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, 2022 U.S. DOLLARS IN THOUSANDS INDEX Page Report of Independent Registered Public Accounting Firm (PCAOB ID: ID 1057 ) F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Comprehensive Loss F-5 Consolidated Statements of Shareholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 - F-33 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, 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. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Acquisition-date fair value of customer relationships As discussed in Note 16 to the consolidated financial statements, on October 11, 2022, the Company acquired Naiz Bespoke Technologies SL (“Naiz”). As a result of the transaction, the Company acquired customer relationships intangible assets (“customer relationships”) representing the generation of future income from Naiz’s existing customers. The acquisition date fair value of the customer relationships was $726 thousand. F- 2 We identified the evaluation of the acquisition-date fair value of the Naiz customer relationships as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the following internally developed assumptions used to estimate the fair value of such asset, for which there were limited observable inputs: (i) forecasted revenues attributable to existing customers, (ii) forecasted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins for the acquired business, (iii) estimated annual customer attrition rates and (iv) estimated discount rate. The determined fair value was sensitive to changes in these key assumptions. Additionally, specialized skills and knowledge were needed to evaluate the discount rate used. The primary procedures we performed to address this critical audit matter included the following. We evaluated the design of certain internal controls over the Company’s acquisition-date fair value estimation process, including controls over the development of key assumptions. We performed a sensitivity analysis to assess the impact of reasonably possible changes to forecasted revenues, EBITDA margins, annual customer attrition rates, and the discount rate. We evaluated the forecasted revenue growth rates from existing customers by comparing the growth assumptions to those of the Company’s peers and industry reports. In connection with our assessment of the forecasts used in the valuation, we compared (1) forecasted revenue and EBITDA to Naiz’s historical actual results and (2) estimated annual customer attrition rates to historical Naiz customer attrition data. We tested the Company’s determined weighted average cost of capital (“WACC”), which was used to determine the discount rate, by involving valuation professionals with specialized skills and knowledge, who assisted in: - Evaluating the selected discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable companies, and; - Assessing the Company’s WACC calculation, by comparing it against an independently estimated WACC range based on inputs obtained through published surveys and studies. Goodwill impairment assessment As discussed in Note 16 to the consolidated financial statements, during 2022 the Company recorded goodwill of $1,257 thousand related to the acquisition of Naiz Bespoke Technologies, S.L. (“Naiz”). The Company performed an annual quantitative impairment test of goodwill at the reporting unit level. Based on this analysis, the Company determined that the fair value of its reporting unit exceeded its carrying value and no impairment charge was required. We identified the evaluation of the goodwill impairment assessment for the Naiz reporting unit as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the following assumptions used to estimate the fair value of the Company’s reporting unit, for which there were limited observable inputs: (i) forecasted reporting unit cash flows, (ii) long-term growth rates, and (iii) discount rates. The fair value was sensitive to changes in these key assumptions. Additionally, specialized skills and knowledge were needed to evaluate the discount rates. The primary procedures we performed to address this critical audit matter included the following. We evaluated the design of certain internal controls over the Company’s goodwill impairment evaluation process. We performed sensitivity analyses to assess the impact of reasonably possible changes to forecasted cash flows, long-term growth rates, and discount rates. We evaluated the Company’s forecasted growth rates by comparing the growth assumptions to those of the Company’s peers and industry reports. We compared the Company’s forecasted revenue, cost of sales, and operating expense margins to historical actual results to assess the reasonableness of the forecasts. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in: – Assessing the Company’s WACC calculation, by comparing it against an estimated WACC range based on inputs obtained through published surveys and studies – Evaluating the discount rates used by the Company by comparing them against discount rate ranges that were developed using publicly available market data for comparable companies, and; – Performing an arithmetic recalculation regarding the fair value of the Company’s reporting unit, using the Company’s cash flow forecasts and the independently developed discount rates, and comparing the results to the Company’s fair value estimates. /s/ Somekh Chaikin Somekh Chaikin Member Firm of KPMG International We have served as the Company’s auditor since 2017. Tel Aviv, Israel April 14, 2023 F- 3 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except share data) Note 2022 2021 December 31, Note 2022 2021 Assets Current assets Cash and cash equivalents 3 2,100 10,670 Restricted cash 263 273 Inventory 997 - Account receivables 1,940 40 Other receivables and prepaid expenses 4 758 579 Total current assets 6,058 11,562 Long term deposits 28 - Property and equipment, net 5 140 112 Operating right-of-use asset 6 583 776 Intangible assets 7 1,377 - Goodwill 7 1,395 - Investment in JV 8 99 - Investment in marketable securities 11 47 108 Total non-current asset 3,669 996 Total assets 9,727 12,558 Liabilities and shareholders’ equity Current liabilities Operating lease liability 6 159 138 Short-term loans 9 155 - Trade payables 2,487 635 Liabilities to Related parties 698 63 Other payables 680 392 Total current liabilities 4,179 1,228 Long-term loans 9 376 - Deferred tax liabilities 328 - Operating lease liability 