My Size, Inc. - Quarter Report: 2017 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, 2017

☐ 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 Arava 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 large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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: 18,394,817 shares of common stock, par value $0.001 as of November 12, 2017.

MY SIZE, INC.

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

My Size, Inc. and Subsidiaries

Condensed Consolidated Interim

Financial Statements

As of September 30, 2017

(unaudited)

U.S. Dollars in Thousands

My Size, Inc.

Condensed Consolidated Interim Financial Statements as of September 30, 2017 (Unaudited)

Contents

My Size, Inc.

Condensed Consolidated Interim Balance Sheets

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

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

My Size, Inc.

Condensed Consolidated Interim 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 condensed consolidated interim financial statements.

My Size, Inc.

Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited)

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

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

My Size, Inc.

Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited)

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

(*) Less than $1.

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

My Size, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Audited)

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

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

My Size, Inc.

Condensed Consolidated Interim Statements of Cash Flows

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

My Size, Inc.

Notes to Condensed Consolidated Interim Financial Statements (unaudited)

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

Note 1 - General

As of September 30, 2017, the Company entered into agreements pursuant to which it raised an aggregate of $8,795 of which $5,753 and $1,410 were received in cash and marketable securities, respectively. The marketable securities are shares of common stock of Diamante Minerals Inc (“DIMN”), which are accounted as a financial asset available for sale and presented in the Company’s balance sheet under investment in marketable securities. 

As of September 30, 2017, the Company has $1,177 and $455 in guaranteed notes and checks, respectively as remaining balance from the amounts described above. The guarantee has been provided by an ungraded financial institution. Subsequent to September 30, 2017, $236 of the guarantee notes have been redeemed in cash.

Based on the projected cash flows and cash balances as of September 30, 2017, the Company’s Management is of the opinion that without further fund raising it will not have sufficient resources to enable it to continue its operating activities including the development, and marketing of its products for a period of at least 12 months from the date of approval of these financial statements. 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, see also note 7. There can be no assurances however, that the Company will be successful in obtaining the level of financing needed for its operations. 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. 

Note 2 - Significant Accounting Policies

The accompanying unaudited condensed consolidated interim financial statements included herein have been prepared by the Company in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of the Company 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 (“GAAP”) has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2017.

These unaudited condensed consolidated interim 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, 2016.

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.

My Size, Inc.

Notes to Condensed Consolidated Interim Financial Statements (unaudited)

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

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

The Company holds shares in a publicly-traded company - Diamante Minerals, Inc. which are classified as available-for-sale equity securities. The marketable securities have readily determinable fair market values that are calculated based on the share price on the measurement date and ranked as Level 1 assets. 

My Size, Inc.

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’d)

At September 30, 2017, the fair value (based on quoted market prices) of these securities was $246. During the nine month period ended September 30, 2017 the recognized loss was $472 (At December 31, 2016, gross unrecognized loss, recognized loss and fair value (based on quoted market prices) of these securities were $24, $1,233 and $579, respectively).

 My Size, Inc.

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

The stock based expense (income) recognized in the financial statements for services received from non-employees is related to Marketing, General and Administrative expenses and shown in the following table: 

In addition, the Company undertook to pay the balance of the consideration for the sale of the shares by Consultant1 up to the sum of NIS500,000. If the consideration for the sale of the shares falls below 90% of the shares’ price on the stock exchange on the date of sale, the Company shall pay Consultant1 the difference. The Company may decide at its own discretion whether to make such payment in cash or shares of common stock.

On March 21, 2017, the shareholders of the Company approved the adoption of the 2017 Consultant Equity Incentive Plan at the Company’s Annual Meeting of Stockholders. The approval was required for the issuance of the options and shares of common stock of the Company issued to Consultant1.

During the nine-month period ended September 30, 2017, costs in the sum of $(4) ($90 during 2016) were recorded by the Company and an undertaking to pay the balance of the consideration was recognized in the sum of $124 ($80 during 2016) according to the fair value of the undertaking.

My Size, Inc.

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 December 27, 2015, the Company received a legal complaint (the “Complaint”). The defendants named in the Complaint were the Company, all the members of the Board of Directors of the Company, the officers of the Company, Mrs. Shoshana Zigdon, a shareholder and related party of the Company, as well as two additional defendants who are not shareholders of the Company. The plaintiff alleged that the Company violated its obligation to register shares purchased by the plaintiff on July 3, 2014 (the “Original Shares”) for trade with the Tel Aviv Stock Exchange.

