My Size, Inc. 10-Q

Item 1. Financial Statements. My Size Inc. and Subsidiaries Condensed Consolidated Interim Financial Statements As of September 30, 2023 (unaudited) U.S. Dollars in Thousands 1 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Financial Statements as of September 30, 2023 (Unaudited) Contents Page Condensed Consolidated Interim Balance Sheets (Unaudited) 3 Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited) 4 Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (Unaudited) 5-6 Condensed Consolidated Interim Statements of Cash flows (Unaudited) 7 Notes to Condensed Consolidated Interim Financial Statements (Unaudited) 8-15 2 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Balance Sheets (Unaudited) U.S. dollars in thousands (except share data and per share data) September 30, December 31, 2023 2022 Assets Current Assets: Cash and cash equivalents 3,695 2,100 Restricted cash 72 263 Inventory 2,395 997 Account receivables 690 1,940 Other receivables and prepaid expenses 1,218 758 Total current assets 8,070 6,058 Long term deposits 26 28 Property and equipment, net 112 140 Operating right-of-use asset 372 583 Intangible assets 1,149 1,377 Goodwill 1,401 1,395 Investment in JV 47 99 Investment in marketable securities 26 47 Total non-current assets 3,133 3,669 Total assets 11,203 9,727 Liabilities and stockholders’ equity Current liabilities: Operating lease liability 137 159 Bank overdraft and short-term loans 230 155 Trade payables 2,617 2,487 Liabilities to Related parties 734 698 Other payables 855 680 Total current liabilities 4,573 4,179 Long-term loans 268 376 Deferred tax liabilities 274 328 Operating lease liability 156 308 Total non-current liabilities 698 1,012 Total liabilities 5,271 5,191 COMMITMENTS AND CONTINGENCIES - - Stockholders’ equity: Stock Capital - Common stock of $ 0.001 par value - Authorized: 250,000,000 shares; Issued and outstanding: 2,981,792 and 1,464,117 as of September 30, 2023 and December 31, 2022, respectively 3 1 Additional paid-in capital 65,219 58,673 Accumulated other comprehensive loss ( 712 ) ( 637 ) Accumulated deficit ( 58,578 ) ( 53,501 ) Total stockholders’ equity 5,932 4,536 Total liabilities and stockholders’ equity 11,203 9,727 The accompanying notes are an integral part of the condensed consolidated interim financial statements. 3 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited) U.S. dollars in thousands (except share data and per share data) 2023 2022 2023 2022 Nine-Months Ended September 30, Three-Months Ended September 30, 2023 2022 2023 2022 Revenues 4,166 1,931 2,156 726 Cost of revenues ( * ) ( 2,698 ) ( 1,607 ) ( 780 ) ( 877 ) Cost of revenues ( 2,698 ) ( 1,607 ) ( 780 ) ( 877 ) Gross profit 1,468 324 1,376 ( 151 ) Operating expenses Research and development ( 811 ) ( 1,152 ) ( 242 ) ( 350 ) Sales and marketing ( 2,598 ) ( 2,526 ) ( 952 ) ( 672 ) General and administrative ( 3,210 ) ( 2,378 ) ( 1,287 ) ( 802 ) Total operating expenses ( 6,619 ) ( 6,056 ) ( 2,481 ) ( 1,824 ) Operating loss ( 5,151 ) ( 5,732 ) ( 1,105 ) ( 1,975 ) Financial income (expenses), net ( 78 ) ( 198 ) 22 ( 51 ) Equity loss of equity method investees ( 48 ) - ( 9 ) - Loss before taxes ( 5,277 ) ( 5,930 ) ( 1,092 ) ( 2,026 ) Taxes on income 200 - ( 40 ) - Net loss ( 5,077 ) ( 5,930 ) ( 1,132 ) ( 2,026 ) Other comprehensive income (loss): Foreign currency translation differences ( 75 ) ( 178 ) ( 36 ) ( 300 ) Total comprehensive loss ( 5,152 ) ( 6,108 ) ( 1,168 ) ( 2,326 ) Basic and diluted loss per share** ( 2.19 ) ( 5.75 ) ( 0.44 ) ( 2.00 ) Basic and diluted weighted average number of shares outstanding** 2,314,979 1,012,010 2,559,371 1,025,564 (*) During the nine and three month ended September 30, 2023, the Company recorded an inventory write-down of $ 643 and $ 0 due to the fire that occurred in its warehouse (see Note 8(a)) (**) Adjusted to give retroactive effect of 1:25 reverse stock split , see Note 1(b) The accompanying notes are an integral part of the interim condensed consolidated financial statements. 