My Size, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read together with our condensed consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission, or the SEC on April 1, 2024, or the Annual Report, including the consolidated annual financial statements as of December 31, 2023 and their accompanying notes included therein. This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended or the Exchange Act. Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this Quarterly Report on Form 10-Q. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to: ● our history of losses and needs for additional capital to fund our operations and our inability to obtain additional capital on acceptable terms, or at all; ● risks related to our ability to continue as a going concern; ● the new and unproven nature of the measurement technology markets; ● our ability to achieve customer adoption of our products; ● our ability to realize the benefits of our acquisitions of Orgad and Naiz; ● our dependence on assets we purchased from a related party; ● our ability to enhance our brand and increase market awareness; ● our ability to introduce new products and continually enhance our product offerings; ● the success of our strategic relationships with third parties; ● information technology system failures or breaches of our network security; ● competition from competitors; ● our reliance on key members of our management team; ● current or future litigation; ● current or future unfavorable economic and market conditions and adverse developments with respect to financial institutions and associated liquidity risk; and ● the impact of the political and security situation in Israel on our business. 16 The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to the Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report on Form 10-Q is accurate as of the date hereof. Because the risk factors referred to on page 18 of our Annual Report, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements. Unless the context otherwise requires, all references to “we,” “us,” “our” or “the Company” in this Quarterly Report on Form 10-Q are to MySize, Inc., a Delaware corporation, and its subsidiaries, including MySize Israel 2014 Ltd. My Size LLC, Orgad International Marketing Ltd., or Orgad, and Naiz Bespoke Technologies, S.L, or Naiz Fit, taken as a whole. References to “U.S. dollars” and “$” are to currency of the United States of America, and references to “NIS” are to New Israeli Shekels. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this Quarterly Report on Form 10-Q for three months ended on September 30, 2024 are translated using the rate of NIS 3.710 to $1.00. All information in this Quarterly Report on Form 10-Q relating to shares or price per share reflects the 1-for-8 reverse stock split effected by us on April 19, 2024 with the shares beginning trading on a post-split basis on the Nasdaq Capital Market on April 23, 2024. Overview We are an omnichannel e-commerce platform and provider of AI-driven software-as-a-service (“SaaS”) measurement solutions, including MySizeID and our subsidiaries, Naiz Fit, which provides SaaS technology solutions that solve size and fit issues and AI solutions for smarter design through data driven decisions for fashion ecommerce companies, and Orgad, an online retailer operating in the global markets. To date, we have generated almost all our revenue as a third-party seller on Amazon. Our advanced software and solutions assist us in the supply chain, identifying products that can drive growth and provides a user-friendly experience and best customer service. Our flagship innovative tech product, MySizeID, enables shoppers to generate highly accurate measurements of their body to find the accurate fitting apparel by using our application on their mobile phone or through the MySizeID Widget: a simple questionnaire which uses a database collected over the years. MySizeID syncs the user’s measurement data to a sizing chart integrated through a retailer’s (or a white labeled) mobile application, and only presents items for purchase that match their measurements to ensure a correct fit. We are positioning ourselves as a consolidator of sizing solutions and a provider of a new digital experience due to recent technological developments for the fashion industry needs. Our other product offerings include First Look Smart Mirror for physical stores and Smart Catalog to empower brand design teams, which are designed to increase end consumer satisfaction, contributing to a sustainable world and reducing operation costs. Recent Developments Hamas-Israel War 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. In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization) and on other fronts from various extremist groups in region, such as the Houthi movement in Yemen and various rebel militia groups in Syria and Iraq. Israel has carried out a number of targeted strikes on sites belonging to these terror organizations and in October 2024, Israel began limited ground operations against Hezbollah in Lebanon. In addition, Iran recently launched direct attacks on Israel involving hundreds of drones and missiles and has threatened to continue to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria and Iraq. Such clashes may escalate in the future into a greater regional conflict. To date, security situation in Israel has had an immaterial effect on our operations and financial results. This is attributable to our global footprint and the offices in Spain, which has become a hub for our sizing solutions business and the majority of Orgad’s inventory utilizes fulfillment by Amazon rather than fulfilling directly. 17 Results of Operations The table below provides our results of operations for the periods indicated. Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 (dollars in thousands) (dollars in thousands) Revenues $ 1,839 $ 2,156 $ 6,802 $ 4,166 Cost of revenues (1,048 ) (780 ) (3,831 ) (2,698 ) Gross profit 791 1,376 2,971 1,468 Research and development expenses (89 ) (242 ) (352 ) (811 ) Sales and marketing (737 ) (952 ) (2,670 ) (2,598 ) General and administrative (640 ) (1,287 ) (2,572 ) (3,210 ) Impairment of goodwill (631 ) - (631 ) - Operating loss (1,306 ) (1,105 ) (3,254 ) (5,151 ) Financial income (expenses), net 6 22 (26 ) (78 ) Equity accounted losses - (9 ) - (48 ) Tax income - (40 ) - 200 Net loss $ (1,300 ) $ (1,132 ) $ (3,280 ) $ (5,077 ) Nine and Three Months Ended September 30, 2024 Compared to Nine and Three Months Ended September 30, 2023 Revenues Our revenues for the nine months ended September 30, 2024 amounted to $6,802,000 compared to $4,166,000 for the nine months ended September 30, 2023. The increase in the nine months ended September 30, 2024 from the corresponding period is primarily attributable to an increase in Orgad sales due to the fire occurred in the warehouse in January 2023. Our revenues for the three months ended September 30, 2024 amounted to $1,839,000 compared to $2,156,000 for the three months ended September 30, 2023. The decrease in the three months ended September 30, 2024 from the corresponding period is primarily attributable to a decrease in Orgad sales due to low inventory and seasonality. Cost Of Revenues Our cost of revenues expenses for the nine months ended September 30, 2024 amounted to $3,831,000 compared to $2,698,000 for the nine months ended September 30, 2023. The increase in comparison with the corresponding period was mainly due to an increase in revenues described above offset by an inventory mark-down of $643,000 due to the fire that occurred in Orgad’s warehouse during January 2023. Our cost of revenues expenses for the three months ended September 30, 2024 amounted to $1,048,000 compared to $780,000 for the three months ended September 30, 2023. The increase in comparison with the corresponding period was mainly due to an increase in shipping costs and cost of goods. Research and Development Expenses Our research and development expenses for the nine months ended September 30, 2024 amounted to $352,000 compared to $811,000 for the nine months ended September 30, 2023. The decrease from the corresponding period was mainly due to a decrease in salaries expenses due to reduced headcount and a decrease in subcontractor expenses. Our research and development expenses for the three months ended September 30, 2024 amounted to $89,000 compared to $242,000 for the three months ended September 30, 2023. The decrease from the corresponding period was mainly due to a decrease in salaries expenses due to reduced headcount and a decrease in subcontractor expenses. 18 Sales and Marketing Expenses Our sales and marketing expenses for the nine months ended September 30, 2024 amounted to $2,670,000 compared to $2,598,000 for the nine months ended September 30, 2023. The increase primarily resulted from an increase in Amazon fees due to an increase in sales offset by a decrease in salary expenses due to reduced headcount, consultant expenses, travel and marketing expenses. Our sales and marketing expenses for the three months ended September 30, 2024 amounted to $737,000 compared to $952,000 for the three months ended September 30, 2023. The decrease primarily resulted from a decrease in salary expenses due to reduced headcount, consultant expenses, travel and marketing expenses offset by an increase in Amazon fees due to the increase in sales. General and Administrative Expenses Our general and administrative expenses for the nine months ended September 30, 2024 amounted to $2,572,000 compared to $3,210,000 for the nine months ended September 30, 2023. The decrease primarily resulted from a decrease in professional services and insurance expenses. Our general and administrative expenses for the three months ended September 30, 2024 amounted to $640,000 compared to $1,287,000 for the three months ended September 30, 2023. The decrease primarily resulted from a decrease in professional services and insurance expenses. Impairment of goodwill We recorded a goodwill impairment charge of $631,000 for the three months ended September 30, 2024 as the carrying value of SaaS Solution reporting segment exceeded its expected fair value. No impairment was recorded for the three months ended September 30, 2023. Operating Loss As a result of the foregoing, for the nine months ended September 30, 2024, our operating loss was $3,254,000 a decrease of $1,897,000, or 36.8%, compared to our operating loss for the nine months ended September 30, 2023 of $5,151,000. As a result of the foregoing, for the three months ended September 30, 2024, our operating loss was $1,306,000 an increase of $201,000, or 18.2%, compared to our operating loss for the three months ended September 30, 2023 of $1,105,000. Financial Income (Expenses), Net Our financial expenses, net for the nine months ended September 30, 2024 amounted to $26,000 compared to financial expenses of $78,000 for the nine months ended September 30, 2023 The decrease compared to the corresponding period was mainly due to a decrease in financial expenses exchange rate differences. Our financial income, net for the three months ended September 30, 2024 amounted to $6,000 compared to financial income of $22,000 for the three months ended September 30, 2023. The decrease compared to the corresponding period was mainly due to a decrease in financial expenses exchange rate differences. Net Loss As a result of the foregoing, our net loss for the nine months ended September 30, 2024 was $3,280,000, compared to net loss of $5,077,000 for the nine months ended September 30, 2023. The decrease in net loss was mainly due to the reasons mentioned above. As a result of the foregoing, our net loss for the three months ended September 30, 2024 was $1,300,000, compared to net loss of $1,132,000 for the three months ended September 30, 2023. The increase in net loss was mainly due to the reasons mentioned above. 