My Size, Inc. - Quarter Report: 2016 September (Form 10-Q)

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File No. 001-37370

MY SIZE, INC.

(Exact name of registrant as specified in its charter)

3 Araya St., pob 1026, Airport City, Israel, 7010000

(Address of principal executive offices)

+972-3-600-9030

Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes ☒   No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes ☐   No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 17,405,359 shares of common stock, par value $0.001 as of November 21, 2016.

MY SIZE, INC.

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

My Size Inc. and Subsidiaries

Condensed Interim Consolidated

Financial Statements

As of September 30, 2016

U.S. Dollars in Thousands

My Size Inc.

Condensed Interim Consolidated Financial Statements as of September 30, 2016 (Unaudited)

Contents

My Size Inc.

Condensed Consolidated Balance Sheets

U.S. dollars in thousands (except share data)

The accompanying notes are an integral part of the consolidated financial statements.

My Size Inc.

Condensed Consolidated Statements of Comprehensive Loss

U.S. dollars in thousands (except share data and per share data)

The accompanying notes are an integral part of the interim financial statements

My Size Inc.

Condensed Consolidated Statements Shareholders’ Equity (Unaudited)

U.S. dollars in thousands (except share data)

The accompanying notes are an integral part of the interim financial statements

My Size Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficiency) (Unaudited)

U.S. dollars in thousands (except share data)

The accompanying notes are an integral part of the interim financial statements

My Size Inc.

Condensed Interim Consolidated Statements of Cash Flows

The accompanying notes are an integral part of the interim financial statements.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 1 - General

My Size Inc. (the "Company") developed a unique measurement technology based on sophisticated algorithms with broad applications in a variety of areas, from the apparel e-commerce market to Do It Yourself (DIY) smartphone & tablet apps. The technology is driven by several patent-pending algorithms which are able to calculate and record measurements in a variety of novel ways.

As of September 30, 2016 the Company had consolidated net loss from continuing operations of $4,120 and a negative cash flow from operating activities in the sum of $1,748 for the nine months ended September 30, 2016. As of the date of the reports the Company entered into fund raising agreements in a total sum of $7,815 out of which the sum of $4,257 was received in cash and marketable securities (DIMN shares). $3,558 was received in checks and guarantee by an ungraded financial institution. Subsequent to September 30, 2016, an additional sum of $400 was received in cash from the guarantees. As a result of these investments the Company anticipates meeting its obligations for the next year.

For the purpose of meeting its obligations in the foreseeable future the Company relies on the exercise of the guarantees, sale of marketable securities and on the exercise of the above mentioned documents.

Note 2 - Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of the Company and its subsidiaries collectively referred to as the Company. In management's opinion, the interim financial data presented includes all adjustments necessary for a fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. generally accepted accounting principles has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2016.

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, 2015.

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01) "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to our consolidated financial statements, the most significant impact relates to the recognition and measurement for equity investments. Additionally, ASU 2016-01 will impact the disclosure and presentation of financial assets and liabilities. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. Early adoption by public entities is permitted only for certain provisions.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) which amends the FASB Accounting Standards Codification and created Topic 842, "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provides for enhanced disclosures. Leases will continue to be classified as either finance or operating. ASU 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited and early adoption by public entities is permitted.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 3 - Financial Instruments

Fair value of financial instruments:

ASC 820, "Fair Value Measurements and Disclosures", defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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:

The carrying amounts of cash and cash equivalents, other accounts receivable, short-term loan, accounts payable and other accounts payable approximate their fair value due to the short-term maturities of such instruments.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 3 - Financial Instruments (cont’d)

Note 4 - Stock Based Compensation

The stock based expense (income) recognized in the financial statements for services received from employees and non-employees is shown in the following table:

Note 5 - Contingencies and Commitments

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 5 - Contingencies and Commitments (cont’d)

On May 10, 2016, the claim which was filed by the Company in the United States against the plaintiffs was deleted at the parties' consent without an order for costs.