4 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (Unaudited) U.S. dollars in thousands (except share data and per share data) Number Amount capital loss deficit equity Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss deficit equity Balance as of January 1, 2023 1,464,117 1 58,673 ( 637 ) ( 53,501 ) 4,536 Stock-based compensation related to options granted to employees and consultants ( 8,000 ) - * 290 - - 290 Issuance of shares, net of issuance cost of $ 959 ( ** ) 432,000 1 6,257 - - 6,258 Issuance of shares, net of issuance cost 432,000 1 6,257 - - 6,258 Exercise of warrants and prefunded warrants 1,093,675 1 ( 1 ) - - - Total comprehensive loss - - ( 75 ) ( 5,077 ) ( 5,152 ) Balance as of September 30, 2023 2,981,792 3 65,219 ( 712 ) ( 58,578 ) 5,932 (*) Represents an amount less than $1 (**) see notes 8(b) and 8(e) Amount ** Amount ** Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount** capital** loss deficit equity Balance as of January 1, 2022 959,300 1 56,453 ( 406 ) ( 45,191 ) 10,857 Stock-based compensation related to options granted to employees and consultants - - 327 - - 327 Issuance of shares in Business Combination 69,751 - * 458 - - 458 Total comprehensive loss - - - ( 178 ) ( 5,930 ) ( 6,108 ) Balance as of September 30, 2022 1,029,051 1 57,238 ( 584 ) ( 51,121 ) 5,534 (*) Represents an amount less than $1 (**) Adjusted to give retroactive effect of 1:25 reverse stock split, see Note 1(b) 5 Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss deficit equity Balance as of July 1, 2023 2,438,780 2 61,553 ( 676 ) ( 57,446 ) 3,433 Stock-based compensation related to options granted to employees and consultants - - 68 - - 68 Issuance of shares, net of issuance cost of $ 518 (**) 270,000 - (*) 3,599 3,599 Issuance of shares, net of issuance cost 270,000 - 3,599 3,599 Exercise of prefunded warrants 273,012 1 ( 1 ) - - - Exercise of warrants and prefunded warrants 273,012 1 ( 1 ) - - - Total comprehensive loss - - - ( 36 ) ( 1,132 ) ( 1,168 ) Balance as of September 30, 2023 2,981,792 3 65,219 ( 712 ) ( 58,578 ) 5,932 (*) Represents an amount less than $1 (**) see notes 8(e) Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Number Amount capital loss deficit equity Balance as of July 1, 2022 1,022,077 1 57,073 ( 284 ) ( 49,095 ) 7,695 Balance 1,022,077 1 57,073 ( 284 ) ( 49,095 ) 7,695 Stock-based compensation related to options granted to employees and consultants - - 165 - - 165 Issuance of shares in Business Combination ( * ) 6,974 * - - - - - Issuance of shares in Business Combination 6,974 - - - - - Total comprehensive loss - - - ( 300 ) ( 2,026 ) ( 2,326 ) Balance as of September 30, 2022 1,029,051 1 57,238 ( 584 ) ( 51,121 ) 5,534 Balance 1,029,051 1 57,238 ( 584 ) ( 51,121 ) 5,534 (*) Represents an amount less than $1 6 MY SIZE, INC. AND ITS SUBSIDIARIES Condensed Consolidated Interim Statements of Cash Flows (Unaudited) U.S. dollars in thousands 2023 2022 Nine-Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss ( 5,077 ) ( 5,930 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 27 32 Change in operating lease right-of-use asset 130 30 Amortization of intangible assets 226 84 Change in warrants and derivatives - 26 Change in liabilities to related parties 36 32 Interest of long-term liabilities 16 3 Interest paid ( 16 ) ( 3 ) Revaluation of investment in marketable securities 21 28 Change in Investment in JV 52 - Stock based compensation 290 327 Change in inventory ( 1,530 ) ( 288 ) Change in deferred tax liabilities ( 328 ) ( 19 ) Change in account receivables 1,165 ( 281 ) Changes in operating lease liabilities ( 101 ) Change in other receivables and prepaid expenses ( 351 ) 140 Change in trade payables 271 ( 503 ) Change in account payables 259 464 Net cash used in operating activities ( 4,910 ) ( 5,858 ) Cash flows from investing activities: Acquisition of a subsidiary, net of cash acquired - ( 300 ) Purchase of property and equipment - ( 27 ) Net cash used in investing activities - ( 327 ) Cash flows from financing activities: Proceeds from issuance of shares, net of issuance costs 6,257 - Loans received 350 18 Repayment of loans ( 377 ) ( 57 ) Net cash provided by (used in) financing activities 6,230 ( 39 ) Effect of exchange rate fluctuations on cash and cash equivalents 84 ( 97 ) Increase (decrease) in cash, cash equivalents and restricted cash (*) 1,404 ( 6,321 ) Cash, cash equivalents and restricted cash at the beginning of the period 2,363 10,943 Cash, cash equivalents and restricted cash at the end of the period 3,767 4,622 Non cash activities: Shares issued in Acquisition of a subsidiary - 457 (*) $ 1,213 relates to change in cash and cash equivalents and, $ 191 to change in restricted cash for the nine months ended September 30, 2023. The accompanying notes are an integral part of the interim condensed consolidated financial statements. 