EQUITY 10 Stock capital - Common stock of $ 0.001 par value - Authorized: 100,000,000 shares; Issued and outstanding: 23,982,503 and 7,232,836 , respectively 24 7 Additional paid-in capital 56,430 37,164 Accumulated other comprehensive loss ( 406 ) ( 424 ) Accumulated deficit ( 45,191 ) ( 34,671 ) Total shareholders’ equity 10,857 2,076 Total liabilities and shareholders’ equity 12,558 3,566 The accompanying notes are an integral part of the consolidated financial statements. F- 3 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS U.S. dollars in thousands (except share data and per share data) Year ended December 31, Note 2021 2020 Revenues 131 142 Cost of revenues - ( 2 ) Gross profit 131 140 Operating expenses Research and development ( 4,248 ) ( 1,523 ) Sales and marketing 13 ( 2,336 ) ( 2,196 ) General and administrative 14 ( 4,124 ) ( 2,567 ) Total operating expenses ( 10,708 ) ( 6,286 ) Operating loss ( 10,577 ) ( 6,146 ) Financial income (expense), net 15 57 ( 11 ) Net loss ( 10,520 ) ( 6,157 ) Other comprehensive income (loss): Foreign currency translation differences 18 115 Total comprehensive loss ( 10,502 ) ( 6,042 ) Basic and diluted loss per share ( 0.71 ) ( 1.11 ) Basic and diluted weighted average number of shares outstanding 10,509,622 5,539,700 The accompanying notes are an integral part of the consolidated financial statements. F- 4 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY U.S. dollars in thousands (except share data) Number Amount capital loss Deficit (deficit) Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss Deficit equity Balance as of December 31, 2019 2,085,900 2 30,102 ( 539 ) ( 28,514 ) 1,051 Stock-based compensation related to options granted to employees and consultants - - 645 - - 645 Exercise of options granted to employees Exercise of options granted to employees, shares Restricted shares issued to shareholder (***) Restricted shares issued to shareholder (***) , shares 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 2,707,134 2 97 - - 99 Liability reclassified to equity ( ** ) - - 328 - - 328 Exercise of warrants Exercise of warrants , shares Total comprehensive loss - - - 115 ( 6,157 ) ( 6,042 ) Balance as of December 31, 2020 7,232,836 7 37,164 ( 424 ) ( 34,671 ) 2,076 Stock-based compensation related to options granted to employees and consultants - - 373 - - 373 Exercise of options granted to employees 4,458 (* ) - - - - Restricted shares issued to shareholder ( *** ) 2,500,000 3 2,615 - - 2,618 Issuance of shares, net of issuance cost of $ 1,160 10,867,499 11 12,572 - - 12,583 Exercise of warrants 3,377,710 3 3,706 - - 3,709 Total comprehensive income (loss) - - - 18 ( 10,520 ) ( 10,502 ) Balance as of December 31, 2021 23,982,503 24 56,430 ( 406 ) ( 45,191 ) 10,857 (*) Represents an amount of less than $1. (**) See note 2 b (***) See note 1 b The accompanying notes are an integral part of the consolidated financial statements. F- 5 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands 2021 2020 Year ended December 31, 2021 2020 Cash flows from operating activities: Net loss ( 10,520 ) ( 6,157 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 42 40 Amortization of operating lease right-of-use asset 43 42 Revaluation of warrants and derivatives 1 - Revaluation of investment in marketable securities ( 49 ) ( 33 ) Restricted Shares issued to shareholder 2,618 - Stock based compensation 373 645 (Increase) decrease in accounts receivable ( 12 ) 13 Increase in other receivables and prepaid expenses ( 99 ) ( 155 ) (Decrease) increase in trade payables 253 ( 69 ) (Decrease) increase in accounts payables 53 ( 5 ) Net cash used in operating activities ( 7,297 ) ( 5,679 ) Cash flows from investing activities: Proceeds from short-term deposits, net - - Proceeds from (investment in) restricted deposits, net 184 ( 170 ) Investment in right to use asset - ( 25 ) Purchase of property and equipment ( 23 ) ( 16 ) Net cash provided by (used in) investing activities 161 ( 211 ) Cash flows from financing activities: Proceeds from issuance of shares, net of issuance costs 12,583 5,995 Proceeds from exercise of warrants and pre funded warrants - 99 Proceeds from exercise of warrants 3,709 - Net cash provided by financing activities 16,292 6,094 Effect of exchange rate fluctuations on cash and cash equivalents 13 104 Increase (Decrease) in cash and cash equivalents and restricted cash 9,169 308 Cash and cash equivalents and restricted cash at the beginning of the year 1,774 1,466 Cash and cash equivalents and restricted cash at the end of the year 10,943 1,774 The accompanying notes are an integral part of the consolidated financial statements. F- 6 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 (“DIY”) 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. (“My Size Israel”) 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. My Size, Inc., was incorporated and commenced operations in September 1999, as Topspin Medical Inc. (“Topspin”), a private company registered in the State of Delaware. In December 2013, the Company changed its name to Knowledgetree Ventures Inc. Subsequently, in February 2014, the Company changed its name to My Size, Inc. Topspin was engaged, through its Israeli subsidiary, in research and development in the field of cardiology and urology. Since September 1, 2005, the Company has traded on the Tel Aviv Stock Exchange (“TASE”). Between 2007 and 2012 the Company reported as a public company with the U.S. Securities and Exchange Commission (the “SEC”). In August 2012, the Company suspended its reporting obligations under Section 13(a) and 15(d) of the Securities Exchange Act of 1934. In mid-2015, the Company resumed reporting as a public company. b. On January 9, 2014, at the Company’s general meeting of shareholders, its shareholders approved an engagement with one of the Company’s investors (the “Seller”) for the purchase of rights in a Venture (the “Venture”), including the rights to the method and the certain patent application that had been filed by the Seller (the “Assets”). The Venture relates to the development of technologies and applications which will assist the consumer to take his or her body measurements accurately using a mobile device to ensure the purchase of clothing with