In a pre-trial hearing dated March 7, 2016, the court decided that mutual disclosure of documents proceedings would take place and disclosure affidavits along with copies of the documents specified therein were exchanged between the parties.

Following the recommendation of the court, on March 20, 2016, the plaintiff filed a notice of deletion of certain defendants including board and management members excluding the chairman of the board and the general manager of the Company from the statement of claim.

The parties completed preliminary proceedings and initial affidavits were filed on June 10, 2016 by the plaintiff, including expert opinion regarding the financial damage amounts claimed by the plaintiff. The date for filing initial affidavits of evidence, including expert opinion, on behalf of the Company and the other defendants, has not arrived.

The Company estimates, based on the opinion of its legal advisers that the chances of acceptance of the remedy requested by the plaintiff in his claim, namely, that the Company was obligated to remove the restriction which was imposed on the shares and register plaintiff's shares for trade on the stock exchange, exceed the chances of its dismissal.

At this stage, it is difficult to assess the financial risk inherent in the plaintiff's claim, the proportion of the financial compensation claimed by the plaintiff is derived from the method of calculating the damage and data relating to the company's share price and trading volumes of stock. At this stage, the time for the submission of an expert opinion on behalf of the company for the calculation of the damage has not arrived and the appropriate method of calculating the loss based on the circumstances in this case has not been determined.

The provision the company recognized in its financial statements for this claim is based in part on preliminary data which were obtained from a specialist hired by the company. The Company's management believes that the provision in the reports is sufficient at this stage.

On May 17, 2012, the Company signed an agreement for a convertible loan with a third party (hereinafter the "Investor"). In accordance with the loan agreement, the Company received a total of NIS 200 thousand with the signing of the loan agreement and was to receive an additional amount of NIS 100 thousand at the end of a period not exceeding 21 days, during which the investor would perform due diligence on the Company. In addition, the agreement was for additional investments up to a total of NIS 2 million.

On February 18, 2015, the Company received a claim in a summary judgement for the investor’s demand of payment of the loan amount of NIS 200 thousand, which was granted to the Company on May 17, 2012, plus interest of 10% annually as from 20 May 2012 until payment of the debt, which as of the date of filing of the claim was NIS 258 thousand. The company denies the allegations stated in the request and is reviewing the possibilities, including the filing of reply to the court in accordance with law.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 5 - Contingencies and Commitments (cont’d)

On June 13, 2016, a settlement agreement was entered into between the parties according to which in consideration for the final and conclusive annulment of all claims and/or demands raised by the plaintiff against the Company in the framework of the law suit, the Company would pay the plaintiff the sum of 250 thousand NIS forthwith by wire transfer of about 95 thousand NIS and by the forfeiture of the sum of about 155 thousand NIS which had been deposited with the court. An additional amount of 50 thousand NIS would be paid within twelve months from the approval of the settlement agreement by the court or on the closing date of a public offering of Mysize shares, pursuant to its terms, on a stock exchange in the United States, according to the earlier. As of the date on which the financial reports were signed the terms have not yet occurred.

On November 6, 2015, the Company reported another letter of claim filed by it with the Tel-Aviv District Court. According to a decision dated March 22, 2016, affidavits of primary testimony were filed on behalf of the litigants and on July 18-19, 2016, evidentiary hearings were held in the above case.

A response letter was sent by the Company which stated that the Company did not consider itself as a party to the allegations which were raised in said letter and that in any event all such allegations were denied by it. The Company did not make an allowance in the reports in connection with said demand.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 5 - Contingencies and Commitments (cont’d)

The Company undertook that not later than within six months from the date of execution of the Agreement, the Platform would be completed and operable, namely, that the integration between the data systems of the parties would be completed and the end-customer would be able to take his measurements and purchase a befitting product using the Platform. Should the Company fail to fulfill its undertakings under the Agreement to grant the license and/or fully integrate the Platform within six months from the date of execution of the Agreement, the Company shall compensate IN SITU in the sum of 60 thousand Euros. As a result of the extended timetable there is an understanding between the parties to continue the cooperation.