6 308 473 Total non-current liabilities 1,012 473 CONTINGENCIES AND COMMITMENTS 15 - Total Liabilities 5,191 1,701 Shareholders’ equity 13 Stock capital - Common stock of $ 0.001 par value - Authorized: 250,000,000 and 100,000,000 shares as of December 31,2022 and 2021; Issued and outstanding: 1,464,117 and 959,297 as of December 31,2022 and 2021 , respectively (*) 1 1 Additional paid-in capital 58,673 56,453 Accumulated other comprehensive loss ( 637 ) ( 406 ) Accumulated deficit ( 53,501 ) ( 45,191 ) Total shareholders’ equity 4,536 10,857 Total liabilities and shareholders’ equity 9,727 12,558 (*) Adjusted to give retroactive effect of 1:25 reverse stock split, see Note 13 (g) The accompanying notes are an integral part of the consolidated financial statements. F- 4 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS U.S. dollars in thousands (except share data and per share data) Note 2022 2021 Year ended December 31, Note 2022 2021 Revenues 4,459 131 Cost of revenues ( 3,825 ) - Gross profit 634 131 Operating expenses Research and development ( 1,701 ) ( 4,248 ) Sales and marketing 18 ( 3,143 ) ( 2,336 ) General and administrative 19 ( 3,900 ) ( 4,124 ) Total operating expenses ( 8,744 ) ( 10,708 ) Operating loss ( 8,110 ) ( 10,577 ) Financial income (expense), net 20 ( 236 ) 57 Loss before taxes ( 8,346 ) ( 10,520 ) Taxes on income 36 - Net loss for the year ( 8,310 ) ( 10,520 ) Other comprehensive income (loss): Foreign currency translation differences ( 231 ) 18 Total comprehensive loss ( 8,541 ) ( 10,502 ) Basic and diluted loss per share ( * ) ( 7.47 ) ( 17.75 ) Basic and diluted weighted average number of shares outstanding ( * ) 1,111,913 420,385 (*) Adjusted to give retroactive effect of 1:25 reverse stock split, see Note 13 (g) The accompanying notes are an integral part of the consolidated financial statements. F- 5 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY U.S. dollars in thousands (except 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, 2021 289,314 - (* ) 37,171 ( 424 ) ( 34,671 ) 2,076 Stock-based compensation related to options granted to employees and consultants - - 373 - - 373 Exercise of options granted to employees 178 - (* ) - - - - Restricted shares issued to shareholder (***) 100,000 - (* ) 2,618 - - 2,618 Issuance of shares, net of issuance cost of $ 1,160 434,700 1 12,582 - - 12,583 Exercise of warrants 135,108 - (* ) 3,709 - - 3,709 Total comprehensive income (loss) - - - 18 ( 10,520 ) ( 10,502 ) Balance as of December 31, 2021 959,300 1 56,453 ( 406 ) ( 45,191 ) 10,857 Balance 959,300 1 56,453 ( 406 ) ( 45,191 ) 10,857 Stock-based compensation related to options and restricted shares granted to employees and consultants 176,000 - (* ) 455 - - 455 Issuance of shares in Business Combination (**) 295,802 - (* ) 1,446 - - 1,446 Issuance of shares post Business Combination (**) 20,924 - (* ) 319 - - 319 Effect of reverse stock split (Note 13 g) 12,091 - (* ) - - - - Total comprehensive income (loss) - - - ( 231 ) ( 8,310 ) ( 8,541 ) Balance as of December 31, 2022 1,464,117 1 58,673 ( 637 ) ( 53,501 ) 4,536 Balance 1,464,117 1 58,673 ( 637 ) ( 53,501 ) 4,536 (*) Represents an amount of less than $1. (**) See note 16 (***) See note 1 b The accompanying notes are an integral part of the consolidated financial statements. F- 6 MY SIZE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands 2022 2021 Year ended December 31, 2022 2021 Cash flows from operating activities: Net loss ( 8,310 ) ( 10,520 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 38 42 Change in operating lease right-of-use asset 135 43 Amortization of intangible assets 155 - foreign exchange differences ( 23 ) 1 Change in liabilities to related parties 635 - Interest on long term liabilities 10 - Interest paid ( 10 ) - Revaluation of investment in marketable securities 62 ( 49 ) Restricted Shares issued to shareholder - 2,618 Stock based compensation 455 373 Issuance of shares post Business Combination 319 - Change in inventory ( 219 ) - Change in deferred tax liabilities ( 36 ) - Change in account receivable ( 1,863 ) ( 12 ) Changes in operating lease liabilities ( 142 ) - Change in other receivables and prepaid expenses 184 ( 99 ) Change in trade payables 1,315 253 Change in other payables 5 53 Net cash used in operating activities ( 7,290 ) ( 7,297 ) Cash flows from investing activities: Acquisition of a subsidiary, net of cash acquired ( 767 ) - Proceeds from restricted deposits, net - 184 investing in other receivable ( 100 ) - Investment in equity accounted investee ( 99 ) - Purchase of property and equipment ( 27 ) ( 23 ) Net cash (used in) provided by investing activities ( 993 ) 161 Cash flows from financing activities: Proceeds from issuance of shares, net of issuance costs - 12,583 Repayment of loans ( 67 ) - Proceeds from exercise of warrants - 3,709 Net cash (used in) provided by financing activities ( 67 ) 16,292 Effect of exchange rate fluctuations on cash and cash equivalents ( 230 ) 13 Change in cash and cash equivalents and restricted cash ( 8,580 ) 9,169 Cash and cash equivalents and restricted cash at the beginning of the year 10,943 1,774 Cash and cash equivalents and restricted cash at the end of the year 2,363 10,943 B) Aggregate cash flows derived for the Company as a result of the Orgad acquisition (note 16) 2022 Noncash or Part Noncash Acquisitions Trade and other receivables 364 Inventory 864 Fixed assets 55 Long-term deposits 31 Selling Platform 378 Goodwill 152 Short-term credit ( 181 ) Trade payables ( 580 ) Other payables ( 88 ) Long-term loan ( 138 ) Long-term provision ( 13 ) Deferred Tax Liability ( 87 ) Issuance of shares ( 457 ) Total acquisition of subsidiary, net of cash 300 C) Aggregate cash flows derived for the Company as a result of the Naiz acquisition (note 16) 2022 Noncash or Part Noncash Acquisitions Trade receivables and other receivables 41 PP&E 3 Long-term financial investment 8 Customer Relationships 726 Technology 286 Trademark 77 Goodwill 1,152 Short Term accruals and deferrals ( 56 ) Trade payables ( 46 ) Short-term provision ( 6 ) Short term debt ( 155 ) Long term debt ( 294 ) Deferred Taxes ( 261 ) Issuance of shares ( 1,008 ) Total acquisition of subsidiary, net of cash 467 The accompanying notes are an integral part of the consolidated financial statements. 