the best possible fit without the need to try them on. In February 2014, the Company established a wholly owned subsidiary, My Size (Israel) 2014 Ltd., a company registered in Israel, which is currently engaged in the development of the Venture described above. In return for purchasing an interest in the Venture, the Company undertook to pay the Seller 18 % of the Company’s operating profit, direct or indirect, connected to the Venture for a period of seven years starting from the end of the Venture’s development period. As part of the agreement, the Seller received an option to buy back the Assets for consideration which will reflect the market fair value at that time, on the occurrence of the following events: a) if a motion is filed to liquidate the Company; b) if seven years after signing the agreement, the Company’s total accumulated revenues, direct or indirect, from the Venture or the commercialization of the patent will be lower than NIS 3.6 million . In such an event, Seller may repurchase the interest in the Venture at a market price to be determined by an independent third party valuation consultant, who shall be chosen by agreement by the parties, and the audit committee shall conduct the negotiations on behalf of the Company to determine the identity of the consultant. On May 26, 2021, the Company, My Size Israel and Shoshana Zigdon entered into an Amendment to Purchase Agreement (the “Amendment”) which made certain amendments to a Purchase Agreement between the parties dated February 16, 2014 (the “Purchase Agreement”). Pursuant to the Amendment, Ms. Zigdon agreed to irrevocably waive the right to repurchase certain assets related to the collection of data for measurement purposes that My Size Israel acquired from Ms. Zigdon under the Purchase Agreement and upon which the Company’s business is substantially dependent, and all past, present and future rights in any of the intellectual property rights sold, transferred and assigned to My Size Israel under the Purchase Agreement and any modifications, amendments or improvements made thereto, including, without limitation, any compensation, reward or any rights to royalties or to receive any payment or other consideration whatsoever in connection with such intellectual property rights (the “Waiver”). In consideration of the Waiver, the Company issued 2,500,000 shares of common stock to Ms. Zigdon in a private placement. F- 7 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 1 - GENERAL (Cont.) c. On July 25, 2016, the Company’s common stock began publicly trading on the Nasdaq Capital Market under the symbol “MYSZ”. The Company’s shares of common stock are listed both on the Nasdaq Capital Market and TASE. d. Since inception, the Company has incurred significant losses and negative cash flows from operations and has an accumulated deficit of $ 45,191 . 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. Taking into account the proceeds from warrant exercises and the Company’s financing in October 2021 described in note 10c and 10f below managements believes that cash on hand will be sufficient to meet its obligations. Nevertheless, due to the recent acquisition of Orgad (as described in note 16a below) there is uncertainty regarding the expected cash burn in the foreseeable future, and as such 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. e. The Company operates in one reportable segment and all of its long-lived assets are located in Israel. f. In late 2020, 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 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, the COVID-19 pandemic has had a particularly adverse impact on the retail industry and this has resulted in an adverse impact on the Company’s marketing and sales activities. The extent to which COVID-19 continues to impact 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 COVID-19 or treat its impact. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”), applied on a consistent basis, as follows a. Use of estimates : The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. b. Functional currency : The currency of the primary economic environment in which the operations of the Company is conducted is the United States Dollar and thus it is the Company’s functional currency. The reporting currency according to which these financial statements are prepared is the U.S. dollar. The currency of the primary economic environment in which the operation of the Subsidiary, My Size Israel functional currency is the New Israeli Shekel (“NIS”). The currency of the primary economic environment in which the operation of the Subsidiary, My Size LLC, functional currency is Russian Ruble. F- 8 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) c. Principles of consolidation : The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. d. Cash equivalents : Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date acquired. e. Property and equipment : Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates: SCHEDULE OF PROPERTY AND EQUIPMENT ANNUAL RATE % Computers and peripheral equipment 33 Office furniture and equipment 7 - 15 Leasehold improvements Over the term of the lease or the useful life of the improvements, whichever is shorter f. Impairment of long-lived assets : The Company’s property and equipment are reviewed for impairment in accordance with ASC 360, “Property Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs. During the periods ended December 31, 2021 and 2020, no impairment losses have been recorded. g. Severance pay : The Subsidiary’s liability for severance pay is covered by Section 14 of the Israeli Severance Pay Law (“Section 14”). Under Section 14, employees in Israel are entitled to have monthly deposits, at a rate of 8.33 % of their monthly salary, made on their behalf to their insurance funds. Payments in accordance with Section 14 exempt the Subsidiary from any additional obligation for these employees. As a result, the Subsidiary does not recognize any liability for severance pay due to these employees and the deposits under Section 14 are not recorded as an asset in the Subsidiary’s balance sheet. These contributions for compensation represent defined contribution plans and expenses are recorded based on actual