The Company and plaintiff entered into a settlement agreement (the “Settlement”) dated June 20, 2017 following a mediation process. Pursuant to the Settlement, the Company agreed to make a payment to the plaintiff of NIS325,000 (the “Down Payment”) within 30 days of the date of the Settlement. Additionally, the Company is obligated to register the Original Shares within a specified time frame. Moreover, pursuant to the Settlement, the Company agreed to issue, within 60 days, 80,358 additional shares of common stock to the plaintiff (the “New Shares”), which New Shares shall be registered, to be deposited in escrow and sold for the benefit of plaintiff. To the extent the Company will not issue the unrestricted New Shares within 60 days of the Settlement, the plaintiff has a right, at his sole discretion, to resume the legal proceedings pursuant to the Complaint, provided he deposits the Down Payment in an escrow account, pending the Court’s final adjudication of the Complaint. Additionally, the Settlement provides that to the extent the aggregate proceeds from the sale of the Original Shares and the New Shares is less than NIS1,600,000, the Company will either complement the difference in cash or shall issue to the plaintiff additional shares of common stock in lieu thereof, at the Company’s sole discretion.

During the three month period ended September 30 2017, the Company issued shares and recorded an amount of $60 in equity and paid the plaintiff the Down Payment. As of September 30, 2017, The Company recorded a derivative liability in the amount of $176.

My Size, Inc.

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 (cont’d)

Note 6 - Significant Events During the Reporting Period

In accordance with NASDAQ Listing Rule 5810(c)(3)(C), the Company has a grace period of 180 calendar days, or until December 4, 2017, to regain compliance with NASDAQ Listing Rule 5550(b)(2). The Company will endeavor to rectify the situation and to meet the MVLS Requirement.

During August and September 2017, the Company received $341 from the investments in cash. The remaining amount of the investment is guaranteed by notes. Subsequent to September 30 2017, $236 was received in cash.

My Size, Inc.

Notes to Condensed Consolidated Interim Financial Statements (unaudited)

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

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

Note 7 - Subsequent Events

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, 2016. 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, 2017 compared to nine and three months ended September 30, 2016

From inception through September 30, 2017, we have sustained an accumulated deficit of approximately $15.1 million. From inception through September 30, 2017, 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 still in their early stages and we are currently unable to estimate the cost or time they will take to complete.

Research and Development Expenses

Our research and development expenses for the nine months ended September 30, 2017 amounted to $624,000 compared to $500,000 for the nine months ended September 30, 2016. The increase between the corresponding periods primarily resulted from increased expenses related to subcontractors and the increased expenses associated with the hiring of new employees.

Our research and development expenses for the three months ended September 30, 2017 amounted to $213,000 compared to $172,000 for the three months ended September 30, 2016. The increase between the corresponding periods primarily resulted from increased expenses related to subcontractors 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, 2017 amounted to $2,667,000 compared to $1,359,000 for the nine months ended September 30, 2016. The increase between the corresponding period in expenses was derived mainly from share based payments, increases in public relations and investor relations expenses and from increased expenses associated with the hiring of new employees. 

Our marketing, general and administrative expenses for the three months ended September 30, 2017 amounted to $611,000 compared to $434,000 for the three months ended September 30, 2016. The increase between the corresponding period in expenses was derived mainly from share based payments, increases in public relations and investor relations expenses and from increased expenses associated with the hiring of new employees.  

Financial income and expense, net

Our financial expenses for the nine months ended September 30, 2017 amounted to $228,000, compared to financial expense of $2,261,000 for the nine months ended September 30, 2016. The decrease between the corresponding periods in financial expenses was derived mainly from the creation and revaluation of the components of the options, derivatives and investment in marketable securities.

Our financial income for the three months ended September 30, 2017 amounted to $17,000 compared to financial expense of $118,000 for the three months ended September 30, 2016. The decrease between the corresponding periods in financial expenses was derived mainly from the creation and revaluation of the components of the options, derivatives and investment in marketable securities.

