My Size, Inc. 10-Q

Item 1. Financial Statements. My Size Inc. and Subsidiaries Condensed Consolidated Interim Financial Statements As of June 30, 2022 (unaudited) U.S. Dollars in Thousands 1 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Financial Statements as of June 30, 2022 (Unaudited) Contents Page Condensed Consolidated Interim Balance Sheets (Unaudited) 3 Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited) 4 Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (Unaudited) 5 Condensed Consolidated Interim Statements of Cash flows (Unaudited) 6 Notes to Condensed Consolidated Interim Financial Statements (Unaudited) 7-17 2 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Balance Sheets (Unaudited) U.S. dollars in thousands (except share data and per share data) June 30, December 31, 2022 2021 (Unaudited) (Audited) Assets Current Assets: Cash and cash equivalents 6,462 10,670 Restricted cash 263 273 Inventory, net 1,223 - Accounts receivable 175 40 Other receivables and prepaid expenses 955 579 Total current assets 9,078 11,562 Long term deposit 29 - Property and equipment, net 153 112 Right-of-use asset 715 776 Intangible asset 326 - Goodwill 268 - Investment in marketable securities 97 108 Total non-current assets 1,588 996 Total assets 10,666 12,558 Liabilities and stockholders’ equity Current liabilities: Account payables 883 453 Right of use liability 173 138 Bank overdraft and short-term loans 178 - Trade payables 950 635 Other payables 159 - Derivatives 39 2 Total current liabilities 2,382 1,228 Long term loans 97 - Deferred tax liabilities 75 - Long term right of use liability 417 473 Total non-current liabilities 589 473 Total liabilities 2,971 1,701 COMMITMENTS AND CONTINGENCIES Stockholders’ equity: Stock Capital - Common stock of $ 0.001 par value - Authorized: 200,000,000 shares; Issued and outstanding: 25,551,906 and 23,982,503 as of June 30, 2022 and December 31, 2021, respectively 26 24 Additional paid-in capital 57,048 56,430 Accumulated other comprehensive loss ( 284 ) ( 406 ) Accumulated deficit ( 49,095 ) ( 45,191 ) Total stockholders’ equity 7,695 10,857 Total liabilities and stockholders’ equity 10,666 12,558 The accompanying notes are an integral part of the condensed consolidated interim financial statements. 3 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited) U.S. dollars in thousands (except share data and per share data) 2022 2021 2022 2021 Six-Months Ended June 30, Three-Months Ended June 30, 2022 2021 2022 2021 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues 1,205 57 801 30 Cost of revenues ( 730 ) - ( 479 ) - Gross profit 475 57 322 30 Operating expenses Research and development ( 802 ) ( 3,380 ) ( 390 ) ( 3,007 ) Sales and marketing ( 1,854 ) ( 1,277 ) ( 895 ) ( 731 ) General and administrative ( 1,576 ) ( 1,229 ) ( 689 ) ( 605 ) Total operating expenses ( 4,232 ) ( 5,886 ) ( 1,974 ) ( 4,343 ) Operating loss ( 3,757 ) ( 5,829 ) ( 1,652 ) ( 4,313 ) Financial income (expenses), net ( 147 ) 32 ( 64 ) ( 27 ) Net loss ( 3,904 ) ( 5,797 ) ( 1,716 ) ( 4,340 ) Other comprehensive income (loss): Foreign currency translation differences 122 ( 16 ) 64 22 Total comprehensive loss ( 3,782 ) ( 5,813 ) ( 1,652 ) ( 4,318 ) Basic and diluted loss per share ( 0.16 ) ( 0.51 ) ( 0.07 ) ( 0.33 ) Basic and diluted weighted average number of shares outstanding 25,128,003 11,276,238 25,463,759 13,340,164 The accompanying notes are an integral part of the interim condensed consolidated financial statements 4 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (Unaudited) U.S. dollars in thousands (except share data and per share data) Number Amount capital loss deficit equity Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss deficit equity Balance as of January 1, 2022 23,982,503 24 56,430 ( 406 ) ( 45,191 ) 10,857 Stock-based compensation related to options granted to employees and consultants - - 162 - - 162 Issuance of shares in Business Combination (*) (*) 1,569,403 2 456 - - 458 Total comprehensive loss - - - 122 ( 3,904 ) ( 3,782 ) Balance as of June 30, 2022 25,551,906 26 57,048 ( 284 ) ( 49,095 ) 7,695 (*) See note 6 a. Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss deficit equity Balance as of January 1, 2021 7,232,836 7 37,164 ( 424 ) ( 34,671 ) 2,076 Stock-based compensation related to options granted to employees and consultants - - 232 - - 232 Restricted shares issued to shareholder 2,500,000 3 2,615 - - 2,618 Issuance of shares, net of issuance cost of $ 768 4,580,491 4 5,031 - - 5,035 Exercise of warrants 725,000 1 796 - - 797 Total comprehensive loss - - - ( 16 ) ( 5,797 ) ( 5,813 ) Balance as of June 30, 2021 15,038,327 15 45,838 ( 440 ) ( 40,468 ) 4,945 Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss deficit equity Balance as of April 1, 2022 25,377,528 25 57,000 ( 348 ) ( 47,379 ) 9,298 Stock-based compensation related to options granted to employees and consultants - - 48 - - 48 Issuance of shares in Business Combination (*) 174,378 1 - - - 1 Issuance of shares in Business Combination (*) 174,378 1 - - - 1 Total comprehensive loss - - - 64 ( 1,716 ) ( 1,652 ) Balance as of June 30, 2022 25,551,906 26 57,048 ( 284 ) ( 49,095 ) 7,695 (*) See note 6 a. Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss deficit equity Balance as of April 1, 2021 12,145,547 12 42,671 ( 462 ) ( 36,128 ) 6,093 Stock-based compensation related to options granted to employees and consultants - - 89 - - 89 Restricted shares issued to shareholder 2,500,000 3 2,615 - - 2,618 Issuance of shares, net of issuance cost of $ 32 392,780 * 463 - - 463 Issuance of shares, net of issuance cost 392,780 - (*) 463 - - 463 Total comprehensive loss - - - 22 ( 4,340 ) ( 4,318 ) Balance as of June 30, 2021 15,038,327 15 45,838 ( 440 ) ( 40,468 ) 4,945 (*) Represents an amount less than $1 The accompanying notes are an integral part of the interim condensed consolidated financial statements 5 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Statements of Cash Flows (Unaudited) U.S. dollars in thousands 2022 2021 Six-Months Ended June 30, 2022 2021 (Unaudited) (Unaudited) Cash flows from operating activities: Net loss ( 3,904 ) ( 5,797 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 76 21 Amortization of right-of-use asset 20 22 Revaluation of derivatives 37 1 Revaluation of investment in marketable securities 11 ( 22 ) Expenses arising from restricted shares issued to compensate waiver by a shareholder - 2,618 Financing expenses 7 - Stock based compensation 162 232 (Increase) in account receivables ( 55 ) ( 7 ) Decrease (Increase) in other receivables and prepaid expenses ( 170 ) 279 (Increase) in inventory ( 455 ) - Increase in other payables 158 - (Decrease) in deferred tax liabilities ( 12 ) - (Decrease) in trade payables ( 300 ) ( 50 ) Increase in account payables 355 34 Net cash used in operating activities ( 4,070 ) ( 2,669 ) Cash flows from investing activities: Acquisition of a subsidiary, net of cash acquired ( 300 ) - Change in restricted deposits - 184 Purchase of property and equipment ( 25 ) ( 12 ) Net cash provided by (used in) investing activities ( 325 ) 172 Cash flows from financing activities: Proceeds from issuance of shares, net of issuance costs - 5,035 Short term loans 18 - Repayment of short-term loans ( 15 ) - Repayment of long-term loans ( 27 ) Proceeds from Exercise of warrants - 797 Net cash provided by (used in) financing activities ( 24 ) 5,832 Effect of exchange rate fluctuations on cash and cash equivalents 201 ( 16 ) Increase (decrease) in cash, cash equivalents and restricted cash ( * ) (*) ( 4,218 ) 3,319 Cash, cash equivalents and restricted cash at the beginning of the period 10,943 1,774 Cash, cash equivalents and restricted cash at the end of the period 6,725 5,093 Non cash activities: Shares issued in Acquisition of a subsidiary 457 2,618 (*) $ 4,208 relates to change in cash and cash equivalents and $ 10 to change in restricted cash. The accompanying notes are an integral part of the interim condensed consolidated financial statements. 6 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 1 - General a. My Size, Inc. is developing unique measurement technologies based on algorithms with applications in a variety of areas, from the apparel e-commerce market to the courier services market and to the Do It Yourself smartphone and tablet apps market. The technology is driven by proprietary algorithms which are able to calculate and record measurements in a variety of novel ways. Following the acquisition of Orgad International Marketing Ltd. (“Orgad”) in February 2022 (see note 6), the Company also operates an omnichannel e-commerce platform. The Company has four subsidiaries, My Size Israel 2014 Ltd (“My Size Israel”), Topspin Medical (Israel) Ltd., and Orgad all of which are incorporated in Israel, and My Size LLC which was incorporated in the Russian Federation. References to the Company include the subsidiaries unless the context indicates otherwise. b. During the six-month period ended June 30, 2022, the Company has incurred significant losses and negative cash flows from operations and has an accumulated deficit of $ 49,095 . The Company