On November 10, 2013, the Company's board of directors approved to bring before the general meeting an engagement with one of the investors for the acquisition of rights in a venture for the accumulation of physical data of human beings by portable electronic devices for the purpose of locating, based on the accumulated data, articles of clothing in internet apparel stores, which will fit the person whose measurements were accumulated.

The Agreement was approved by the general meeting on January 9, 2014.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 6 - Significant Events During The Reporting Period

On March 27, 2016, the Company announced that it has completed the initial development of the app on Android and iOS devices. The app has the ability to perform 3-D scan, photograph and obtain data on the time and location of the user. It should be clarified that this is not the final version of the application and that the Company and the shipping company continue to collaborate for further development and testing its integration

On July 4, 2016, the Company announced that it completed integration of the first app (beta) that it developed in the said affiliation in the Katz Systems

The application uses the company's exclusive measuring algorithm and enables measuring the package's volume by moving the telephone over the package. This information, and the package's barcode scan, picture and location,are sent to the information servers of the Katz company and help in its pricing.

On 7 November 2016 the company announced the launch of BoxSizeID app, which is an intuitive application that enables customers to quickly and easily measure the size of a package and calculate the exact shipping cost. BoxSizeID also provides shipping companies accurate logistic data to better manage the process of shipping packages before the packages reach their distribution centers. The company is currently carrying out a pilot to implement BoxSizeID with Katz Deliveries.

Under the agreement, the parties will cooperate for the purpose of integrating the company's measurement technology and computerized information systems of LSY. The agreement stipulates that the integration of these technologies, will be completed within four months from the date the agreement was signed.

Upon completion of the integration, a 60-day technology testing period will begin, after which, subject to the fulfillment of the technological conditions, the agreement will take effect.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 6 - Significant Events During The Reporting Period (cont’d)

According to the agreement, the Company shall be entitled to a total of 7.5% of every sale by LSY, and LSY company will pay a monthly sum of $ 2.5 for maintenance fees and services that the company will provide.

As the Company successfully completes integration of the technology into LSY’s systems and subject to the limitations set forth in the agreement, the Company will grant to LSY exclusive license to use the technology in the field of luxury clothing made of: fur, cashmere, alpaca and shearling. The exclusive license will be awarded to LSY as long as the company will have a minimal income from the agreement as follows:

Under the agreement, LSY will pay the Company $100 in fees for establishment and implementation of technology systems as follows:

1) $ 10 upon signing the agreement.

2) $30 upon start of implementation.

3) $20 upon completion of implementation.

4) $40 balance upon completion of testing and monitoring implementation and the agreement taking effect.

As of the reporting date, the Company received a total of $10 in accordance with the said terms of the agreement, which was recorded as deferred revenue in the framework of the payables section and credit balances until until the fulfillment of conditions for revenue recognition.

Until the date of the balance sheet, the Company received $200 dollars convertible into 57,161 shares of the Company, and 57,161 options were issued with respect thereto. The remaining balance of the loan was received after the date of the balance sheet, in July 2016 by way of a guarantee by an ungraded financial institution.

On the date of its receipt of the loan amounts, the allotment was attributed to three components:

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 6 - Significant Events During The Reporting Period (cont’d)

The following table presents the data used to measure the fair value of the embedded derivative of the Company's shares according to the Black & Scholes model with respect to the above plan:

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 6 - Significant Events During The Reporting Period (cont’d)

DIAMANTE MINERALS INC is engaged in exploration, development and operation of a diamond project. As of the date of the release of the financial statement the value of DIMN shares was $506.

