My Size, Inc. - Quarter Report: 2017 March (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 March 31, 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 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, 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.    ☐

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: 17,605,359 shares of common stock, par value $0.001 as of May 16, 2017.

MY SIZE, INC.

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS ENDED MARCH 31, 2017

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

My Size Inc. and Subsidiaries

Condensed Interim

Consolidated

Financial Statements

As of March 31, 2017

U.S. Dollars in Thousands

My Size Inc.

Condensed Interim Consolidated Financial Statements as of March 31, 2017 (Unaudited)

Contents

My Size Inc.

Condensed Consolidated Balance Sheets

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

(*) Represent an amount less than $1.

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

My Size Inc.

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

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 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)

Note 1 – General

As of the date of the report, the Company has $1,514 and $495 in guaranteed notes and checks, respectively. The guarantee has been provided by an ungraded financial institution. Subsequent to March 31, 2017, the sum of $550 and $40 of the guarantee notes and the checks respectively have been redeemed in cash.

For the purpose of financing its operating activities in the foreseeable future, the Company relies on the collection of existing cash commitments from investors, the sale of marketable securities and raising additional funds. However, there is no certainty regarding the Company’s ability to collect committed funds, obtain additional  funding or sell the DIMN shares that it holds. The Company estimates that the committed investments will be adequate to fund its operations through the 12 months following the approval date of the financial statements. Failure to obtain the additional funds as mentioned above will require the Company to curtail operations.

However, If all the committed funds are not collected or not replaced by additional funding,  there is a significant doubt regarding the Company's ability to continue its operation as a going concern. 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 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 three months ended March 31, 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 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 Financial Statements

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

Note 2 - Significant Accounting Policies (cont’d)

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. The Company is examining the effects of the update on the financial statements with no plans for early adoption.

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. The Company is examining the possibility of early adoption of the update and the anticipated effects of its adoption on the financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. The impact of adopting the new standard on the net income is not expected to be material.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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, short-term loan, 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 in the measurement date and ranked as Level 1 assets.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 3 - Financial Instruments (cont’d)

(*) see note 6.

(**) see note 4a.

(***) At March 31, 2017, gross unrecognized loss, recognized loss and fair value (based on quoted market prices) of these securities were $(93), $340 and $362, respectively (At December 31, 2016, $24, $1,233 and $579, respectively)

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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 employees and non-employees is shown in the following table:

On March 21, 2017, the general meeting adopted a resolution for the approval of a capital remuneration plan for consultants. The approval was required for the issue of the shares of common stock of the Company and the stock options.

During 2017, costs in the sum of $12 ($90 during 2016) were recorded by the Company and an undertaking to pay the balance of the consideration was recognized in the sum of $78 ($80 during 2016) according to the fair value of the undertaking. The issue of the shares of common stock of the Company and stock options was subject to the receipt of all required regulatory approvals. As of the date of the financial report, the shares and options have not yet been issued.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 5 - Contingencies and Commitments 

According to the expert opinion submitted to the court by the plaintiff, the plaintiff's expert calculates the approximate damage allegedly caused to the plaintiff between 3-3.6 million NIS assuming the shares will be registered by December 31, 2016, and additional compensation for each additional month subsequently. According to the Company's expert opinion submitted to the court, the Company's expert asserts that the plaintiff's expert opinion is erroneous and in his opinion and assuming the plaintiff's claim will be accepted by the court, than the estimated damage caused to the plaintiff as a result of a 4-5 years delay in registering his shares is estimated at approximately NIS 234,000 (plus interest and CPI differences) if it will be ruled that the restriction from plaintiff's shares should have been removed within six months as of the purchase date thereof and at approximately NIS 130,000 if it will be ruled that the restriction from plaintiff's shares should have been removed within twelve months as of the purchase day thereof. It should be noted that all experts' calculations are based on the share market price, and consequently any changes in the share price at the time a judgement will be rendered by the court, could increase or decrease the Company's exposure, respectively. 

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 5 - Contingencies and Commitments (cont’d)

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.

Under the agreement, the investor was 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 200,000, which was granted to the Company on May 17, 2012, plus interest of 10% annually as from May 20, 2012 until payment of the debt, which as of the date of filing of the claim was NIS 258,000.