has financed its operations mainly through fundraising from various investors. The Company’s management expects that the Company will continue to generate losses and negative cash flows from operations for the foreseeable future. Based on the projected cash flows and cash balances as of June 30, 2022, management is of the opinion that its existing cash will be sufficient to fund operations for a period less than 12 months. As a result, there is substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include the continued commercialization of the Company’s products and securing sufficient financing through the sale of additional equity securities, debt or capital inflows from strategic partnerships. Additional funds may not be available when the Company needs them, on terms that are acceptable to it, or at all. If the Company is unsuccessful in commercializing its products and securing sufficient financing, it may need to cease operations. The financial statements include no adjustments for measurement or presentation of assets and liabilities, which may be required should the Company fail to operate as a going concern. c. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it spread globally. Many countries around the world, including Israel, have from time to time implemented significant governmental measures 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. While the COVID-19 pandemic did not materially adversely affect the Company’s consolidated financial results and operations during the three and six months ended June 30, 2022, the COVID-19 pandemic affected the Company’s operations in 2020 and 2021. The pandemic may continue to have an impact on the Company’s business, operations, and financial results and conditions, directly and indirectly, including, without limitation, impacts on the health of the Company’s management and employees, its operations, marketing and sales activities, and on the overall economy. The extent to which COVID-19 impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain COVID-19 or treat its impact. Note 2 - Significant Accounting Policies a. Unaudited condensed consolidated financial statements: The accompanying unaudited condensed consolidated interim financial statements included herein have been prepared by the Company in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of the Company. In management’s opinion, the interim financial data presented includes all adjustments necessary for a fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. generally accepted accounting principles (“GAAP”) has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021. 7 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 2 - Significant Accounting Policies (cont.) b. Significant Accounting Policies: The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements, except the following new policies which was adopted following the business combination (see note 6): 1. Inventories Inventories are measured at the lower of cost or net realizable value. The cost of inventories comprises of the costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. 2. Revenue Recognition Since the acquisition of Orgad (see note 6 - Business combination), the Company’s revenues are comprised of two main categories: (1) selling products to customers (2) licensing cloud-enabled software subscriptions, associated software maintenance and support. Revenue from sale of products Revenue from sale of products is recognized at the time the related performance obligation is satisfied by transferring a promised good to a customer. Revenue is recognized net of allowances for refunds and any taxes collected from customers, which are subsequently remitted to governmental authorities. Refunds are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Revenue is recognized when control of the product is transferred to the customer. The Company maintains a returns policy that allows its customers to return product within a specified period of time. The estimate of the provision for returns is based upon historical experience with actual returns. Revenue from licensing The Company recognizes revenue in accordance with ASC Topic 606, Revenues from Contracts with Customers (“ASC 606”). A contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. 