7 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 1 - General a. My Size, Inc. is developing unique measurement technologies based on algorithms with applications in a variety of areas, from the apparel e-commerce market to the courier services market and to the Do It Yourself smartphone and tablet apps market. The technology is driven by proprietary algorithms which are able to calculate and record measurements in a variety of novel ways. In addition to the measurement technologies, following the Orgad International Marketing Ltd. (“Orgad”) acquisition as detailed below, the Company operates an online retailer platform, has expertise in e-commerce, supply chain, and has technology operating as a third-party seller on Amazon.com and other sites. Following the acquisition of Naizfit Bespoke Technologies, S.L (“Naiz” or “Naiz Fit”) in October 2022, the Company expanded its offering outreach and customer base. 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, My Size LLC which was incorporated in the Russian Federation, and Naiz Fit, a limited liability company incorporated under the laws of Spain. References to the Company include the subsidiaries unless the context indicates otherwise. b. During the nine-month period ended September 30, 2023, the Company has incurred significant losses and negative cash flows from operations and has an accumulated deficit of $ 58,578 . 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 September 30, 2023, 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. 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. Exercise price and net loss per share amounts were adjusted retroactively for all periods presented in these financial statements. c. In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on the Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in thousands of deaths and injuries, and Hamas additionally kidnapped many Israeli civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and commenced a military campaign against Hamas and other terrorist organizations in parallel to their continued rocket and terror attacks. The Company cannot currently predict the intensity or duration of Israel’s war against Hamas, nor can predict how this war will ultimately affect the Company’s business and operations or Israel’s economy in general. The war with Hamas has had an immaterial effect on its operations and financial results so far. This is attributable to its global footprint and the offices in Spain which has become a hub for the Company’s sizing solutions business. The majority of Orgad’s inventory utilizes fulfillment by Amazon rather than fulfilling directly. Inventory is now maintained and orders are shipped from regional Amazon warehouses, thereby reducing exposure to inventory risk and contributing to operating efficiencies. 8 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 2 - Significant Accounting Policies a. Unaudited condensed consolidated financial statements: The accompanying unaudited condensed consolidated interim financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of the Company. In management’s opinion, the interim financial data presented includes all adjustments necessary for a fair presentation. All intercompany accounts and transactions have been eliminated. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022. b. Significant Accounting Policies: The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements. C. Critical accounting estimates: Due to the change of the operating segments as stated in note 7, and the reduction of the company's reporting units as a result, the company examined the need for impairment for those reporting units. The estimated fair value of the remaining reporting units was higher than their carrying amounts, and therefore there was no need to provide for impairment. Note 3 - Financial Instruments The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, other receivables, trade payables and accounts payable approximate their fair value due to the short-term maturities of such instruments. The Company holds share certificates in iMine Corporation (“iMine”) formerly known as Diamante Minerals, Inc., a publicly traded company on the OTCQB. Due to sales restrictions on the sale of the iMine shares, the fair value of the shares was measured on the basis of the