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 NIS 250,000 forthwith by wire transfer of about NIS 95,000 and by the forfeiture of the sum of about NIS 155,000 which had been deposited with the court. An additional amount of NIS 50,000 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 Company shares, pursuant to its terms, on a stock exchange in the United States, the earlier of. As of the date on which the financial statements were signed the payment has not yet occurred.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 5 - Contingencies and Commitments (cont’d)

In consideration for the acquisition of the Venture, the Company will undertake to pay the seller 18% the Company’s operational profit arising directly or indirectly from the Venture during a period of seven years from the termination of the development period of the Venture. In addition the Seller received an option for a buy-back of the Venture upon the occurrence of any one or more of the following: (a) if an application was filed for the liquidation of the Company or for the appointment of a receiver for the Company’s assets or any material part thereof or for the imposition of a lien on a material part of the Company’s assets, which were not revoked within 60 days from the date they were so filed; (b) if by the end of seven years from the execution date of the agreement the entire aggregate income of the Company arising directly or indirectly from the Venture or from the commercialization of the patent was lower than NIS 3.6 million. According to the Company’s evaluation, the current value is negligible. The buy-back option is valid for 90 days from the occurrence of either one of the above events. The agreed consideration was determined based on a valuation which was prepared by an independent assessor.

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 5 - Contingencies and Commitments (cont’d)

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 smart phone 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 November 7, 2016, the Company announced the launch of KatzID app, which is an application that enables customers to quickly and easily measure the size of a package and calculate the exact shipping cost. KatzID 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 KatzID with Katz. According to the last agreement with Katz , by the end of 2017 the commercial terms will be discussed , depends on the activity during the pilot.

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. The complexity in achieving the correct matching between the fur coat and the Human body is still in an experiment stage.

The Parties are in a continues contact and decided to delay the completion of the integration.

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.

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:

1) Minimum income of $ 1,000 at the end of the first period of 24 months from the effective date, and

2) Minimum income of $ 5,000 at the end of each subsequent year.

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

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 5 - Contingencies and Commitments (cont’d)

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 the fulfillment of conditions for revenue recognition.

Note 6 - Significant Events During the Reporting Period

My Size Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 7 - Subsequent Events

As described in Note 1b, as of March 31, 2017 the Company entered into fund raising agreements in a total sum of $8,015 out of which the sum of $4,596 and $1,410 was received in cash and marketable securities, respectively.

As the date of this report the Company has $1,514 and $495 in guaranteed notes and checks. Subsequent to March 31, 2017, the sum of $550 and $40 of the guarantee notes and the checks, respectively, have been redeemed in cash.

The following proforma consolidated balance sheet is based on the March 31, 2017 balance sheet with adjustments for receipt of $1,419 from the remaining guarantee notes and checks from investors for stock subscribed for but not yet issued.

The effect on equity and on the assets of collecting the money from the bank guarantees and the checks is an increase of $1,419. As a result of the foregoing, the Company’s stockholder’s equity, on a pro forma basis, is $3,035 as of March 31, 2017.

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

From inception through March 31, 2017, we have sustained an accumulated deficit of approximately $13 million. From inception through March 31, 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 thus in their early stages and we cannot make estimates of the costs or the time they will take to complete.

Three months Ended March 31, 2017 Compared to Three months Ended March 31, 2016

Research and Development Expenses

Our research and development expenses for the three months ended March 31, 2017 amounted to $207,000 compared to $177,000 for the three months ended March 31, 2016. The increase between the corresponding period 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 three months ended March 31, 2017 amounted to $879,000 compared to $326,000 for the three months ended March 31, 2016. The increase between the corresponding period in expenses derives mainly from share based payments, increases in public relations and investor relations expenses which were not significant in the corresponding period and from increased salaries expenses associated with the hiring of new employees. 

Financial income and expense, net

Our financial expenses for the three months ended March 31, 2017 amounted to $308,000 compared to financial income of $614,000 for the three months ended March 31, 2016. The expenses in the reporting period are mainly from revaluation of investment in marketable securities, compared to income from revaluation of the components of the financial package in the corresponding period. 

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 three months ended March 31, 2017 was $1,394,000, compared to our net income from continuing operations for the three months ended March 31, 2016 of $111,000. The main reasons for the change between the corresponding periods is the expenses derives mainly from share based payments, increases in public relations and investor relations expenses, which were not significant in the corresponding period, and from increased salaries expenses associated with the hiring of new employees. The financial expenses mainly from expense revaluation of investment in marketable securities, compared to income from revaluation of the components of the financial package in the corresponding period.