deposits. F- 9 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) h. Research and development costs : Research and development costs are charged to the statement of operations, as incurred. Most of the research and development expenses are for wages, related expenses and subcontractors. i. Income taxes : The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Companies’ tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company establishes a valuation allowance, if necessary, to reduce deferred tax assets to the amount more likely than not to be realized. As of December 31, 2021, and 2020, a full valuation allowance was established by the Company. The Company implements a two-step approach to recognize and measure the benefit of its tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is greater than 50 percent (cumulative basis) likely to be realized upon settlement . The Company believes that its tax positions are all highly certain of being upheld upon examination. As such, as of December 31, 2021 and 2020 the Company has no t recorded a liability for unrecognized tax benefits. j. Accounting for stock-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 and Black Scholes option pricing-model. The Company recorded stock options issued to non-employees at the grant date fair value, and recognizes expenses over the related service period by using the straight-line attribution approach in accordance with ASU 2018-07. All awards are equity classified. 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. F- 10 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) k. Fair value of financial instruments : ASC 820, Fair Value Measurements and Disclosures, relating to fair value measurements, defines fair value and established a framework for measuring fair value. The 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. 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 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 shares, 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 asset. l. Basic and diluted net loss per share : Basic net loss per share is computed based on the weighted average number of shares of common stock outstanding during each year. Diluted net income per share is computed based on the weighted average number of shares of common stock outstanding during each year plus dilutive potential equivalent common stock considered outstanding during the year, in accordance with ASC 260, “Earnings per Share”. For the years ended December 31, 2021 and 2020, all outstanding options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive. m. Concentrations of credit risk : Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents. Cash and cash equivalents are invested in banks in Israel and United States. Such deposits in Israel may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. The Company and its subsidiaries have no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. F- 11 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) n. 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 License 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 license services, 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 include cloud-enabled subscriptions, software maintenance 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). The Company recognizes 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. F- 12 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) o. Contingencies and Commitments Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. p. Derivative instruments The Company accounts for its derivative instruments as either assets or liabilities and measures them at fair value through profit or loss. q. Leases The Company implemented ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 is intended to increase transparency and comparability of accounting for lease transactions. For all leases with terms greater than twelve months, the guidance requires lessees to recognize right-of-use assets and corresponding lease liabilities on the balance sheet and to disclose qualitative and quantitative information about lease transactions. The standard maintains a distinction between finance leases and operating leases. The Company leases include an office space lease agreement for 36 months, with an option to extend for an additional 36 months and 36 months cancelable operating lease agreements on behalf of personnel vehicles. The lease term includes a non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. For the office rent lease, the Company has elected to account for the lease and non-lease maintenance components as a single lease component. Therefore, the lease payments used to measure the lease liability include all of the fixed consideration in the contract, including in-substance fixed payments, owed over the lease term. p. Restricted cash Restricted cash are deposits for rent, credit card and for hedging activities. F- 13 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 3 - CASH AND CASH EQUIVALENTS The Company’s cash and cash equivalents balance at December 31, 2021 and 2020 is denominated in the following currencies: SCHEDULE OF CASH AND CASH EQUIVALENT BALANCE 2021 ` 2020 December 31, 2021 2020 US Dollars 10,184 1,217 New Israeli Shekels 433 455 Other 53 17 10,670 1,689 NOTE 4 - OTHER RECEIVABLES AND PREPAID EXPENSES SCHEDULE OF OTHER RECEIVABLES AND PREPAID EXPENSES 2021 2020 December 31, 2021 2020 Prepaid expenses and other current assets 429 413 Government authorities 17 19 Other 133 50 Total 579 482 NOTE 5 - PROPERTY AND EQUIPMENT, NET SCHEDULE OF PROPERTY AND EQUIPMENT, NET Computers and peripheral equipment Office furniture and equipment Leasehold improvements Total Cost Balance as at January 1, 2020 156 52 55 263 Additions 16 - - 16 Disposals ( 2 ) - - ( 2 ) Translation adjustments 12 6 5 23 Balance as at December 31, 2020 182 58 60 300 Balance as at January 1, 2021 182 58 60 300 Additions 23 - - 23 Translation adjustments 7 2 2 11 Balance as at December 31, 2021 212 60 62 334 Accumulated Depreciation Balance as at January 1, 2020 112 8 2 122 Additions 26 5 9 40 Disposals ( 2 ) - - ( 2 ) Translation adjustments 10 1 1 12 Balance as at December 31, 2020 146 14 12 172 Balance as at January 1, 2021 146 14 12 