quoted market price for an otherwise identical unrestricted equity instrument of the same issuer that trades in a public market, adjusted to reflect the effect of the sales restrictions and is therefore, ranked as Level 2 assets. Schedule of Significant Assets and Liabilities Measured at Fair Value on Recurring Basis September 30, 2023 Fair value hierarchy Level 1 Level 2 Level 3 Financial assets - - - Investment in marketable securities (*) - 26 - 9 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 3 - Financial Instruments (Cont.) December 31, 2022 Fair value hierarchy Level 1 Level 2 Level 3 Financial assets - - - Investment in marketable securities (*) - 47 - Derivatives (**) 10 (*) For the nine and three-month periods ended September 30, 2023 and 2022, the Company recognized gain (loss) (based on quoted market prices with a discount due to security restrictions on iMine shares) of the marketable securities was $( 21 ), $( 11 ), $( 7 ) and $( 22 ), respectively. (**) The Derivatives includes in other receivables. December 31, 2022 Fair value hierarchy Level 1 Level 2 Level 3 Financial liabilities - - - Derivatives - 9 - Note 4 - Stock Based Compensation The stock-based expense equity awards recognized in the financial statements for services received is related to Cost of Revenues, Research and Development, Sales and Marketing and General and Administrative expenses as shown in the following table: Schedule of Stock Based Compensation Expenses 2023 2022 2023 2022 Nine months ended September 30, Three months ended September 30, 2023 2022 2023 2022 Stock-based compensation expense – Cost of revenues 19 67 4 39 Stock-based compensation expense - Research and development 51 22 22 4 Stock-based compensation expense - Sales and marketing 71 115 16 57 Stock-based compensation expense - General and administrative 149 123 26 65 Stock-based compensation expense 290 327 68 165 10 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 4 - Stock Based Compensation (Cont.) Stock Option Plan for Employees: In March 2017, the Company adopted the My Size, Inc. 2017 Equity Incentive Plan (the “2017 Employee Plan”) pursuant to which the Company’s Board of Directors may grant stock options and other equity awards to officers and key employees. The total number of shares of common stock which may be granted to directors, officers, employees under this plan, is limited to 289,000 shares. Stock options can be granted with an exercise price equal to or less than the stock’s fair market value at the date of grant. On 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 restricted shares 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-year options to purchase up to 10,000 ordinary shares to other employees of the Company at an exercise price of $ 5.25 per share. The options vest in over three years in three equal portions from the vesting commencement date. During the nine and three-month period ended September 30, 2023, the Company granted options to purchase 93,000 shares of common stock under the 2017 Employee Plan, no options were exercised and options to purchase 6,933 shares of common stock expired. In addition, 8,000 restricted shares that were granted to Ezequiel Javier Brandwain were terminated and voided. The total stock option compensation expense for employees during the nine and three-month period ended September 30, 2023 and 2022 which was recorded was $ 214 , $ 53 $ 52 and $ 9 , respectively. The total stock option compensation expense relating to the Orgad acquisition during the nine and three-month period ended September 30, 2023 and 2022 which was recorded was $ 76 , $ 267 , $ 16 and $ 73 , respectively. 11 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 5 - Contingencies and Commitments 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 $ 11,400 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 . 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 the Company 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. 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 a 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 the Company 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. The mediation was held on July 26, 2023 and various settlement options were explored but the mediation did not lead to settlement. 