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 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. Following the acquisition of Naiz Bespoke Technologies, S.L (“Naiz”) in October 2022 (see note 16), the Company expanded its offering outreach and customer base. Following the acquisition of Orgad International Marketing Ltd. (“Orgad”) in February 2022 (see note 16), the Company also operates an omnichannel e-commerce platform. The Company has five 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 and Naiz Bespoke Technologies, S.L., a limited liability company incorporated under the laws of Spain (see note 16). 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 100,000 shares of common stock to Ms. Zigdon in a private placement. 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 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 $ 53,501 . 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 December 31, 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. e. The Company has three reportable segments: (i) fashion and equipment e-commerce platform, and (ii) SaaS based innovative artificial intelligence driven measurement solutions (iii) Naiz 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 My Size Israel and LLC. 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. Information about assumptions made by the Company with respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are included in the following notes: Acquisitions of subsidiaries The Company measures the fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed, in business combination transactions. For information on details on fair value measurement in acquisition of subsidiaries, see Note 16 regarding business combinations. Estimated impairment of non-financial assets The Company examines on an annual basis whether there is an impairment of goodwill, intangibles and property, plant and equipment that are allocated to cash generating units, in accordance with the accounting policy presented in Note 1(h) below. Recoverable amounts of cash-generating units are determined on the basis of value-in-use calculations. These calculations require the use of estimates. For information on key assumptions used in calculation of the recoverable amount, see note 7 – Goodwill and other Intangible assets. 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 and Orgad International Marketing Ltd. 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. The currency of the primary economic environment in which the operation of the Subsidiary, Naiz fit, functional currency is Euro. 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.) 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. Restricted cash Restricted cash are deposits for rent, credit card and for hedging activities. f. Inventories : Inventories include finished goods and 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. The costs of purchase of inventories comprise the purchase price and other costs directly attributable to the acquisition of finished goods. In 2022, the Company recorded an inventory mark-down of $48. g. 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 - 20 Leasehold improvements Over the term of the lease or the useful life of the improvements, whichever is shorter h. 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, 2022 and 2021, no impairment losses have been recorded. i. 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, customer relationships, Technology and trademark 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. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. 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.) j. 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. Goodwill from Orgad acquisition was allocated to the fashion and equipment e-commerce platform segment and Goodwill from the Naiz acquisition was allocated to Naiz segment based innovative artificial intelligence driven measurement solutions. 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. k. 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. Amortization is calculated by the straight-line method over the estimated useful lives of the following assets. The estimated useful lives of the company’s intangible assets are as follows: SCHEDULE OF INTANGIBLE ASSETS ESTIMATED USEFUL LIVES years Customer Relationships 7 Technology 5 Trademark 5 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 l. 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. Other than the My Size Israel’s liability there are no additional severance pay liabilities. 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.) m. 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. n. 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, 2022, and 2021, 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 of December 31, 2022 and 2021 the Company recorded a liability for unrecognized tax benefits of $ 328 and none respectively. o. 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- 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.) p. 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 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. q. 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, 2022 and 2021, all outstanding options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive. r. 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, Spain and United States. Such deposits in United States 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- 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 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) s. Revenue Recognition : The Company’s revenues are comprised of two main categories: (1) selling products to customers, and (2) licensing cloud-enabled software subscriptions, associated software maintenance and support. 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. 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. 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 determines it is the principle when it has control over promised product before it is transferred to the end customers. 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- 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 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) t. 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. u. Derivative instruments The Company accounts for its derivative instruments as either assets or liabilities and measures them at fair value through profit or loss. v. 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. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The company generally use its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. 