19 Liquidity and Capital Resources Since our inception, we have funded our operations primarily through public and private offerings of debt and equity securities in the State of Israel and in the United States As of September 30, 2024, we had cash, cash equivalents and restricted cash of $2,371,000 compared to $2,264,000 of cash, cash equivalents and restricted cash as of December 31, 2023. This increase primarily resulted from the warrant repricing transaction that was completed in May 2024, offset by payments that were made to suppliers, resources that were deployed to grow our businesses and payments related to the Orgad acquisition. Cash used in operating activities amounted to $2,523,000 for the nine months ended September 30, 2024, compared to $4,910,000 for the nine months ended September 30, 2023. The decrease in cash used in operating activity is derived mainly from a change in inventory, impairment of goodwill and a decrease in the net loss offset by a change in account receivables, trade payables and liabilities to related parties. Net cash provided by investing activities was $60,000 or the nine months ended September 30, 2024, compared to none for the nine months ended September 30, 2023. Net cash provided by financing activities was $2,626,000 for the nine months ended September 30, 2024, compared to $6,230,000 for the nine months ended September 30, 2023. The cash flow from financing activities for the nine months ended September 30, 2024 resulted from the May 2024 warrant repricing transaction and a loan that was received in February 2024 compared to the public and private offerings that occurred in January and August 2023. We expect that we 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, 2024, we believe our existing cash will not be sufficient to fund operations for a period of more than 12 months. As a result, there is substantial doubt about our ability to continue as a going concern. We will need to raise additional capital, which may not be available on reasonable terms or at all. Additional capital would be used to accomplish the following: ● finance our current operating expenses; ● pursue growth opportunities; ● hire and retain qualified management and key employees; ● respond to competitive pressures; ● comply with regulatory requirements; and ● maintain compliance with applicable laws. Current conditions in the capital markets are such that traditional sources of capital may not be available to us when needed or may be available only on unfavorable terms. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions, the security situation in Israel, and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot assure you that we will be able to successfully raise additional capital at all or on terms that are acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our business, results of operations and financial condition. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities could result in substantial dilution for our current stockholders. The terms of any securities issued by us in future capital-raising transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then-outstanding. We may issue additional shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock in connection with hiring or retaining personnel, option or warrant exercises, future acquisitions or future placements of our securities for capital-raising or other business purposes. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline and existing stockholders may not agree with our financing plans or the terms of such financings. In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition. Furthermore, any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, or we may have to cease our operations, which would have a material adverse effect on our business, results of operations and financial condition. We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support. 20 Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles issued by the Financial Accounting Standards Board. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies were revenue from contracts with customers which are more fully described in the notes to our financial statements included herein. We believe these accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate could have a material impact on our financial condition or results of operations. Goodwill impairment assessment We determine the fair value of our reporting units using the income approach. According to the income, we use discounted cash flows to estimate the fair value. Cash flow projections require us to make significant 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, adjusted for the relevant risk associated with business-specific characteristics. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to the discount rate, the terminal growth rate and the revenue growth rate. We have experienced a pair of triggering events in the period ended September 30, 2024 due to sustained decreases in our share price and a decline in actual and forecasted operating results, prompting impairment assessments of goodwill and long-lived assets, including definite-lived intangibles. The table below indicates changes in the most significant inputs to our impairment analysis on each testing date since its last annual test. Discount rate Terminal growth rate Revenue growth rate Testing dates December 31, 2023 25 % 3 % 15%-70% September 30, 2024 25 % 3 % 4%-32% In September 2024, we updated the forecasted future cash flows used in the impairment assessment, including revenues, margin, and capital expenditures to reflect current conditions. Other changes in valuation assumptions included selection of lower revenue multiples based upon an assessment of current market conditions. As a result of this review, we did not identify an impairment to its definite-lived intangible assets or other long-lived assets. Based on our analysis, we determined that the carrying value of our SaaS Solutions reporting unit exceeded its fair value and an impairment charge of $631,000 was recorded. The analysis was done for the Fashion and equipment e-commerce platform reporting unit as well, but the reporting value exceeds its carrying amount. The table below indicates changes in the most significant inputs to our impairment analysis on each testing date since its last annual test for Fashion and equipment e-commerce platform segment. Discount rate Terminal growth rate Revenue growth rate Testing dates December 31, 2023 21.5 % 3 % 12.4%-50 % September 30, 2024 22 % 3 % 7.5%-36.5 % In September 2024, we updated the forecasted future cash flows used in the impairment assessment, including revenues, margin, and capital expenditures to reflect current conditions. Other changes in valuation assumptions included selection of lower revenue growth rates based upon an assessment of current market conditions. As a result of this review, the Company did not identify an impairment to its definite-lived intangible assets or other long-lived assets or for its goodwill for the quarter ended September 30, 2024 (level 3 fair value measurement). Item 3. Quantitative and Qualitative Disclosure About Market Risk. Not required for a smaller reporting company.