On the date of its receipt of the loan amounts were attributed to three components:

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 6 - Significant Events During The Reporting Period (cont’d)

The following table presents the data used to measure the fair value of the embedded derivative of the Company's shares according to the Black & Scholes model with respect to the above plan:

The shares began trading on July 25,2016. Accordingly, the Company's convertible loans were converted into capital during the reporting period. On July 14, 2016, the Company's board of directors resolved to act according to the provisions of the convertible loan agreements which were signed by the Company and to carry out an automatic conversion of the loans into Company shares subject to its receipt of the consideration and the approvals required by law. Accordingly, after the reporting date, the Company actually issued the shares for the convertible loans the allotment of which had been approved by the stock exchange and the consideration for which had been received. As of September 30, 2016, the Company issued 2,091,566 shares for convertible loans received by it in the sum of $7,320.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

U.S. dollars in thousands, (except share data and per share data) (Unaudited)

Note 7 - Subsequent Events

Pro-forma equity

As described in Note 1 above, as of September 30, 2016 the Company entered into fund raising agreements in a total sum of $7,815 out of which the sum of $4,258 was received in cash and $3,557 was received in checks and guarantee by an ungraded financial institution. Subsequent to September 30, 2016, an additional sum of $400 was received in cash from the bank guarantees.

The following proforma consolidated balance sheet is based on the September 30, 2016 balance sheet with adjustments for receipt of $3,157 from investors for stock subscribed.

The effect on equity and on the assets of collecting the money from the bank guarantees and the checks is an increase of $3,157, As a result, the Company’s stockholder’s equity, on a pro forma basis, is $4,614 as of September 30, 2016.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion along with our financial statements and the related notes included in this report. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions, including those discussed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2015. Our actual results, performance and achievements may differ materially from those expressed in, or implied by, these forward-looking statements.

Results of Operations

Nine and three months Ended September 30, 2016 Compared to Nine and three months Ended September 30, 2015

From inception through September 30, 2016, we have sustained an accumulated deficit of approximately $11.3 million. From inception through September 30, 2016, we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial products. Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete.

Research and Development Expenses

Our research and development expenses for the nine months ended September 30, 2016 amounted to $500,000 compared to $217,000 for the nine months ended September 30, 2015. The increase between the corresponding periods primarily results from increased subcontractors expenses and the increased expenses associated with the hiring of new employees.

 
Our research and development expenses for the three months ended September 30, 2016 amounted to $172,000 compared to $112,000 for the three months ended September 30, 2015. The increase between the corresponding periods primarily results from increased subcontractors expenses and the increased expenses associated with the hiring of new employees. 

Marketing, General and Administrative Expenses

Our marketing, general and administrative expenses for the nine months ended September 30, 2016 amounted to $1,359,000 compared to $1,128,000 (including approximately $300,000 in expenses for options granted to consultants) for the nine months ended September 30, 2015. The increase between the corresponding periods in expenses derives mainly from increases in the Company's operating activity.

Our marketing, general and administrative expenses for the three months ended September 30, 2016 amounted to $434,000 compared to $364,000 for the three months ended September 30, 2015. The increase between the corresponding periods in expenses derives mainly from increases in the Company's operating activity.

Financial income and expense, net

Our financial expenses for the nine months ended September 30, 2016 amounted to $2,261,000 compared to financial expense of $1,526,000 for the nine months ended September 30, 2015. The increase between the corresponding periods in financial expenses derives mainly from the creation and revaluation of the components of the options, derivatives and marketable securities.

Our financial expenses for the three months ended September 30, 2016 amounted to $118,000 compared to financial expense of $1,138,000 for the three months ended September 30, 2015. The decrease between the corresponding periods is mainly due to elimination of derivatives.

Net Loss from continuing operations

As a result of the foregoing research and development, marketing general and administrative expenses, and financial expenses, our net loss from continuing operations for the nine months ended September 30, 2016 was $4,120,000, compared to our net loss from continuing operations for the nine months ended September 30, 2015 of $2,871,000. The main reason for the change between the corresponding periods is the increase in the Company's operating activity and the financial expenses mainly from the creation and revaluation of the components of the financial package.

Our net loss from continuing operations for the three months ended September 30, 2016 was $724,000, compared to our net loss from continuing operations for the three months ended September 30, 2015 of $1,614,000. The decrease between the corresponding periods is the increase in the Company's operating activity and the financial expenses mainly from the creation and revaluation of the components of the financial package.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through private offerings of our equity securities in Israel.