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. w. Impact of recently issued accounting standard In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As an Emerging Growth Company, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. The Company does not expect this ASU to have a material impact on its consolidated financial statements. 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 3 - CASH AND CASH EQUIVALENTS The Company’s cash and cash equivalents balance at December 31, 2022 and 2021 is denominated in the following currencies: SCHEDULE OF CASH AND CASH EQUIVALENT BALANCE 2022 2021 December 31, 2022 2021 US Dollars 1,651 10,184 New Israeli Shekels 259 433 Other 190 53 Cash and cash equivalents 2,100 10,670 NOTE 4 - OTHER RECEIVABLES AND PREPAID EXPENSES SCHEDULE OF OTHER RECEIVABLES AND PREPAID EXPENSES 2022 2021 December 31, 2022 2021 Prepaid expenses and other current assets 322 429 Government authorities 283 17 Other 153 133 Total 758 579 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, 2021 182 58 60 300 Additions 23 - - 23 Business combination - - - - Translation adjustments 7 2 2 11 Balance as at December 31, 2021 212 60 62 334 Balance as at January 1, 2022 212 60 62 334 Additions 16 11 - 27 Business combination 40 15 - 55 Translation adjustments ( 32 ) ( 8 ) ( 8 ) ( 48 ) Balance as at December 31, 2022 236 78 54 368 Accumulated Depreciation 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 Balance as at January 1, 2022 179 20 23 222 Additions 20 9 9 38 Translation adjustments ( 27 ) ( 3 ) ( 2 ) ( 32 ) Balance as at December 31, 2022 172 26 30 228 Carrying amounts As at December 31, 2021 33 40 39 112 As at December 31, 2022 64 52 24 140 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 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 . The Company extended the lease period until August 20, 2025. Monthly rent payments including utilities amounting to approximately USD 14 (NIS 49,500 ) per month. In addition, The Company entered into a three-year cancelable operating lease agreement for cars. These operating leases are included in “Right of use asset” on the Company’s December 31, 2022 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, 2022 consolidated balance sheets. As of December 31, 2022, right-of-use of asset was $ 583 . operating lease liabilities were $ 159 and non current Operating lease liabilities were $ 308 . Right-of-use asset includes the capitalization of improvements (net of amortization) amounting to $ 105 . 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 11.95 %. Maturities of lease liabilities as of December 31, 2022 were as follows: SCHEDULE OF MATURITIES OF LEASE LIABILITIES Year Ending: 2023 $ 191 2024 $ 191 2025 $ 127 Thereafter $ 509 Less imputed interest: $ ( 42 ) Total lease liabilities $ 467 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 7 – Goodwill and other Intangible assets A. Identified intangible assets Schedule of Intangible assets SCHEDULE OF GOODWILL AND INTANGIBLE ASSETS Selling Platform Technology Customer Relationships Other Total Thousands USD Thousands USD Thousands USD Thousands USD Thousands USD Cost As of January 1, 2022 - - - - - Goodwill and intangible assets, Cost, beginning balance - - - - - Acquisitions through business combinations 378 286 726 77 1,467 Effect of changes in exchange rates ( 32 ) 25 65 7 65 As of December 31, 2022 346 311 791 84 1,532 Goodwill and intangible assets, Cost, ending balance 346 311 791 84 1,532 Amortization As of January 1, 2022 - - - - - Goodwill and intangible assets, Amortization, beginning balance - - - - - Amortization for the year including effect of changes in exchange rates as of December 31, 2022 ( 109 ) ( 15 ) ( 27 ) ( 4 ) ( 155 ) Goodwill and intangible assets, Amortization, ending balance ( 15 ) ( 27 ) ( 4 ) ( 155 ) Carrying amount As of December 31, 2022 237 296 764 80 1,377 Goodwill and intangible assets, Carrying amount, ending balance 237 296 764 80 1,377 Amortization Amortization expenses recorded for identified intangible assets in the Consolidated Statements of Operations for each period and were as follows: SCHEDULE OF AMORTIZATION EXPENSES INTANGIBLE ASSETS Line Item December 31, 2022 December 31, 2021 Selling platform Costs of revenues 109 - Trademark Sales and marketing 4 - Technology Costs of revenues 15 - Customer relationships Sales and marketing 27 - Total amortization expenses 155 Future amortization expenses are expected to be as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSES 2023 2024 2025 2026 2027 Thereafter Total Future amortization expenses 303 303 194 177 156 179 1,312 b. Goodwill The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 were as follows: SCHEDULE OF GOODWILL Fashion and equipment e-commerce platform Naiz Total Balance as of December 31, 2021 - - - Changes during the period: Goodwill acquired 152 1,152 1,304 Goodwill impairment - - - Translation differences ( 14 ) 105 91 Balance as of December 31, 2022 138 1,257 1,395 The Company operates its business through three reporting segments: (i) fashion and equipment e-commerce platform, and (ii) SaaS based innovative artificial intelligence driven measurement solutions and (iii) Naiz. See note 17 for additional segments information. The Company determines the fair value of its reporting units using the income approach. According to the income, the Company uses discounted cash flows to estimate the fair value. Cash flow projections are based on the Company’s estimates of revenue growth rates and operating margins, taking into consideration the industry’s and market’s conditions. The discount rate used is based on the weighted average cost of capital (“WACC”), adjusted for the relevant risk associated with business-specific characteristics. The Company performed a quantitative assessment as of December, 31 2022 for the reporting units’ fair value. The estimated fair value of the Fashion and equipment e-commerce platform and Naiz reporting units exceeded its estimated carrying amount by 95.9 % and 27.7 % respectively. This, based the following assumptions: SCHEDULE OF ESTIMATED FAIR VALUE Fashion and equipment e-commerce platform Naiz Discount rate 21 % 23 % Terminal growth rate 3 % 3 % If business conditions or expectations were to change materially, it may be necessary to record impairment charges to the Company’s reporting units in the future. 