172 Additions 27 5 10 42 Translation adjustments 6 1 1 8 Balance as at December 31, 2021 179 20 23 222 Carrying amounts As at December 31, 2020 36 44 48 128 As at December 31, 2021 33 40 39 112 F- 14 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 6 - LEASES In August 2019, the Company entered into an office space lease agreement. The lease term is for 36 months beginning on August 20, 2019 and ending on August 20, 2022 , with an option to extend for an additional 36 months . Monthly rent payments including utilities amounting to approximately USD 14 (NIS 45,000 ) per month . In addition, The Company entered into a three-year cancelable operating lease agreement for cars. Approximate future minimum remaining rental payments due under these leases are as follows: SCHEDULE OF FUTURE MINIMUM REMAINING RENTAL PAYMENTS Year Ending: 2022 $ 175 2023 $ 184 2024 $ 184 2025 $ 123 These leases generally have terms which range from 1 year to 6 years, and often include one or more options to renew. These renewal terms can extend the lease term from 1 year to 6 years, and are included in the lease term when it is reasonably certain that the Company will exercise the option . These operating leases are included in “Right of use asset” on the Company’s December 31, 2021 consolidated balance sheets, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligations to make lease payments are included in the current liabilities as “Operating lease liability” and in the non-current liabilities as “Operating lease liability - long term” on the Company’s December 31, 2021 consolidated balance sheets. As of December 31, 2021, right-of-use of asset was $ 776 . operating lease liabilities were $ 138 and non current Operating lease liabilities were $ 473 . Right-of-use asset includes the capitalization of improvements (net of amortization) amounting to $ 164 . Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The interest rate used to discount future lease payment was 8.69 %. Maturities of lease liabilities as of December 31, 2021 were as follows: SCHEDULE OF MATURITIES OF LEASE LIABILITIES Year Ending: 2022 $ 180 2023 $ 191 2024 $ 191 2025 $ 127 Thereafter $ 689 Less imputed interest: $ ( 78 ) Total lease liabilities $ 611 F- 15 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 7 - RELATED PARTY TRANSACTIONS A. Balances with related parties: The following related party payables are included in trade payables and accounts payable. SCHEDULE OF RELATED PARTY PAYABLES 2021 2020 December 31, 2021 2020 Officers (*) 43 38 Directors 20 11 Due to related parties 63 49 (*) The amount includes the net salary payable. B. Related parties benefits: SCHEDULE OF RELATED PARTIES BENEFITS 2021 2020 Year ended December 31, 2021 2020 Salaries and related expenses 852 788 Share based payments 73 467 Directors 58 48 Related parties benefits 983 1,303 NOTE 8 - FINANCIAL INSTRUMENTS The following tables presents the Company’s significant assets and liabilities that are measured at fair value on recurring basis and their classification within the fair value hierarchy: SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS December 31, 2021 Fair value hierarchy Level 1 Level 2 Level 3 Financial assets Investment in marketable securities - 108 - December 31, 2021 Fair value hierarchy Level 1 Level 2 Level 3 Financial liabilities Warrants and derivative - 2 - December 31, 2020 Fair value hierarchy Level 1 Level 2 Level 3 Financial assets Investment in marketable securities - 59 - December 31, 2020 Fair value hierarchy Level 1 Level 2 Level 3 Financial liabilities Warrants derivative - 1 - F- 16 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 8 - FINANCIAL INSTRUMENTS (Cont.) The carrying amounts of cash and cash equivalents, restricted cash, short term restricted deposit, accounts receivable, other receivables and prepaid expenses, trade payable and accounts payable approximate their fair value due to the short-term maturities of such instruments. At December 31, 2021, the recognized gain and fair value (based on quoted market prices with a discount due to security- restrictions on iMine shares) of the marketable securities were $ 49 and $ 108 , respectively (at December 31, 2020 33 and $ 59 , respectively). NOTE 9 - TAXES ON INCOME a. On December 31, 2021, the Company had U.S. federal net operating loss carryforwards of approximately $ 26,000 available to reduce future taxable income. Utilization of the U.S. net operating losses may be subject to substantial limitations due to the change of ownership provisions of the Internal Revenue Code of 1986. The U.S. Company has final tax assessments through 2013. On December 22, 2017, the Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from a maximum of 35 % to a flat 21 % rate, effective January 1, 2018. As a result of the decrease in the corporate income tax rate, the Company revalued the ending net deferred tax assets at December 31, 2017, but did not recognize any incremental income tax expense in 2017 due to the revaluation of the valuation allowance. b. Foreign tax: 1. Tax rates: Presented hereunder are the tax rates relevant to the Company’s Israeli subsidiaries: SCHEDULE OF TAX RATES RELEVANT TO THE COMPANY'S ISRAELI SUBSIDIARY 2021 - 23 % 2020 - 23 % 2. The Company’s Israeli subsidiaries have estimated total available carryforward operating tax losses for Israeli income tax purposes of approximately $ 64,000 as of December 31, 2021. Of these losses, a total of $ 47,500 are owned by Topspin Medical (Israel) Ltd. Topspin tax losses may be offset only by future income with respect to the same operational activity by which it was incurred for an indefinite period of time. The other losses are owned by My Size Israel 2014 Ltd and may be carryforward to offset against future income for an indefinite period of time. 3. Topspin Medical (Israel) Ltd. and My Size (Israel) 2014 Ltd. has final tax assessments through 2015. c. U.S. and foreign components of loss from continuing operations, before income taxes consisted of: SCHEDULE OF COMPONENTS OF LOSS FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES 2021 2020 December 31, 2021 2020 U.S ( 3,802 ) ( 2,334 ) Non-U.S. (foreign) ( 6,718 ) ( 3,823 ) Net loss ( 10,520 ) ( 6,157 ) F- 17 