8 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 2 - Significant Accounting Policies (cont.) Principal versus Agent Considerations The Company follows the guidance provided in ASC 606 for determining whether it is a principal or an agent in arrangements with customers, by assessing whether the nature of the Company’s promise is a performance obligation to provide the specified goods (principal) or to arrange for those goods to be provided by the other party (agent). With regard to products being sold by Orgad through Amazon, this determination involves judgment. The Company determined it is a principal, as it has determined that it controls the promised product before it is transferred to the end customers, it is primarily responsible for fulfilling the promise to provide the goods, and it has discretion in establishing prices. Therefore, the revenues are recorded on a gross basis. 3. Business combinations The Company applies the provisions of ASC 805, “Business Combination” and allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, the Company estimated the future expected cash flows from acquired platform from a market participant perspective, useful lives and discount rates. In addition, management makes significant estimates and assumptions, which are uncertain, but believed to be reasonable. Significant estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired platforms from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. 4. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Under ASC 350, “Intangible - Goodwill and Other”, goodwill is not amortized, but rather is subject to an annual impairment test. ASC 350 requires goodwill to be tested for impairment at the reporting unit level at least annually, the fourth quarter , or between annual tests in certain circumstances, and written down when impaired. Goodwill is tested for impairment by comparing the fair value of the reporting unit with it carrying value. ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the two-step impairment test is performed. Goodwill is not deductible for income tax purposes. Goodwill is allocated to the fashion and equipment e-commerce platform segment. Alternatively , ASC 350 permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step of the goodwill impairment test. There were no impairment charges to goodwill during the period presented. 9 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 2 - Significant Accounting Policies (cont.) 5. Intangible assets Intangible assets consist of identifiable intangible assets that the Company has acquired from previous business combinations. Intangible assets are recorded at costs, net of accumulated amortization. The Company amortizes its intangible assets reflecting the pattern in which the economic benefits of the intangible assets are consumed. When a pattern cannot be reliably determined, the Company uses a straight-line amortization method. The estimated useful lives of the company’s intangible assets are as follows: Schedule of Intangible Assets Estimated Useful Lives years Selling Platform 3 Each period the Company evaluates the estimated remaining useful lives of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization c. Use of estimates: The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. 10 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 3 - Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, other receivables, trade payables and accounts payable approximate their fair value due to the short-term maturities of such instruments. In addition, the carrying amounts of a long term loan is approximate to its fair value because there was no change in the market conditions since its exceptions. 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 assets. Schedule of Significant Assets and Liabilities Measured at Fair Value on Recurring Basis June 30, 2022 Fair value hierarchy Level 1 Level 2 Level 3 Financial assets Investment in marketable securities (*) - 97 - June 30, 2022 Fair value hierarchy Level 1 Level 2 Level 3 Financial liabilities Derivatives - 39 - 11 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 3 - Financial Instruments (Cont.) December 31, 2021 Fair value hierarchy Level 1 Level 2 Level 3 Financial assets Investment in marketable securities (*) - 108 - (*) For the six and three-month periods ended June 30, 2022 and 2021, the recognized gain (loss) (based on quoted market prices with a discount due to security restrictions on iMine shares) of the marketable securities was ($ 11 ) and $ 3 , and $ ( 22 ) and $ ( 27 ) respectively. December 31, 2021 Fair value hierarchy Level 1 Level 2 Level 3 Financial liabilities Derivatives - 2 - Note 4 - Stock Based Compensation The stock-based expense equity awards recognized in the financial statements for services received is related to Cost of Revenues, Research and Development, Sales and Marketing and General and Administrative expenses as shown in the following table: Schedule of Stock Based Compensation Expenses 2022 2021 2022 2021 Six months ended June 30, Three months ended June 30, 2022 2021 2022 2021 Stock-based compensation expense – Cost of revenues 28 - 7 - Stock-based compensation expense - Research and development 18 70 6 9 Stock-based compensation expense - Sales and marketing 58 93 19 68 Stock-based compensation expense - General and administrative 58 69 16 12 Stock-based compensation expense 162 232 48 89 Options issued to consultants: 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. 