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 8 - Investment in JV In August 2022, the Company established a joint venture (“JV”) in Brazil with Santista Têxtil. The Company holds 51 % and Santista Têxtil holds 49 % of the JV. The purpose of the JV is to serve the Brazilian market according to the business plan that was set. Both parties agree to make an initial investment in the JV of $ 198 that will be made per the holding percentage of each party. As of the reporting date, the JV is in process of establishing its operation. NOTE 9 - Financial Liabilities The book value of each of the financial liability categories is an acceptable approximation of fair value. The debt is comprised of four loans that were granted to My Size Israel – in an outstanding amount of approximately $ 131 , bearing interest ranging from prime rate to prime+ 2.8 % rate, and four loans that were granted to the Spanish subsidiary– in an outstanding amount of approximately $ 400 , bearing interest ranging from 1 % to 3 % . The financial liability maturities during the five years following the end of the financial year are shown below: SCHEDULE OF FINANCIAL LIABILITY MATURITIES Until Until Until Until Until After TOTAL 31-12-23 31-12-24 31-12-25 31-12-26 31-12-27 31-12-27 31-12-22 Debts with credit institutions 155 138 92 87 47 12 531 NOTE 10 - RELATED PARTIES TRANSACTIONS A. Balances with related parties: The following related party payables are included in liability to related parties. SCHEDULE OF RELATED PARTY PAYABLES 2022 2021 December 31, 2022 2021 Officers (*) 41 43 Liability in respect of business combinations (**) 739 - Other related parties (***) ( 95 ) - Directors 15 20 Due to related parties 698 63 (*) The amount includes the net salaries payables. (**) The amount includes the provision created to former owners of Orgad that are entitled to additional cash and equity consideration and former owners of Naiz that entitled to additional cash consideration, see note 16- business combination. (***) The amount includes an amount receivable from Orgad previous shareholders who currently work in the company. B. Related parties benefits: SCHEDULE OF RELATED PARTIES BENEFITS 2022 2021 Year ended December 31, 2022 2021 Salaries and related expenses 1,440 852 Share based payments 396 73 Cash liability and equity liability expenses related to acquisitions (**) 1,058 - Directors 58 58 Related parties benefits 2,952 983 (**) The amount includes the expenses for a provision created to former owners of Orgad that are entitled to additional cash and equity consideration and former owners of Naiz that entitled to additional cash consideration, see note 16- business combination. NOTE 11 - 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, 2022 Fair value hierarchy Level 1 Level 2 Level 3 Financial assets Investment in marketable securities - 47 - financial assets (*) 10 December 31, 2022 Fair value hierarchy Level 1 Level 2 Level 3 Financial liabilities Derivatives - 9 - 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 derivative - 2 - (*) the financial asset includes in other receivables. 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 11 - 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, 2022, 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 $ 59 and $ 47 , respectively (at December 31, 2021 $ 49 and $ 108 , respectively). NOTE 12 - TAXES ON INCOME a. On December 31, 2022, the Company had U.S. federal net operating loss carryforwards of approximately $ 26 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 2014. 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 2022 - 23 % 2021 - 23 % Presented hereunder are the tax rates relevant to the Company’s Spanish subsidiary: 2022 - 24 % 2. The Company’s Israeli subsidiaries have estimated total available carryforward operating tax losses for Israeli income tax purposes of approximately $ 64 as of December 31, 2022. Of these losses, a total of $ 47.5 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 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 2016. 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 2022 2021 December 31, 2022 2021 U.S ( 1,180 ) ( 3,802 ) Non-U.S. (foreign) ( 7,130 ) ( 6,718 ) Net loss ( 8,310 ) ( 10,520 ) 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 12 - 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 2022 2021 December 31, 2022 2021 Deferred tax assets: Operating loss carryforwards 20,131 20,238 Warrants and options 145 126 Marketable securities 390 377 Intangible assets ( 328 ) - Research and development expenses 586 341 Other temporary differences 203 - Deferred tax assets before valuation allowance 21,127 21,082 Valuation allowance ( 21,455 ) ( 21,082 ) Net deferred tax liability ( 328 ) - The following table presents a reconciliation of the beginning and ending valuation allowance: SCHEDULE OF RECONCILIATION OF VALUATION ALLOWANCE 2022 2021 December 31, 2022 2021 Balance at beginning of the year 21,082 18,968 Additions in valuation allowance to the income statement 1,758 1,625 Additions in valuation allowance due to exchange rate differences ( 1,385 ) 489 Balance at end of the year 21,455 21,082 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 2022 2021 December 31, 2022 2021 Loss before income taxes 8,346 10,520 Statutory tax rate 21 % 21 % Computed “expected” tax income 1,752 2,209 Foreign tax rate differences and exchange rate differences 149 131 Nondeductible expenses ( 107 ) ( 715 ) Change in valuation allowance ( 1,758 ) ( 1,625 ) Taxes on income 36 - 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 13 - 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 62,768 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 135,109 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 104,741 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 15,711 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 $ 31.5 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 100,000 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 100,592 shares of its common stock and, in a concurrent private placement, an aggregate of 75,444 unregistered warrants to purchase shares of common stock, at an offering price of $ 33.8 per share and associated warrant. In addition, on the same day, the Company sold in a private placement 150,888 unregistered shares of common stock and unregistered warrants to purchase up to an aggregate of 113,166 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 $ 31.5 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 17,603 shares on substantially the same terms as the purchasers in the offerings at an exercise price of $ 42.25 per share and a term expiring on October 26, 2026 . g. On December 7, 2022, the Company’s board of directors approved a 1-for-25 reverse stock split of the Company’s issued and outstanding shares of common stock . The reverse stock split became effective on December 8, 2022. In order not to have fractional shares as a result of the reverse stock split, the Company issued an additional 12,091 shares of common stock. As a result, all shares of common stock, options for shares of common stock, exercise price and net loss per share amounts were adjusted retroactively for all periods presented in these financial statements. 