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 9 - TAXES ON INCOME (Cont.) d. Deferred taxes: Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows: SCHEDULE OF DEFERRED TAX ASSETS 2021 2020 December 31, 2021 2020 Deferred tax assets: Operating loss carryforwards 20,238 18,177 Warrants and options 126 98 Marketable securities 377 367 Other temporary differences 341 326 Deferred tax assets before valuation allowance 21,082 18,968 Valuation allowance ( 21,082 ) ( 18,968 ) Net deferred tax asset - - The following table presents a reconciliation of the beginning and ending valuation allowance: SCHEDULE OF RECONCILIATION OF VALUATION ALLOWANCE 2021 2020 December 31, 2021 2020 Balance at beginning of the year 18,968 17,210 Additions in valuation allowance to the income statement 1,625 991 Additions in valuation allowance due to exchange rate differences 489 767 Balance at end of the year 21,082 18,968 In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance at December 31, 2021 and 2020. e. Theoretical tax The following presents the adjustment between the theoretical tax amount and the tax amount included in the financial statements: SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSES BENEFITS 2021 2020 December 31, 2021 2020 Loss before income taxes 10,520 6,157 Statutory tax rate 21 % 21 % Computed “expected” tax income 2,209 1,293 Foreign tax rate differences and exchange rate differences 131 65 Nondeductible expenses ( 715 ) ( 367 ) Change in valuation allowance ( 1,625 ) ( 991 ) Taxes on income - - F- 18 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 10 - SHAREHOLDERS’ EQUITY a. Common stock confers upon their holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends if declared. b. On January 8, 2021, the Company conducted a public offering of its securities pursuant to which it issued 1,569,179 shares of its common stock for gross proceeds of $ 2,008 . The net proceeds to the Company from the offering were approximately $ 1,700 , after deducting placement agent’s fees and other estimated offering expenses payable by the Company. c. During 2021, a holders of warrants exercised warrants to purchase 3,377,710 ordinary shares of the Company in exchange for $ 3,709 . d. On March 25, 2021, the Company conducted a public offering of its shares of common stock pursuant to which it issued 2,618,532 shares of its common stock for gross proceeds of $ 3,300 . The net proceeds to the Company from the offering were approximately $ 2,872 , after deducting placement agent’s fees and other estimated offering expenses payable by the Company. On May 7, 2021, the Company issued an additional 392,780 shares of the Company’s common stock in connection with the full exercise of the underwriter’s overallotment option granted in the Company’s 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 to the Company, net of the underwriting discount, of approximately $ 463 . e. On May 26, 2021, the Company issued 2,500,000 shares of common stock to Ms. Zigdon in consideration of the Waiver. See note 1(b) above. f. On October 28, 2021, the Company sold in a registered direct offering 2,514,800 shares of its common stock and, in a concurrent private placement, an aggregate of 1,886,100 unregistered warrants to purchase shares of common stock, at an offering price of $ 1.352 per share and associated warrant. In addition, on the same day, the Company sold in a private placement 3,772,208 unregistered shares of common stock and unregistered warrants to purchase up to an aggregate of 2,829,156 shares of common stock at the same purchase price as in the registered direct offering. The warrants are immediately exercisable and will expire five years from issuance at an exercise price of $ 1.26 per share, subject to adjustment as set forth therein. The gross proceeds from the offerings were $ 8,500 . The net proceeds to the Company from the offerings were approximately $ 7,560 , after deducting placement agent’s fees and other estimated offering expenses payable by the Company. In connection with the offerings, the Company issued to the placement agent warrants to purchase 440,091 shares on substantially the same terms as the purchasers in the offerings at an exercise price of $ 1.69 per share and a term expiring on October 26, 2026 . F- 19 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 10 - SHAREHOLDERS’ EQUITY (Cont.) g. A summary of the warrant activity during the years ended December 31, 2021 and 2020 is presented below: SCHEDULE OF WARRANT ACTIVITY Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Life in Years Outstanding, December 31, 2019 144,277 4.1 3.06 Issued 5,363,870 - Expired or exercised ( 86,681 ) - Outstanding, December 31, 2020 5,421,466 1.47 4.26 Issued 5,155,347 Expired or exercised ( 3,377,710 ) Outstanding, December 31, 2021 7,199,103 1.24 4.35 Exercisable, December 31, 2021 7,199,103 1.24 4.35 NOTE 11 - STOCK BASED COMPENSATION The stock-based expense 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: SCHEDULE OF STOCK BASED COMPENSATION EXPENSES 2021 2020 Year ended December 31, 2021 2020 Stock-based compensation expense - Research and development 95 206 Stock-based compensation expense - Sales and marketing 180 146 Stock-based compensation expense - General and administrative 98 293 Stock-based compensation expense 373 645 F- 20 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 11 - STOCK BASED COMPENSATION (Cont.) Options issued to consultants a. In July 2019, the Company entered into a three-year agreement with a consultant (“Consultant14”) to provide services to the Company including assisting the Company to promote, market and sell the Company’s technology to potential customers. Pursuant to such agreement and in partial consideration for such consulting services, the Company agreed to issue to Consultant14 options to purchase up to 2,667 shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $ 15.00 per share and shall vest in 3 equal instalments every twelve months starting July 2019. Unexercised options shall expire 4 years from the effective date. In addition, the Company agreed to issue to Consultant14 options to purchase up to 22,233 shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $ 1.08 per share and shall vest in 4 equal instalments every six months