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. Note 6 - Goodwill During the third quarter of 2023, the Company merged its two SAAS segments into one segment (see Note 7), which also resulted in a change in the Company’s composition of reporting units. After the restructuring, the aggregate carrying amounts of goodwill allocated to each reporting unit are as follows: Schedule of Aggregate Carrying Amount Of Goodwill September 30 2023 2022 SaaS Solutions 1,273 - Fashion and equipment e-commerce platform 128 268 (*) Total 1,401 268 (*) Based on provisional amounts revised on December 31, 2022 Merging a loss-making segment into other reporting units, was viewed by the Company as an indicator for impairment which required the Company to perform an interim goodwill impairment assessment. In September 2023, the fair value of each reporting units was determined using the income approach. The income approach is a forward-looking approach for estimating fair value. Within the income approach, the method used is the discounted cash flow method. The company, using independent valuation services, starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then applies a discount rate to arrive at a net present value amount. Cash flow projections are based on the Company’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted average cost of capital (“WACC”), adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from the Company’s assumptions, the Company may record an impairment of goodwill allocated to these reporting units in the future. Key assumptions used in the discounted cash flow analysis of the SAAS reporting unit included, but were not limited to, a WACC of 24 %, terminal growth rates of 3 % and EBIT margin which is excepted to gradually increase from a negative margin of 33.1 % in 2024 to a positive margin of 29.5 % in 2029. Key assumptions used in the discounted cash flow analysis of the Fashion and equipment e-commerce platform reporting unit included, but were not limited to, a WACC of 21.5 %, terminal growth rates of 3 % and EBIT margin which is excepted to gradually increase from a negative margin of 9.1 % in 2024 to a positive margin of 6.9 % in 2029. The assumptions are deemed as Level III inputs in regard to the fair value hierarchy. The Company concluded based on the results of the interim quantitative goodwill impairment assessment performed as of September 30, 2023, that goodwill was not impaired in both reporting units. The fair value of the SAAS reporting unit is approximately 2.7 % above its carrying amount and fair value of the Fashion and equipment e-commerce platform reporting unit is approximately 9.7 % above its carrying amount. While there was no impairment related to goodwill for both reporting units, a future potential impairment is possible should actual results differ from forecasted results used in the valuation analysis. Also, the valuation of goodwill can differ materially if financial projections or market inputs used to determine the WACC change significantly. 12 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 7 – Operating Segments Effective 1 July 2023 the Company merged its two SAAS segments into one segment, hence reducing the reportable segments from three to the following two segments: (i) fashion and equipment e-commerce platform, and (ii) SaaS based innovative artificial intelligence driven measurement solutions. This realignment reflects the way resources are allocated and performance is assessed by the Chief Operating Decision Maker. The fashion and equipment e-commerce platform which represents Orgad’s activity that was acquired by the Company in 2022, 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, My Size LLC and Naiz Fit. In the Company’s financial reporting for September 30, 2023, comparative information for 2022 was restated to reflect the changes in reportable segments. Information related to the operations of the Company’s reportable operating segments is set forth below: Schedule of Reportable Operating Segments Fashion and equipment e-commerce platform SaaS Solutions Total As of the Nine month ended September 30, 2023 Revenues from external customers 3,732 434 4,166 Operating (loss) income ( 2,936 ) ( 2,215 ) ( 5,151 ) Fashion and equipment e-commerce platform Saas Solution As of September 30, 2023: Assets 7,849 3,490 Fashion and equipment e-commerce platform SaaS Solutions Total For the Nine months ended September 30, 2022 Revenues from external customers 1,797 134 1,931 Operating (loss) income ( 215 ) ( 5,517 ) ( 5,732 ) Fashion and equipment e-commerce platform SaaS Solutions Total As of Three months ended September 30, 2023 Revenues from external customers 1,994 162 2,156 Operating (loss) income ( 440 ) ( 665 ) ( 1,105 ) Fashion and equipment e-commerce platform SaaS Solutions Total As of Three months ended September 30, 2022 Revenues from external customers 685 41 726 Operating (loss) income ( 286 ) ( 1,689 ) ( 1,975 ) 13 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 7 – Operating Segments (Cont.) Fashion and equipment e-commerce platform SaaS Solutions For September 30, 2022: Assets 1,697 6,494 Fashion and equipment e-commerce platform SaaS Solutions Total As of the year ended December 31, 2022 Revenues from external customers 4,132 327 4,459 Operating (loss) income ( 4,197 ) ( 3,913 ) ( 8,110 ) Fashion and equipment e-commerce platform Saas Solution As of December 31, 2022: Assets 6,507 3,220 Note 8 – Significant events during the reporting period 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 $ 640 . The Company believes that this incident did not affect the future sales results of Orgad for the year of 2023. The inventory was not insured and the Company and lessor signed an agreement to settle the issue in which the Company paid to the lessor an amount of $ 50 to cover its loss. The Company recognized the payment to the lessor as a general and administrative expense. During the reporting period, claims by the owners a neighboring warehouse were made of damage caused by the fire. As of the date these financial statements were authorized for issuance, no lawsuit was filed against the Company, and the amount of potential loss, if any, cannot be reasonably estimated. 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 (the “PIPE 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. The pre-funded warrants are immediately exercisable at an exercise price of $ 0.001 per share and will not expire until exercised in full. The warrants are immediately exercisable upon issuance at an exercise price of $ 2.805 per share, subject to adjustment as set forth therein. The Series A warrants have a term of five and one-half years from the date of issuance and the Series B warrants have a term of 28 months from the date of issuance. The warrants may be exercised on a cashless basis if there is no effective registration statement registering the shares underlying the warrants. In connection with the PIPE Purchase Agreement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company is required to file a resale registration statement (the “Registration Statement”), with the SEC, to register for resale the shares issuable upon exercise of the unregistered pre-funded warrants and the Series A and Series B warrants, within 20 days of the signing date of the PIPE Purchase Agreement (the “Signing Date”), and to have such Registration Statement declared effective within 60 days after the Signing Date in the event the Registration Statement is not reviewed by the SEC, or 90 days of the Signing Date in the event the Registration Statement is reviewed by the SEC. The Company will be obligated to pay certain liquidated damages if it fails to maintain the effectiveness of the Registration Statement. 14 MY SIZE, INC. AND ITS SUBSIDIARIES Notes to Condensed Consolidated Interim Financial Statements (Unaudited) U.S. dollars in thousands (except share data and per share data) Note 8 – Significant events during the reporting period (Cont.) Aggregate gross proceeds to the Company in respect of the offerings was approximately $ 3,000 , before deducting fees payable to the placement agent and other offering expenses payable by the Company. The net proceeds were approximately $ 2,600 . As of September 30, 2023, all the pre funded warrants were exercised. The Company also entered into a letter agreement (the “Engagement Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which Wainwright agreed to serve as the exclusive placement agent for the Company in connection with the offerings. The Company paid Wainwright a cash placement fee equal to 7 % of the aggregate gross proceeds raised in the offerings, a management fee of 1 % of the aggregate gross proceeds raised in the offerings, a non-accountable expense allowance of $ 85 and clearing fees of $ 15.95 . Wainwright also received placement agent warrants - to purchase 68,740 shares of common stock, at an