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 13 - SHAREHOLDERS’ EQUITY (Cont.) g. A summary of the warrant activity during the years ended December 31, 2022 and 2021 is presented below: SCHEDULE OF WARRANT ACTIVITY Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Life in Years Outstanding, December 31, 2020 216,859 36.75 4.26 Issued 206,214 - Expired or exercised ( 135,109 ) - Outstanding, December 31, 2021 287,964 31.00 4.35 Issued - Expired or exercised ( 17,901 ) Outstanding, December 31, 2022 270,063 30.21 3.36 Exercisable, December 31, 2022 270,063 30.21 3.36 NOTE 14 - 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 2022 2021 Year ended December 31, 2022 2021 Stock-based compensation expense - Research and development 151 95 Stock-based compensation expense - Sales and marketing 126 180 Stock-based compensation expense - General and administrative 178 98 Stock-based compensation expense 455 373 The stock-based expense recognized in the financial statements for services received post Acquisition of Orgad (see note 16) is related to Cost Of Goods, Sales and Marketing and General and Administrative expenses as shown in the following table: SCHEDULE OF STOCK BASED COMPENSATION EXPENSES 2022 2021 Year ended December 31, 2022 2021 Stock-based compensation expense – Cost of goods 80 - Stock-based compensation expense - Sales and marketing 112 - Stock-based compensation expense - General and administrative 127 - Stock-based compensation expense 319 - 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 14 - 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 107 shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $ 375.00 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 890 shares of the Company’s common stock upon execution of the agreement. The options are exercisable at $ 27.00 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 2022 and 2021, an amount of $ 7 and $ 14 respectively, were recorded by the Company as stock-based equity awards with respect to Consultant14. 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 14 - STOCK BASED COMPENSATION (Cont.) The Company’s outstanding options granted to consultants as of December 31, 2022 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 February 2018 15 USD 528.75 15 February 2023 August 2018-December 2018 531 USD 352.38 264 August 2023 - December 2023 July 2020 107 USD 375 107 July 2023 September-October 2020 1,488 USD 27.20 1,288 October 2024- September 2025 Total 2,141 1,674 The Company uses the Black Scholes model to measure the fair value of the stock options with the assistance of a third party valuation. No stock options were granted during 2022 to consultants. The fair value of the Company’s stock options granted to non-employees was calculated using the following weighted average assumptions: SCHEDULE OF FAIR VALUE ASSUMPTIONS OF STOCK OPTIONS 2022 2021 Grants Grants Dividend yield - 0 % Expected volatility - 125.15 % Risk-free interest - 0.16 % Contractual term of up to (years) - 1.52 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 14 - 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 289,000 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 FAIR VALUE ASSUMPTIONS OF STOCK OPTIONS 2022 Grants 2021 Grants Dividend yield 0 % 0 % Expected volatility 96.52 % 98.47 % Risk-free interest 4.06 % 0.96 % expected life 5 2 - 2.27 In the years ended December 31, 2022 and 2021, 10,000 and 3,900 options, respectively, were granted. On December 7, 2022, the Company’s stockholders approved an increase in the shares available for issuance under the 2017 Equity Incentive Plan from 230,800 shares to 289,000 shares. On September 29, 2022, the Compensation Committee of the Company approved grants of restricted share awards under the Company’s 2017 Equity Incentive Plan to Ronen Luzon (CEO), Or Kles (CFO), Billy Pardo (COO), Ilia Turchinsky (CTO) and Ezequiel Javier Brandwain (CCO), pursuant to which were issued 100,000 restricted shares, 24,000 restricted shares, 24,000 restricted shares, 16,000 restricted shares and 12,000 restricted shares, respectively. Each restricted share awarded under section 102 Capital Gain Restricted Stock Award Agreement (the “Agreement”). The restricted shares shall vest in three equal installments on January 1, 2023, January 1, 2024 and January 1, 2025 for Ronen Luzon, Or Kles, Billy Pardo and Ilia Turchinsky and on January 27, 2023, January 27, 2024 and January 27, 2025 for Ezequiel Javier Brandwain, conditioned upon continuous employment with the Company, and subject to accelerated vesting upon a change in control of the Company. On the same day, the Company granted five-years options to purchase up to 10,000 ordinary shares to other employees of the Company at an exercise price of $ 0.21 per share. The options vesting period is over three years in three equal portions from the vesting commencement date. 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 14 - STOCK BASED COMPENSATION (Cont.) The total stock option compensation expens e in the year ended December 31, 2022 amounted to $ 448 as follows: Research and development expenses amounted to $ 151 , sales and marketing expenses amounted to $ 119 and general and administrative expenses amounted to $ 178 . 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 . As of December 31, 2022, there was a total of $ 530 unrecognized compensation cost relating to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 2.0 years. Share option activity during 2022 is as follows: SCHEDULE OF SHARES OPTION ACTIVITY 2022 Number of options Weighted average exercise price US$ Outstanding as of January 1 35,742 26.5 Granted 10,000 5.25 Exercised - - Expired ( 4,136 ) - Outstanding as of year end 41,606 22.48 Vested as of year end 33,208 25.17 Share option activity during 2021 is as follows: 2021 Number of options Weighted average Exercise price US$ Outstanding as of January 1 39,094 $ 26.0 Granted 3,900 32.0 Exercised ( 751 ) - Expired ( 6,501 ) - Outstanding as of year end 35,742 26.5 Vested as of year end 27,063 26.5 F- 27 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 - 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 . 