starting September 2020. Unexercised options shall expire 5 years from the effective date. During 2021 and 2020, an amount of $ 14 and $ 8 respectively, were recorded by the Company as stock-based equity awards with respect to Consultant14. b. In April 2020, the Company entered into a twelve month agreement with a consultant (“Consultant16”) to provide services to the Company including assisting the Company to promote, market and sell the Company’s technology to potential customers. Pursuant to said agreement and in partial consideration for such consulting services, the Company agreed to issue to Consultant16 options to purchase up to 6,000 shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $ 2.00 per share and shall vest in 4 equal instalments every three months starting May 2020. Unexercised options shall expire 18 month from the effective date. During 2021 and 2020, an amount of $ 1 and $ 1 respectively, were recorded by the Company as stock-based equity awards with respect to Consultant16. c. In October 2020, the Company entered into a twelve month agreement with a consultant (“Consultant17”) to provide services to the Company including assisting the Company to promote, market and sell the Company’s technology to potential customers. Pursuant to said agreement and in partial consideration for such consulting services, the Company agreed to issue to Consultant17 options to purchase up to 15,000 shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $ 1.10 per share and shall vest in 3 equal instalments every twelve months starting October 2021. Unexercised options shall expire 4 years from the effective date. During 2021 and 2020, an amount of $ 8 and $ 3 respectively, were recorded by the Company as stock-based equity awards with respect to Consultant17. d. In May 2021, the Company entered into a consulting agreement with a consultant (“Consultant18”) pursuant to which the Company agreed upon the three-month anniversary of the agreement to issue to consultant18 a (i) a warrant to purchase up to 50,000 shares of the Company’s common stock exercisable at $ 1.50 per share and expiring on December 31, 2022 , and (ii) a warrant to purchase up to 50,000 shares of the Company’s common stock exercisable at $ 2.00 per share and expiring on December 31, 2022 . During 2021, an amount of $ 64 , was recorded by the Company as stock-based equity awards with respect to Consultant18. e. In June 2021, the Company entered into a consulting agreement with a consultant (“Consultant19”) pursuant to which the Company agreed to issue to the consultant a warrant to purchase up to 50,000 shares of the Company’s common stock exercisable at $ 1.50 per share and expiring on December 31, 2022 . During 2021, an amount of $ 34 , was recorded by the Company as stock-based equity awards with respect to Consultant19. F- 21 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 11 - STOCK BASED COMPENSATION (Cont.) The Company’s outstanding options granted to consultants as of December 31, 2021 are as follows: SCHEDULE OF OPTIONS GRANTED TO CONSULTANTS Issuance date Options for Common stock Weighted Average exercise price per share Options exercisable Expiration date April 2012 3,068 NIS 2.25 3,068 April 2022 February 2018 367 USD 21.15 367 May 2021- February 2023 August 2018-December 2018 13,335 USD 14.1 6,668 August 2023 - December 2023 July 2020 2,667 USD 15 1,778 April 2021- July 2023 June 2020 7,500 USD 1.3 7,500 March 2022 September-October 2020 37,233 USD 1.09 21,675 October 2024- September 2025 May-June 2021 150,000 USD 1.67 150,000 December 31 2022 Total 214,170 191,056 The Company uses the Black Scholes model to measure the fair value of the stock options with the assistance of a third party valuation. The fair value of the Company’s stock options granted to non-employees was calculated using the following weighted average assumptions: SCHEDULE OF STOCK OPTIONS ASSUMPTIONS 2021 2020 Grants Grants Dividend yield 0 % 0 % Expected volatility 125.15 % 101.65 %- 106.74 % Risk-free interest 0.16 % 0.17 %- 0.3 % Contractual term of up to (years) 1.52 1.5 - 4 F- 22 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 11 - STOCK BASED COMPENSATION (Cont.) 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 5,770,000 options. Stock options can be granted with an exercise price equal to or less than the stock’s fair market value at the date of grant. The fair value of each option award is estimated on the date of grant using the Binomial option-pricing model that used the weighted average assumptions in the following table. The risk free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. SCHEDULE OF STOCK OPTIONS ASSUMPTIONS 2021 Grants 2020 Grants Dividend yield 0 % 0 % Expected volatility 98.47 % 95.06 % Risk-free interest 0.96 % 0.338 % expected life 2 - 2.27 2 - 4.8 In the years ended December 31, 2021 and 2020, 97,500 and 861,999 options, respectively, were granted. 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 the 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 the years ended December 31, 2021 and 2020 was $ 1 and $ 50 respectively. On August 10, 2020, the Company’s shareholders approved an increase in the shares available for issuance under the 2017 Employee 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 was reduced from 466,667 to 216,667 shares: (ii) the Company granted 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 vested 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 ended 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 vested 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 vested 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 vested 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 vested on November 26, 2020 . On December 30, 2021, our stockholders approved an increase in the shares available for issuance under the 2017 Equity Incentive Plan from 1,450,000 shares to 5,770,000 shares. F- 23 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 11 - STOCK BASED COMPENSATION (Cont.) The total stock option compensation expense in the year ended December 31, 2021 amounted to $ 252 as follows: Research and development expenses amounted to $ 94 , sales and marketing expenses amounted to $ 97 and general and administrative