12 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 4 - Stock Based Compensation (Cont.) 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 the six and three-month period ended June 30,2022 and 2021, an amount of $ 7 and $ 4 , and $ 7 and $ 4 respectively, were recorded by the Company as stock-based equity awards with respect to Consultants. Stock Option Plan for Employees: In March 2017, the Company adopted the My Size, Inc. 2017 Equity Incentive Plan (the “2017 Employee 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. 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 six-month period ended June 30, 2022 and 2021 were $ 2 and $ 1 , respectively and the expenses during the three months ended June 30, 2022 and 2021 were $ 47 and $ 53 , 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 number of shares available for issuance under the Company’s 2017 Consultant Incentive Plan was reduced from 466,667 to 216,667 shares. On December 30, 2021, the Company’s shareholders 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. During the six and three-month period ended June 30, 2022, the Company did not grant any stock options under the 2017 Employee Plan, no options were exercised and options to purchase 51,873 shares of common stock, expired. The total stock option compensation expense during the six and three-month period ended June 30, 2022 and 2021 which was recorded was $ 44 and $ 171 , and $ 15 and $ 103 , respectively. 13 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 5 - Contingencies and Commitments a. On August 7, 2018, the Company commenced an action against North Empire LLC (“North Empire”) in the Supreme Court of the State of New York, County of New York for breach of a Securities Purchase Agreement (the “Agreement”) in which it is seeking damages in an amount to be determined at trial, but in no event less than $ 616 thousands . 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 September 24, 2022. On February 3, 2022, the Company filed a motion to reargue the Court’s decision denying the Company’s motion for summary judgment. On or about March 31, 2022, North Empire filed its opposition papers to the Company’s motion to reargue. On or about May 20, 2022 the Company filed its reply papers, in further support of its motion to reargue. That motion is now fully briefed and the Company is waiting on a decision from the Court. The Company believes it is more likely than not that the counterclaims will be denied. b. 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 ) 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 ). 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 ). The Company filed its statement of defense on October 25, 2021. 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. The Court also ruled that to the extent the plaintiffs will not move within 7 days to revise their motion do dismiss their claim “with prejudice”, the Company will be entitled to request an order for costs. On April 11, 2022 the Court ordered the plaintiffs to pay the Company’s costs in the amount of NIS 15,000 , within 30 days. 14 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 6 – Business Combination Acquisition of Orgad On February 7, 2022, the Company acquired 100 % of the shares and voting interests in Orgad an omnichannel e-commerce platform . The acquisition was designed to create an additional revenue stream for the Company by becoming a direct e-commerce seller while leveraging the synergies between MySizeID and Orgad’s e-commerce platform. The results of operations of Orgad have been included in the consolidated financial statements since the acquisition date of February 7, 2022. Orgad revenues included in the Company’s consolidated statement of operations from February 7, 2022 through June 30, 2022 were $ 1,112 and for the three-month period ended June 30, 2022 were $ 752 . If the acquisition had occurred on January 1, 2021, management estimates