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. On or about September 12, 2022, the Court issued its Decision and Order denying the Company’s motion to reargue. North Empire filed its opposing brief on December 7, 2022. Both sides were given an opportunity to file a reply brief. The Company filed our reply brief on January 4, 2023 and North Empire filed its reply brief on January 13, 2023. The Appellate Court has scheduled oral argument for the appeal for February 7, 2023. Oral argument was held before the Appellate Court on February 7, 2023. On or about February 28, 2023, the Appellate Court filed its Decision and Order, which affirmed the lower court’s decisions regarding both My Size and North Empire’s motions for summary judgment and sent the case back to the Supreme Court. On or about March 13, 2023, the Supreme Court referred the case to its Alternative Dispute Program and ordered the cases to mediate. A date for the mediation has not yet been set. The Company intends to vigorously defend any claims made by North Empire. 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 ) 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 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- 28 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 16 - 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. Unaudited pro-forma information 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 December 31, 2022 were $ 4,132 . If the acquisition had occurred on January 1, 2021, management estimates that the consolidated pro forma revenues for the year ended December 31 2022 and 2021 would have been $ 4,662 and $ 2,850 respectively, and the net loss after tax would have been $ 8,519 and $ 10,149 respectively. (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 ( 69,752 shares) (**) 457 Total consideration transferred 757 (*) The cash payment is subject to working capital adjustments. (**) Quoted price as of the 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 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, 69,752 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 year ended December 31, 2022 an amount of $ 456 and $ 319 was recorded in respect of the cash instalments and in respect of stocks issuance, respectively in Cost Of Goods, Sales and Marketing and General and Administrative expenses as shown in the following table: SCHEDULE OF STOCK BASED COMPENSATION EXPENSES 2022 Stock-based compensation expense – Cost of goods 194 Stock-based compensation expense - Sales and marketing 271 Stock-based compensation expense - General and administrative 310 Stock-based compensation expense 775 (b) Identifiable assets acquired and liabilities assumed Under the 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. 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 - Trade receivables 364 PP&E 55 Inventory 864 Long-term financial investment Customer Relationships Technology Trademark Short Term accruals and deferrals Short-term provision Long term debt Long-term financial investment 31 Selling platform 378 Goodwill 152 Short-term accruals and deferrals ( 181 ) Trade payables ( 668 ) Long term provision ( 13 ) Long-term debt ( 138 ) Deferred Taxes ( 87 ) Total net assets acquired 757 F- 29 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 16 - BUSINESS COMBINATION (Cont.) (c) Acquisition-related costs The Company incurred transaction costs of approximately $ 40 and none during twelve-month period ended December 31, 2022 which were included in general and administrative expenses in the consolidated statements of income (loss). Acquisition of N aiz Bespoke Technologies, S.L. (“Naiz”) On October 11, 2022, the Company acquired 100 % of the shares and voting interests in Naiz a provider of SaaS technology solutions that solve size and fit issues for fashion ecommerce companies. The acquisition was designed to allow Naiz’s customers benefit from MySize’s deep understanding of the fashion ecommerce retail landscape, while creating an additional revenue stream for the Company. Unaudited pro-forma information The results of operations of Naiz have been included in the consolidated financial statements since the acquisition date of October 11, 2022. Naiz revenues included in the Company’s consolidated statement of operations from October 11, 2022 through December 31, 2022 were $ 103 . If the acquisition had occurred on January 1, 2021, management estimates that the consolidated pro forma revenues for the year ended December 31 2022 and 2021 would have been $4,7 38 and $379 respectively and the net loss after tax would have been $8,695 and $10,717 respectively. (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 503 Issuance of shares of common stock ( 240,000 shares) (*) 1,008 Total consideration transferred 1,511 (*) Quoted price as of the acquisition date In addition, the Company agreed to pay to the former owners of Naiz, additional cash consideration (up to $ 1,550 ) in four instalments subject to the following conditions: (i) Continuing employment or involvement of the Key Persons of Naiz (as defined in the agreement) by or with Naiz, except if terminated as a result of a Good Reason; and (ii) Naiz’s Revenues reaching or exceeding the respective Target Revenues defined in the agreement. The revenues will be calculated in four periods: (1) January 1, 2022 – December 31, 2022; (2) January 1, 2023 – June 30, 2023; (3) July 1, 2023 – December 31, 2023; (4) January 1, 2024 – December 31, 2024. Former owners of Naiz are entitled to additional cash consideration following December 31, 2025 (up to $1,650) in an event when the actual value of the equity consideration is less than $1,650, subject to completion of a Target Revenue for the period of January 1, 2025 – December 31, 2025 and continuing employment or involvement of the Key Persons of Naiz (as defined in the agreement) by or with Naiz, except if terminated as a result of a Good Reason ; F- 30 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 16 - BUSINESS COMBINATION (Cont.) During the year ended December 31, 