expenses amounted to $ 61 . The total stock option compensation expense in the year ended December 31, 2020 amounted to $ 560 as follows: research and development expenses amounted to $ 190 , sales and marketing expenses amounted to $ 117 and general and administrative expenses amounted to $ 253 . As of December 31, 2021, there was a total of $ 62 unrecognized compensation cost relating to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 0.65 years. Share option activity during 2021 is as follows: SCHEDULE OF SHARES OPTION ACTIVITY 2021 Number of options Weighted average exercise price US$ Outstanding at January 1 977,346 $ 1.04 Granted 97,500 1.28 Exercised ( 18,778 ) - Expired ( 162,520 ) - Outstanding at year end 893,548 1.06 Vested at year end 676,572 1.04 Share option activity during 2020 is as follows: 2020 Number of options Weighted average Exercise price US$ Outstanding at January 1 163,904 $ 13.87 Granted 861,999 1.04 Exercised - - Expired ( 48,557 ) - Outstanding at year end 977,346 1.04 Vested at year end 398,410 1.04 F- 24 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 12 - 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. Discovery has been completed and both parties have filed motions for summary judgment in connection with the claims and counterclaims. On December 30, 2021, the Court denied both My Size and North Empire’s motions for summary judgment, arguing there were factual issues to be determined at trial. On January 26, 2022, the Company filed a notice of appeal of the summary judgment decision. The appeal must be fully perfected and filed by July 26, 2022. On February 3, 2022, the Company filed a motion to reargue the Court’s decision denying the Company’s motion for summary judgment. North Empire will file its opposition papers on or before March 31, 2022, and the Company will file reply papers on April 29, 2022. The return date on the motion to reargue is scheduled for May 2, 2022. The Company believes it is more likely than not that the counterclaims will be denied. b. In May 2021, the Company received notice from Custodian Ventures, LLC (“Custodian”) of its intention to nominate four candidates to stand for election to our Board of Directors at the Company’s 2021 annual meeting of stockholders. Custodian subsequently made a book and records request and has made public statements calling for changes to our management. On September 22, 2021, Custodian commenced an action in the Court of Chancery of the State of Delaware captioned, Custodian Ventures, LLC v. MySize, Inc. (the “Delaware Action”). In the Delaware Action, Custodian sought an order from the Court of Chancery pursuant to Section 211 of the General Corporation Law of the State of Delaware compelling us to hold an annual meeting. On October 19, 2021, the Company commenced an action in the United States District Court for the Southern District of New York against Custodian, Activist Investing LLC, Milton C. Ault III, Ault Alpha LP, Ault Alpha GP LLC, Ault Capital Management LLC, Ault & Company Inc., David Aboudi, Patrick Loney and David Nathan, pursuant to Sections 13(d) and 14(a) of the Securities Exchange Act of 1934, and certain rules promulgated thereunder (the “SDNY Action”). The complaint sought, among other things, declaratory and injunctive relief related to defendants’ efforts to nominate a slate of directors for election at our next annual meeting. The complaint alleged that the defendants formed an undisclosed “group” for purposes of Section 13(d) and has misrepresented its true purpose in purchasing My Size, Inc. stock in filings made with the SEC. In addition, the complaint alleged that the defendants engaged in an unlawful solicitation of investors in violation of the Exchange Act proxy rules in connection with their efforts to elect a slate of directors to the Company’s Board of Directors. On October 20, 2021, the Court signed an order granting a hearing on an anticipated motion for a preliminary injunction and expedited scheduling and discovery in aid thereof, and scheduled that hearing for December 2, 2021. On November 4, 2021, the Company entered into the Settlement Agreement with the Lazar Parties. Pursuant to the Settlement Agreement, the Company and the Lazar Parties agreed to compromise and settle the Delaware Action and SDNY Action. In addition, pursuant to the Settlement Agreement, the Company agreed to reimburse Custodian for out of pocket expenses and in consideration for the dismissal and release of claims against the Company an aggregate amount equal to $ 275 , to be paid within three business days of the effective date of the Settlement Agreement. With respect to the Company’s 2021 annual meeting of stockholders, Custodian agreed to, among other things, withdraw or rescind (i) its May 12, 2021 notice of stockholder nominations of four director candidates with respect to the Company’s 2021 annual meeting of stockholders, (ii) the notice dated October 28, 2021 submitted by Custodian to the Company notifying the Company of Custodian’s continued intent to bring its nomination of four director candidates before the Company’s stockholders at the 2021 annual meeting, and (iii) any and all related materials and notices submitted to the Company in connection therewith or related thereto and to not take any further action in connection with the solicitation of any proxies in connection with the Company. Custodian also agreed to cease any and all solicitation and other activities in connection with the 2021 annual meeting. In addition, Custodian agreed to certain customary standstill provisions for a period of five years beginning on the effective date of the Agreement (the “Standstill Period”). The Settlement Agreement also provides that during the Standstill Period, the Lazar Parties will vote all shares of common stock of the Company it beneficially owns in in accordance with any proposal or recommendation made by the Company or the Board of Directors of the Company that is submitted to the stockholders of the Company, unless to do so would violate applicable law and except with respect to certain extraordinary transactions. The Settlement Agreement also contains non-disparagement and confidentiality provisions, subject to certain exceptions. On December 