Liquidity and Capital Resources

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

As of March 31, 2017, we had cash and cash equivalents of $359,000 as compared to $34,000 as of December 31, 2016. The increase in cash balances is due to collecting cash from the guarantees offset by cash used for operating activities during the period.

We had negative cash flow from operating activities of $1,012,000 for the three months ended March 31, 2017, compared with negative cash flow from operating activities of $479,000 for the three months ended March 31, 2016.

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, Investor relations and Public relations services and legal expenses associated with lawsuits involving the Company.

As of March 31, 2017, the Company entered into fund raising agreements in a total sum of $8,015 out of which the sum of $4,596 and $1,410 was received in cash and marketable securities, respectively. The marketable securities are shares of common stock of Diamante minerals Inc (“DIMN”), which are presented in the Company’s balance sheet as a financial asset available for sale.

As of the date of the report, the Company has $1,514 and $495 in guarantee notes and checks, respectively. The guarantee has been provided by an ungraded financial institution. Subsequent to March 31, 2017, the sum of $550 and $40 of the guaranteed notes and the checks, respectively, have been redeemed in cash.

For the purpose of financing its operating activities in the foreseeable future, the Company relies on the collection of existing cash commitments from investors, the sale of marketable securities and raising additional funds. However, there is no certainty regarding the Company’s ability to collect committed funds, obtain additional  funding or sell the DIMN shares that it holds. The Company estimates that the committed investments will be adequate to fund its operations through the 12 months following the approval date of the financial statements. Failure to obtain the additional funds as mentioned above will require the Company to curtail operations.

However, If all the committed funds are not collected or not replaced by additional funding,  there is a significant doubt regarding the Company's ability to continue its operation as a going concern. 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. 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.

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 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 is going on and the next mediation session is scheduled for June 5, 2017.

The Company estimates, based on the opinion of its legal counsel that the risk of acceptance of the remedyrequested 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, exceeds the chance of its dismissal. This remedy, as such, does not constitute any financial exposure to the Company.

However, the company believes, based on the opinion of its legal counsel, that assuming the plaintiff's claim for the main relief, i.e. the removal of the restriction from and the registration of his shares on the stock exchange, will be accepted by the court, it appears that prima face the risk that the court will also rule that the plaintiff is entitled to financial compensation for the alleged delay in registering his shares, exceeds the chance that such financial compensation will not be awarded.

According to the expert opinion submitted to the court by the plaintiff, the plaintiff's expert calculates the approximate damage allegedly caused to the plaintiff between 3-3.6 million NIS assuming the shares will be registered by December 31, 2016, and additional compensation for each additional month subsequently. According to the Company's expert opinion submitted to the court, the Company's expert asserts that the plaintiff's expert opinion is erroneous and in his opinion and assuming the plaintiff's claim will be accepted by the court, than the estimated damage caused to the plaintiff as a result of a 4-5 years delay in registering his shares is estimated at approximately NIS 234, 000 (plus interest and CPI differences) if it will be ruled that the restriction from plaintiff's shares should have been removed within six months as of the purchase date thereof and at approximately NIS 130,000 if it will be ruled that the restriction from plaintiff's shares should have been removed within twelve months as of the purchase day thereof. It should be noted that all experts' calculations are based on the share market price, and consequently any changes in the share price at the time a judgement will be rendered by the court, could increase or decrease the Company's exposure respectively.

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

Item 1A. Risk Factors.

Not required for a smaller reporting company.

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

On February 13, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Purchaser”). On February 22, 2017, the Company and the Purchaser consummated the transactions contemplated by the Securities Purchase Agreement, pursuant to which, subject to the terms and conditions set forth therein, the Purchaser acquired from the Company, for an aggregate purchase price of $200,000: (i) 200,000 shares (the “Common Shares”) of Company common stock (“Common Stock”), and (ii) warrants (the “Warrants”) to acquire 250,000 shares of Common Stock. The Common Shares and Warrants were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

The Warrants have an exercise price of $3.50 and are exercisable for a period of ten months.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.  

Not applicable.

Item 5. Other Information.

In November of 2015, My Size, Inc. engaged the services of ZAI Corporate Finance LTD as its London based nominated advisor to assist the Company with its listing on the AIM.   In light of the Company’s Nasdaq listing in November of 2016, the Company has elected to discontinue its listing application with the London Stock Exchange.

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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