that the consolidated pro forma revenues for the year would have been $ 2,768 , and the net loss would have been $ 2,272 . (a) Consideration transferred The following table summarizes the acquisition date fair value of each major class of consideration: Schedule of Fair value of the Acquisition USD Thousands Cash (*) (*) 300 Issuance of shares of common stock ( 1,395,025 shares) ( ** ) (**) 457 Total consideration transferred 757 (*) The cash payment is subject to working capital adjustments. (**) Quoted price as of acquisition date In addition, the Company agreed to pay to the former owners of Orgad, on the two-year and the three-year anniversary of the closing, $ 350,000 in each of these years provided that in the case of the second and third instalments certain revenue targets are met and subject further to certain downward post-closing adjustment. Furthermore, 1,395,024 shares of common stock will be issued in eight equal quarterly instalments until the lapse of two years from closing. Additional earn-out payments of 10 % of the operating profit of Orgad for the years 2022 and 2023 will also be paid. All of these payments are subject to the former owners being actively engaged with Orgad at the date such payment is due, and therefore were not taken as part of the consideration for the business combination. During the six and three-month period ended June 30, 2022 an amount of $ 111 and $ 28 was recorded in respect of the cash instalments respectively, and $ 127 and $ 54 in respect of stocks issuance, respectively. (b) Identifiable assets acquired and liabilities assumed Under the preliminary purchase price allocation, the Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management at the time of the acquisition. Such estimates are subject to change during the measurement period which is not expected to exceed one year. The purchase price allocation was not finalized duo to examination of the net working capital of Orgad at the acquisition date. Any adjustments to the preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined. 15 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 6 – Business Combination (Cont.) The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date: Schedule of Fair Value of Assets Acquired and Liabilities Thousands USD Cash and Cash Equivalent 0 Trade receivables 89 Other receivables 239 Inventory 864 Fixed assets 55 Long-term deposits 31 Selling platform (*) 378 Goodwill 268 Short-term credit ( 181 ) Trade payables ( 660 ) Other payables ( 101 ) Long-term loan ( 138 ) Deferred Taxes ( 87 ) Total net assets acquired 757 (*) The estimated useful lives of the selling platform are three years . During the six and three-month period ended June 30,2022 an amount of $ 52 and $ 32 was recorded in respect of amortization expenses. (c) Acquisition-related costs The Company incurred transaction costs of approximately $ 55 and none during the six-month and three-month period ended June 31, 2022 which were included in general and administrative expenses in the consolidated statements of income (loss), (the total amount recorded during the first quarter of the year). 16 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 7 – Operating Segments As a result of the business combination in the reporting period (see note 6), the company has two reportable segments: (i) fashion and equipment e-commerce platform and (ii) SaaS based innovative artificial intelligence driven measurement solutions. The fashion and equipment e-commerce platform which represent Orgad’s activity that was acquired by the Company, mainly operates on Amazon. The SaaS based innovative artificial intelligence driven measurement solutions, or SaaS Solutions operating segment consists of My Size Inc and My Size Israel. Information related to the operations of the Company’s reportable operating segments is set forth below: Schedule of Reportable Operating Segments Fashion and equipment e-commerce platform SaaS Solutions Total For the six months ended June 30, 2022 Revenue 1,112 93 1,205 Operating (loss) income 71 ( 3,828 ) ( 3,757 ) For the three months ended June 30, 2022 Revenue 752 49 801 Operating (loss) income ( 2 ) ( 1,650 ) ( 1,652 ) Fashion and equipment e-commerce platform SaaS Solutions For June 30, 2022: Assets 1,860 8,806 Note 8 – Subsequent events In July 2022, Amazon deactivated Orgad’s Amazon U.S. store as a result of complaints submitted due to an error in the listed manufacturer of certain products on Orgad’s store. Orgad resolved the complaints and is presently in the process of having its account reinstated. 17