exercise price of $ 3.8188 per share and a term expiring on January 10, 2028. c. During May 2023, the Company initiated a transfer of the support, development and customer success operations to its Spanish entity, Naiz Fit, that is intended to improve efficiency and lower costs between the Company’s operations in Israel and Naiz Fit. As part of this, the Company reduced headcount by 13 persons in Israel, including the termination of its Chief Commercial Officer, Ezequiel Javier Brandwain. This restructuring did not have a material impact on the Company’s results. The Company expects it to lower future operating costs without significant impact on revenues. d. On July 13, 2023, the compensation committee of the board of directors of the Company reduced the exercise price of outstanding options of certain officers and directors of the Company for the purchase of an aggregate of 23,575 shares of common stock (with exercise prices of $ 26.00 per Share) to $ 1.09 per share, which was the closing price for the Company’s shares on July 13, 2023. The exercise price reduction includes options held by, among others, the Company’s named executive officers with respect to the following number of shares: (i) Ronen Luzon, the Company’s Chief Executive Officer and director: 8,001 shares, (ii) Or Kles, the Company’s Chief Financial Officer: 5,760 shares, and (iii) Billy Pardo, the Company’s Chief Operating Officer and Chief Product Officer: 6,094 shares. The incremental compensation cost resulting from the repricing is approximately $ 10 . e. On August 24, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with a certain holder (the “Holder”) of certain of the Company’s existing warrants to purchase up to (i) 1,963,994 shares of the Company’s common stock issued on January 12, 2023 at an exercise price of $ 2.805 per share (the “January 2023 Warrants”), (ii) 6,864 shares of the Company’s common stock issued on January 17, 2020 at an exercise price of $ 94.00 per share (the “January 2020 Warrants”), and (ii) 47,153 shares of the Company’s common stock issued on October 28, 2021 at an exercise price of $ 31.50 per share, having terms ranging from 28 months to five and one-half years (the “October 2021 Warrants” and together with the January 2023 Warrants and the January 2020 Warrants, the “Existing Warrants). Pursuant to the Inducement Letter, the Holder agreed to exercise for cash its Existing Warrants to purchase an aggregate of 2,018,012 shares of the Company’s common stock at a reduced exercise price of $ 2.09 per share in consideration of the Company’s agreement to issue new common stock purchase warrants (the “New Warrants”), to purchase up to an aggregate of 5,367,912 shares of the Company’s common stock (the “New Warrant Shares”), at an exercise price of $ 2.09 per share. The Company received aggregate gross proceeds of approximately $ 4.2 million from the exercise of the Existing Warrants by the Holder, before deducting placement agent fees and other offering expenses payable by the Company. The net proceeds are approximately $ 3.6 million. As of September 30, 2023, the Company issued to the holder 543,012 shares and 1,475,000 in abeyance. Note 9 – Subsequent events a. In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets- see note 1(c). b. On November 3, 2023, the Company was notified, by the Nasdaq Listing Qualifications that the Company is not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2), or the Rule, for continued listing on The Nasdaq Capital Market. The Notification Letter provides that the Company has 180 calendar days, or until May 1, 2024, to regain compliance with the Rule. To regain compliance, the bid price of our common stock must have a closing bid price of at least $ 1.00 per share for a minimum of 10 consecutive business days. In the event we do not regain compliance by July 5, 2022, the Company may then be eligible for additional 180 days if the Company meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of the Company’s intention to cure the deficiency during the second compliance period . If the Company does not qualify for the second compliance period or fails to regain compliance during the second compliance period, then Nasdaq will notify the Company of its determination to delist the Company common stock, at which point the Company will have an opportunity to appeal the delisting determination to a Hearings Panel. 15