9, 2021, the Company subsequently entered into a Settlement Agreement (the “Ault Settlement Agreement”), with Milton C. Ault III, Ault Alpha LP, Ault Alpha GP LLC, Ault Capital Management LLC, Ault & Company Inc., collectively the Ault Parties, which we agreed to withdraw the SDNY Action against the Ault Parties and the Ault Parties agreed to withdraw the counterclaim that they asserted in that action against the Company. In addition, pursuant to the Settlement Agreement, the Company paid $ 70 to the Ault Parties in consideration for the releases and other good and valuable consideration as set forth in the Ault Settlement Agreement. c. On July 5, 2021, the Company was served with a legal complaint filed by Fidelity Venture Capital Ltd. and Dror Atzmon in the Magistrate’s Court in Tel Aviv for a monetary award in an amount of NIS 1,436,679 (approximately $ 450,000 ) and a declaratory relief. The plaintiffs allege that the Company breached its contractual obligations to pay them for services allegedly rendered to the Company by the plaintiffs under a certain consulting agreement dated July 2, 2014, in an amount of NIS 819,000 (approximately $ 256,000 ). Additionally, the plaintiffs allege that the Company should compensate them for losses allegedly incurred by them following their investment in the Company’s shares issued under a certain private offering. In the alternative, the plaintiffs move that the court will declare the investment agreement void with full restitution of plaintiffs’ original investment in an amount of NIS 1,329,650 (approximately $ 415,000 ). The Company filed its statement of defense on October 25, 2021. The first preliminary court hearing of the case is scheduled for January 23, 2022. The first court preliminary hearing was held on March 1, 2022. Following the first preliminary hearing and the Court’s comments and recommendation, the Plaintiffs filed a motion to strike out the claim without prejudice. On March 8, 2022 the Court ordered dismissal without prejudice of the claim. F- 25 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 13 - SALES AND MARKETING SCHEDULE OF SALES AND MARKETING 2021 2020 Year ended December 31, 2021 2020 Salaries 574 549 Consultants and subcontractors 1,086 823 Marketing 283 450 Share based payments for consultants and employees 180 163 Travel 42 23 Other 171 188 Sales and marketing expenses 2,336 2,196 NOTE 14 - GENERAL AND ADMINISTRATIVE EXPENSES SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES 2021 2020 Year ended December 31, 2021 2020 Salaries 461 443 Professional services 1,832 627 Share based payments for consultants, directors and employees 98 276 Rent, office expenses and communication 372 323 Insurance 627 507 Settlement fees (*) 345 - Travel - 6 Directors 59 48 Other 330 337 General and administrative expenses 4,124 2,567 (*) See note 12(b) F- 26 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 15 - FINANCIAL INCOME (EXPENSE), NET SCHEDULE OF FINANCIAL INCOME (EXPENSES), NET Year ended A. Financial income December 31, 2021 2020 Revaluation of derivative 7 - Revaluation investment in marketable securities 49 33 Other 10 28 66 61 Year ended B. Financial expense December 31, 2021 2020 Exchange rate differences - 65 Other 9 7 9 72 NOTE 16 - EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE a. On February 7, 2022, the Company entered into Share Purchase Agreement (the “Agreement”), with Amar Guy Shalom and Elad Bretfeld (the “Sellers”), pursuant to which the Sellers agreed to sell to the Company all of the issued and outstanding equity of Orgad International Marketing Ltd., a company incorporated under the laws of the State of Israel (“Orgad”). The Sellers are the sole title and beneficial owners of 100 % of the shares of Orgad. In consideration of the shares of Orgad, the Sellers are entitled to receive (i) up to $ 1,000,000 in cash (the “Cash Consideration”), (ii) an aggregate of 2,790,049 shares (the “Equity Consideration”) of the Company’s common stock, and (iii) earn-out payments of 10 % of the operating profit of Orgad for the years 2022 and 2023. The transaction closed on the same day. The Cash Consideration is payable to the Sellers in three installments, according to the following payment schedule: (i) $ 300,000 at closing, (ii) $ 350,000 payable on the two-year anniversary of the closing, and (iii) $ 350,000 payable on the three-year anniversary of the closing; provided that in the case of the second and third installments certain revenue targets are met and subject further to certain downward post-closing adjustment. The Equity Consideration is payable to the Sellers according to the following payment schedule: (i) 50% at closing, and (ii) the remaining 50% will be issued in eight equal quarterly installments until the lapse of two years from closing, subject to certain downward post-closing adjustment . The payment of the second and third cash installments, the equity installments and the earn out are further subject in each case to the Sellers being actively engaged with Orgad at the date such payment is due (except if Seller resigns due to reasons relating to material reduction of salary or adverse change in his position with Orgad or its affiliates). The Agreement contains customary representations, warranties and indemnification provisions. In addition, the Sellers will be subject to non-competition and non-solicitation provisions pursuant to which they agree not to engage in competitive activities with respect to the Company’s business . In connection with the Agreement, each of the Sellers entered into employment agreements with Orgad and six-month lock-up agreements with the Company. The required information for purchase price allocation in accordance with the FASB ASC Topic 805 is not presented because the initial accounting for the business combination is incomplete as of the date of these financial statements due to the short period since acquisition and since the acquiree accounting records were not finalized. F- 27 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE There were no disagreements with accountants on accounting and financial disclosure of a type described in Item 304 (a)(1)(iv) or any reportable event as described in Item 304 (a)(1)(v) of Regulation S-K.