2022 an amount of $ 283 was recorded in respect of the additional cash consideration. (b) Identifiable assets acquired and liabilities assumed Under the purchase price allocation, the Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the 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. The following table summarizes the 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 36 Trade receivables and other receivables 41 PP&E 3 Long-term financial investment 8 Customer Relationships 726 Technology 286 Trademark 77 Goodwill 1,152 Short Term accruals and deferrals ( 56 ) Trade payables ( 46 ) Short-term provision ( 6 ) Short term debt ( 155 ) Long term debt ( 294 ) Deferred Taxes ( 261 ) Total net assets acquired 1,511 (c) Acquisition-related costs During 2022, the Company incurred transaction costs of approximately $ 75 which were included in general and administrative expenses in the consolidated statements of income (loss). F- 31 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) Note 17 – Operating Segments During the year ended December 31, 2021, the Company had one reportable segment. As a result of the business combinations in the reporting period (see note 13), the Company has three reportable segments: (i) fashion and equipment e-commerce platform, and (ii) SaaS based innovative artificial intelligence driven measurement solutions and (iii) Naiz SaaS based innovative artificial intelligence driven measurement solutions and. The fashion and equipment e-commerce platform which represent Orgad’s activity that was acquired by the Company, mainly operates on Amazon. Orgad has one customer that is responsible for 37.9% of the Company consolidated revenues. The SaaS based innovative artificial intelligence driven measurement solutions, or SaaS Solutions operating segment consists of My Size Inc and My Size Israel and My Size LLC. 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 Naiz Total As of the year ended December 31, 2022 Revenues from external customers 4,132 224 103 4,459 Operating (loss) income ( 591 ) ( 7,181 ) ( 338 ) ( 8,110 ) Financial income (expense), net - - - ( 236 ) Net loss before tax - - - ( 8,346 ) Fashion and equipment e-commerce platform Saas Solution Naiz As of December 31, 2022: Assets 2,022 5,966 1,691 Amortization of intangible assets ( 114 ) ( 34 ) ( 46 ) The Company elected to present geographic information in respect with revenues generated from external customers based on the location of the selling entity: All the revenues of the fashion and equipment e-commerce platform segment are generated by Orgad, located in Israel. All the revenues of the Naiz segment are generated by Naiz, located in Spain. The revenues of the Saas Solutions segment are generated by My Size Ltd. located in Israel (approximately 75 % of the segment revenues) and by My Size Inc. located in the U.S. (approximately 25 % of the segment revenues). NOTE 18 - SALES AND MARKETING SCHEDULE OF SALES AND MARKETING 2022 2021 Year ended December 31, 2022 2021 Salaries 836 574 Consultants and subcontractors 583 1,086 Marketing 481 283 Selling fees 489 - Share based payments post Orgad acquisition (*) 271 - Share based payments for consultants and employees 127 180 Travel 211 42 Other 145 171 Sales and marketing expenses 3,143 2,336 (*) See note 16. NOTE 19 - GENERAL AND ADMINISTRATIVE EXPENSES SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES 2022 2021 Year ended December 31, 2022 2021 Salaries 1,007 461 Professional services 705 1,832 Share based payments for consultants, directors and employees 180 98 Rent, office expenses and communication 442 372 Insurance 564 627 cash liability and equity liability expenses related to Orgad acquisition 310 - cash liability expenses related to Naiz acquisition 217 - Settlement fees (*) - 345 Directors 82 59 Other 393 330 General and administrative expenses 3,900 4,124 (*) See note 15(b) F- 32 MY SIZE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data and per share data) NOTE 20 - FINANCIAL INCOME (EXPENSE), NET SCHEDULE OF FINANCIAL INCOME (EXPENSES), NET A. Financial income Year ended December 31, 2022 2021 Revaluation investment in marketable securities - 49 Other 26 17 26 66 B. Financial expense Year ended December 31, 2022 2021 Exchange rate differences 33 - Revaluation of loan granted 100 - Revaluation investment in marketable securities 62 - Other 67 9 262 9 NOTE 21 - EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE a. On January 2, 2023, Orgad experienced a fire at its warehouse in Israel. The Company is not aware of any casualties or injuries associated with the fire. The Company shifted Orgad’s operation to its headquarters. The value of the inventory that was in the warehouse was approximately $ 450 . The Company believes that this incident did not affect the future sales results of Orgad for the year 2023. The inventory was not insured and it is too early to determine the potential impact of this incident on the other parties that were involved in the incident (lessor and others that leased properties near the warehouse). b. On January 10, 2023, the Company entered into a securities purchase agreement pursuant to which the Company sold an aggregate of 162,000 of the Company’s shares of common stock and pre-funded warrants to purchase up to 278,899 shares of common stock and, in a concurrent private placement, unregistered warrants to purchase up to 883,798 shares of common stock, consisting of Series A warrants to purchase up to 441,899 shares of common stock and Series B warrants to purchase up to 441,899 shares of common stock, at an offering price of $ 3.055 per share of common stock and associated Series A and Series B warrants and an offering price of $ 3.054 per pre-funded warrant and associated Series A and Series B warrants. In addition, the Company entered into a securities purchase agreement pursuant to which the Company agreed to sell and issue in a private placement an aggregate of up to 540,098 unregistered pre-funded warrants and unregistered warrants to purchase up to an aggregate of 1,080,196 shares of common stock, consisting of Series A warrants to purchase up to 540,098 shares of common stock and Series B warrants to purchase up to 540,098 shares of common stock at an offering price of $ 3.054 per pre-funded warrant and associated Series A and Series B warrants. As of March 31,2023 all the pre funded warrants were exercised by the investor. F- 33 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.