As of September 30, 2016, we had cash and cash equivalents of $143,000 as compared to $919,000 as of December 31, 2015. The decrease in cash balances is due to cash used for operating activities during the period.

We had negative cash flow from operating activities of $1,748,000 for the nine months ended September 30, 2016, compared with negative cash flow from operating activities of $913,000 for the nine months ended September 30, 2015.

The increase in cash used in operating activities derives from increased payments to service providers and Company employees. The Company has expenses not in the ordinary course of business mainly from the registration of patents, the listing of our common stock on Nasdaq and legal expenses associated with lawsuits involving the Company.

We had negative cash flow from investing activities of $31,000 for the nine months ended September 30, 2016, compared with negative cash flow from investing activities of $21,000 for the nine months ended September 30, 2015. The negative cash flow resulted from purchase of equipment.

We had positive cash flow from financing activities of $1,018,000 for the nine months ended September 30, 2016 as compared to $1,937,000 for the nine months Ended September 30, 2015. The cash flow from financing activities for the nine months ended September 30, 2016 and 2015 was mainly due to the issuance of a convertible loan and options.

As of September 30, 2016, the Company entered into fund raising agreements in a total sum of $7,815,000 out of which the sum of $4,258,000 was received in cash and marketable securities (DIMN shares). $3,557,000 was received in, checks and guarantee by an ungraded financial institution. Subsequent to September 30, 2016, an additional sum of $400,000 was received in cash from the guarantees.

We believe that our available cash, together with the amounts available to us under the bank guarantees, is sufficient capital to carry out our intended objectives during the next 20 months. To the extent we are unable to collect on the bank guarantees currently available to us or our intended objectives change, we will require additional financing to carry out our intended plan of operations. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. We currently have no firm commitments for any additional capital.

A downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock or the debt securities may cause us to be subject to restrictive covenants. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek additional financing. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Off-Balance Sheet Arrangements

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.

Application of Critical Accounting Policies and 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. 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.

While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this report, we believe that the 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.

Research and development expenses

Research expenses are recognized as expenses when incurred. Costs incurred on development projects are recognized as intangible assets as of the date as of which it can be established that it is probable that future economic benefits attributable to the asset will flow to us considering its commercial feasibility. This is generally the case when regulatory approval for commercialization is achieved and costs can be measured reliably. Given the current stage of the development of our products, no development expenditures have yet been capitalized. Intellectual property-related costs for patents are part of the expenditure for the research and development projects. Therefore, registration costs for patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for capitalization.

Equity-based compensation

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" ("ASC 718") which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of operations.

The Company recognizes compensation expenses for the value of its awards granted based on the accelerated method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company selected the Binomial option pricing model ("the Binomial model") as the most appropriate fair value method for its stock-options awards. The Binomial model requires a number of assumptions, of which the most significant are the suboptimal exercise factor and expected stock price volatility. The suboptimal exercise factor is estimated based on employees' historical option exercise behavior.

The suboptimal exercise factor is the ratio by which the stock price must increase over the exercise price before employees are expected to exercise their stock options.

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 expected option term represents the period that the Company's stock options are expected to be outstanding. The Company currently uses simplified method until sufficient historical exercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from Israel treasury zero-coupon bonds with an equivalent term.

The Company has historically not paid dividends and has no foreseeable plans to pay dividends.

The Company applies ASC 505-50, "Equity-Based Payments to Non-Employees" with respect to options and warrants issued to non-employees.

If any of the assumptions used in the binomial model change significantly, equity-based compensation for future awards may differ materially compared with the awards granted previously.

Convertible promissory notes:

The Company applies ASC 470-20, "Debt with Conversion and Other Options" ("ASC 470-20"). Under the guidelines of ASC 470-20, the Company measures and recognizes the beneficial conversion feature on the commitment date. The beneficial conversion feature is measured by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature is calculated on the commitment date using the conversion price. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.