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, 2017 was $3,519,000, compared to a net loss from continuing operations for the nine months ended September 30, 2016 of $4,120,000. The main reasons for the change between the corresponding periods is due to a decrease in finance expenses mainly from the creation and revaluation of the components of the options, derivatives and investment in marketable securities in the corresponding period. This decrease was partially offset by an increase in share based payments, increases in public relations and investor relations expenses and from increased expenses associated with the hiring of new employees.

Our net loss from continuing operations for the three months ended September 30, 2017 was $807,000, compared to a net loss from continuing operations for the three months ended September 30, 2016 of $724,000. The decrease between the corresponding periods was mainly due to finance expenses from the revaluation of options and derivatives in the corresponding period. This decrease was partially offset by an increase in share based payments, increases in public relations and investor relations expenses and from increased expenses associated with the hiring of new employees.

Liquidity and Capital Resources

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

As of September 30, 2017, we had cash and cash equivalents of $14,000 as compared to $34,000 as of December 31, 2016.

Net cash used in operating activities was $2,472,000 for the nine months ended September 30, 2017 compared to $1,748,000 for the nine months ended September 30, 2016.

The increase in cash used in operating activities mainly resulted from increased payments to service providers and Company employees. The Company has also incurred expenses not in the ordinary course of its business mainly from the registration of patents, the listing of the common stock on the NASDAQ Capital Market and legal expenses associated with lawsuits involving the Company.

Net cashed used in investing activities was $8,000 for the nine months ended September 30, 2017 compared to $31,000 for the nine months ended September 30, 2016. The negative cash flow resulted from purchase of equipment.

Net cash provided by financing activities was $2,496,000 for the nine months ended September 30, 2017 compared to $1,018,000 for the nine months ended September 30, 2016. The cash flows from financing activities for the nine months ended September 30, 2017 was mainly due to realization of guarantees.

On August 16, 2017, the Board of Directors approved agreements with three private investors who will provide an investment totaling $780 in exchange for $780,000 shares of common stock of the Company.

During August and September 2017, the Company received $341 from the investments in cash. The remaining amount of the investment is guaranteed by notes issued by an ungraded financial institution in favor of the Company. In the event that the investor does not fulfill its obligation to purchase the shares of the Company’s Common Stock with respect to which the guarantee note has been issued, then the Company may call the guarantee note; provided, however, the existing guarantee note currently expires on November 14, 2017. As of the date of this report, the Company is in discussions with the investor regarding the extension of the guarantee note, however, an extended guarantee note has not yet been approved or put in place. Subsequent to September 30 2017, $236 was received in cash.

On October 26, 2017, the Company entered into a securities purchase agreement to sell original issue discount non-convertible notes (the “Notes”) and warrants (the “Warrants”) to certain accredited investors in a private placement transaction (the “Offering”). In connection with such Offering, the Company issued (i) Notes with a principal amount of $1.33 million and (ii) 888,888 Warrants. The Offering resulted in gross proceeds to the Company of approximately $1.2 million, before deducting placement agent and other offering expenses. 

The Notes are due on the earlier of the four month anniversary from the date of their issuance or the completion of another equity offering. The Warrants have a five-year term and will have an exercise price of $0.75 per share.

As of September 30, 2017, the Company has $1,177 and $455 in guaranteed notes and checks, respectively as remaining balance from the amounts described above. The guarantee has been provided by an ungraded financial institution. As previously disclosed, the checks have not been honored, continue to remain outstanding, and no shares will be issued on these funds until the entire outstanding amount of the checks has been fully paid.

Subsequent to September 30, 2017, the sum of $236 of the guarantee notes has been redeemed in cash.

Based on the projected cash flows and its cash balances as of September 30, 2017, the Company’s Management is of the opinion that without further fund raising it will not have sufficient resources to enable it to continue its operating activities including the development, and marketing of its products for a period of at least 12 months from the date of approval of these financial statements. As a result, there are substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans include the continued commercialization of their products and securing sufficient financing through the sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances however, that the Company will be successful in obtaining the level of financing needed for its operations. 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. 

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. GAAP. 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.

Equity-based compensation

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

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 the Company’s management, including 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. 

In a pre-trial hearing dated March 7, 2016, the court decided that disclosure 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 CEO of the Company from the statement of claim. 

All pre-trial preliminary proceedings as well as submission of all evidentiary affidavits and expert opinions by both parties have been completed. Pursuant to the Israeli Court’s recommendation, the case was referred to mediation by the honorable Judge (Rtd.) Hilla Gerstel, former president of the Central District Court. 