The Company applied ASC 470-20 and ASC 815 to the Convertible promissory notes.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Not required for a smaller reporting company.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Controls

During the most recent fiscal quarter, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

We are not currently a party to any material legal proceedings except as described below.

On December 27, 2015, the Company received a new claim. The defendants are the Company itself, all the members of the Board of Directors, Mrs. Shoshana Zigdon, a shareholder and related party in the Company, as well as two additional defendants who are not among the members of the Board of Directors of the Company, and are not shareholders. The cause of the claim is that the plaintiff alleges that the Company violated its obligation to register the shares for trade with the Stock Exchange, causing a total of 2,622,500 NIS damage. The plaintiff seeks relief against the defendants through financial compensation at the rate of the aforementioned alleged damage; additional compensation of 400,000 NIS due to mental anguish; and if and to the extent that until the time the plaintiff can sell its shares on the Stock Exchange (hereinafter: "the exercise date "), the rate of a Company share will rise above the amount of 20.98 NIS (hereinafter: "the base rate"), an additional amount at the rate of the difference between the base rate and the highest rate of a Company share between the time the claim was submitted and the exercise date; and also court costs and attorney's fees of the plaintiff.

On January 24, 2016, the Company filed a Statement of Defense on its behalf and a Request for Stay of Proceedings due to Lis Alibi Pendens (in view of the fact that at the same time the claim in the United States was still pending). In a decision dated February 15, 2016, it was held that a decision in the Company's Request for Stay of Proceedings would not be made at that stage and that the pre-trial proceedings would continue to take place. The fact that the claim in the United States was deleted (as described below), made the above Request redundant and it should have therefore been dismissed. On May 15, 2016, the plaintiff filed an Application to dismiss the above Request and the Company did not object said Application. On May 10, 2016, the claim which was filed by the Company in the United States against the plaintiffs was deleted at the parties' consent without an order for costs. In a pre-trial hearing dated March 7, 2016, the court decided that mutual disclosure of documents proceedings would take place and disclosure affidavits along with copies of the documents specified therein were exchanged between the parties. Following the recommendation of the court, on March 20, 2016, the plaintiff filed a notice of deletion of certain defendants including board and management members excluding the chairman of the board and the general manager of the Company from the statement of claim.

The parties completed preliminary proceedings and initial affidavits were filed on June 10, 2016 by the plaintiff, including expert opinion regarding the financial damage amounts claimed by the plaintiff. The date for filing initial affidavits of evidence, including expert opinion, on behalf of the Company and the other defendants, has not arrived.

The Company estimates, based on the opinion of its legal advisers that the chances of acceptance of the remedy requested by the plaintiff in his claim, namely, that the Company was obligated to remove the restriction which was imposed on the shares and register plaintiff's shares for trade on the stock exchange, exceed the chances of its dismissal.

At this stage, it is difficult to assess the financial risk inherent in the plaintiff's claim, the proportion of the financial compensation claimed by the plaintiff is derived from the method of calculating the damage and data relating to the company's share price and trading volumes of stock. At this stage, the time for the submission of an expert opinion on behalf of the company for the calculation of the damage has not arrived and the appropriate method of calculating the loss based on the circumstances in this case has not been determined.

The provision the company recognized in its financial statements for this claim is based in part on preliminary data which were obtained from a specialist hired by the company. The Company's management believes that the provision in the reports is sufficient at this stage.

On May 17, 2012, the Company signed an agreement for a convertible loan with a third party (hereinafter the "Investor"). In accordance with the loan agreement, the Company received a total of NIS 200 thousand with the signing of the loan agreement and was to receive an additional amount of NIS 100 thousand at the end of a period not exceeding 21 days, during which the investor would perform due diligence on the Company. In addition, the agreement was for additional investments up to a total of NIS 2 million. Under the agreement, the investor were entitled to convert the loan amounts granted to the Company into common shares of the Company with US $ 0.001 par value each, at a price per share equal to the amount of NIS 0.97. If the loans were not converted into the Company shares, the loan was to be repaid one year after the date of the loan agreement plus annual interest of 10%. On February 18, 2015, the Company received a claim in a summary judgement for the investor’s demand of payment of the loan amount of NIS 200 thousand, which was granted to the Company on May 17, 2012, plus interest of 10% annually as from 20 May 2012 until payment of the debt, which as of the date of filing of the claim was NIS 258 thousand. The company denies the allegations stated in the request and is reviewing the possibilities, including the filing of reply to the court in accordance with law.

On June 13, 2016, a settlement agreement was entered into between the parties according to which in consideration for the final and conclusive annulment of all claims and/or demands raised by the plaintiff against the Company in the framework of the law suit, the Company would pay the plaintiff the sum of 250 thousand NIS forthwith by wire transfer of about 95 thousand NIS and by the forfeiture of the sum of about 155 thousand NIS which had been deposited with the court. An additional amount of 50 thousand NIS would be paid within twelve months from the approval of the settlement agreement by the court or on the closing date of a public offering of Mysize shares, pursuant to its terms, on a stock exchange in the United States, according to the earlier. As of the date on which the financial reports were signed the terms have not yet occurred.

On September 10, 2015, the Company reported a claim that has been filed against it by its shareholders for not registering the shares underlying the Metamorefix transaction for trade on the TASE. Also, on September 10, 2015, the Company reported two letters of counterclaim that have been filed by it in the United States. On November 6, 2015, the Company reported another letter of claim filed by it with the Tel-Aviv District Court. According to a decision dated March 22, 2016, affidavits of primary testimony were filed on behalf of the litigants and on July 18-19, 2016, evidentiary hearings were held in the above case.

On January 16, 2014, the Company received from the legal counsel of one of its shareholders a demand letter for the payment of about $1,400 as compensation for alleged breaches by several parties including the Company and its previous controlling shareholder (who is not the current controlling shareholder of the Company) of an allotment agreement between the Company and its previous controlling shareholder and shareholders of Metamorefix. The execution of the allotment agreement was completed in December 2011 and thereafter, in January 2013, the entire share capital of Metamorefix was sold by the Company. A response letter was sent by the Company which stated that the Company did not consider itself as a party to the allegations which were raised in said letter and that in any event all such allegations were denied by it. The Company did not make an allowance in the reports in connection with said demand.

On November 14, 2014, the Company entered into a cooperation agreement for a period of six months with IN SITU S.A. (hereinafter respectively: the "Agreement" and "IN SITU") the owner of the rights in the fashion brand-name TRUCCO, which includes women's fashion, belts and footwear and which is marketed and sold all over the world by IN SITU through a chain of stores and sale points as well as through TRUCCO's website (hereinafter: the "Website"). According to the Agreement IN SITU and the Company will cooperate in a bid to integrate the Company's measurement technology (hereinafter: the "Platform") in IN SITU's computerized data system and any other system which would enable to use the Platform on the Website as well as in the store and sale points for the examination of the Platform's efficiency in relation to IN SITU's sales and customers' satisfaction. The Company undertook that not later than within six months from the date of execution of the Agreement, the Platform would be completed and operable, namely, that the integration between the data systems of the parties would be completed and the end-customer would be able to take his measurements and purchase a befitting product using the Platform. Should the Company fail to fulfill its undertakings under the Agreement to grant the license and/or fully integrate the Platform within six months from the date of execution of the Agreement, the Company shall compensate IN SITU in the sum of 60 thousand Euros. As a result of the extended timetable there is an understanding between the parties to continue the cooperation.

Item 1A. Risk Factors.

Not required for a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On July 14, 2016, the Company's board of directors resolved to act according to the provisions of the convertible loan agreements which were signed by the Company and to carry out an automatic conversion of the loans into Company shares subject to its receipt of the consideration and the approvals required by law. The Company issued the shares for the convertible loans the allotment of which had been approved by the stock exchange and the consideration for which had been received. As of September 30, 2016, the Company issued 2,091,566 shares for convertible loans received by it in the sum of $7,320. In connection with the sale of these shares, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.  

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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