The mediation has been completed and the Company and the plaintiff entered into a settlement agreement (the “Settlement”) dated June 20, 2017. Pursuant to the Settlement, the Company agreed to make a payment to the plaintiff of NIS325,000 (as of the date hereof, approximately USD$92,000) (the “Down Payment”) within 30 days of the date of the Settlement. Additionally, the Company is obligated to register the Original Shares within a specified time frame. Additionally, pursuant to the Settlement, the Company agreed to issue, within 60 days, 80,358 additional shares of common stock to the plaintiff (the “New Shares”), which New Shares shall be registered, to be deposited in escrow and sold for the benefit of plaintiff. Such New Shares shall be sold at a maximum aggregate price of NIS10,000 or an amount constituting not more than 2% of the average volume of trades within the last 90 days, whichever higher, in one single trading day. To the extent the Company does not issue the unrestricted New Shares within 60 days, the Plaintiff has a right, at his exclusive discretion, to resume the proceedings pursuant to the complaint, provided he will deposits the Down Payment in an escrow account, pending the Court’s final adjudication of the complaint. Additionally, the Settlement provides that to the to the extent the aggregate proceeds from the sale of the Original Shares and the New Shares is less than NIS1,600,000, the Company will either complement the difference in cash or shall issue to the plaintiff additional shares of common stock in lieu thereof, at the Company’s sole discretion. 

On September 5, 2017, the court rendered a judgment in the case (the “Judgement”), under which the complaint against the Company was accepted, the complaint against the CEO Mr. Ronen Luzon was rejected and the Company’s counter-claim was rejected.

The Judgment included: (1) A declaratory remedy, under which the Company breached its contractual undertakings toward the plaintiffs, to list their shares both on the Tel Aviv Stock Exchange and on NASDAQ; (2) An order that the Company take any and all actions required for the listing of the plaintiffs shares, including instructing the Company’s transfer agent to remove the legend or any other restriction from the plaintiffs stock certificate and to issue them with new stock certificates free and clear from any restriction; (3) An order that the registration company of Bank Hapoalim electronically list all of the plaintiffs’ shares detailed in the complaint on the electronic trading system; (iv) The rejection of the complaint against the Company’s CEO, Mr. Luzon, and (4) An order that the Company pay the plaintiffs costs in the amount of NIS 70,000 (which amount is linked to the Israeli CPI and bearing legal interest from the Judgement date until actual payment if effected). Other than the payment of costs the Judgment bears no financial liability on the Company. On October 3 2017, the Company appealed the Judgment with the Supreme Court of Israel, and simultaneously, filed with the Supreme Court a Motion for Stay of Execution of the Judgement, pending the outcome of the appeal.

On October 19, 2017, the respondents filed their response to the Motion and on November 2, 2017 the Company filed its reply the respondents’ response. On November 8, 2017, the Supreme Court upheld the Motion to Stay and ordered that the execution of the Judgment will be stayed pending the outcome of the Appeal, provided that the Company will deposit in the Court’s treasury an autonomous Israeli CPI linked bank guarantee in an amount of NIS 1,700,000, to cover the respondents’ potential damages should the appeal be ultimately denied.

The Company received advice from its legal counsel that the burden of proof that the Judgment is wrong and should be reversed lies with the appellant. Consequently, the Company believes that it is more likely that the appeal will be denied rather than being accepted. In the event that the appeal is the Appeal will be denied, no direct financial liability will be imposed on the Company (other than legal costs which the court may order the losing side to pay).

Item 1A. Risk Factors.

Not required for a smaller reporting company.

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

On August 16, 2017, the Company entered into a securities purchase agreement (the “SPA”) with two investors. Pursuant to the SPA, the Company sold an aggregate of 250,000 shares of common stock, par value $0.001 per share (the “Common Stock”), at a purchase price of $1.00 per share to one investor.

On August 16, 2017, the Company entered into a securities purchase agreement (the “Installment SPA”) with an investor pursuant to which the investor will purchase $530,000 shares of the Company’s Common Stock at $1.00 per share in separate installments.

In connection with the foregoing, the Company relied upon the exemption from securities 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.

* Filed herewith.

** Furnished herewith. 

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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