All information in this Annual
Report on Form 10-K relating to shares or price per share reflects the 1-for-25 reverse stock split effected by us on December 8, 2022.
ITEM
1. BUSINESS
Overview
We
are an omnichannel e-commerce platform and provider of AI-driven apparel sizing and digital experience solutions that drive revenue growth
and reduce costs for our business clients for online shopping and physical stores.
Our
flagship innovative tech products, MySizeID, enables shoppers to generate highly accurate measurements of their body to find the accurate
fitting apparel by using our application on their mobile phone or through MySizeID Widget: a simple questionnaire which uses a database
collected over the years.
MySizeID
syncs the user’s measurement data to a sizing chart integrated through a retailer’s (or a white labeled) mobile application,
and only presents items for purchase that match their measurements to ensure a correct fit.
We
are positioning ourselves as a consolidator of sizing solutions and new digital experience due to new developments for the fashion industry
needs. Our other product offerings include First Look Smart Mirror for physical stores and Smart Catalog to empower brand design teams,
which are designed to increase end consumer satisfaction, contributing to a sustainable world and reduce operation costs.
Recent
Developments
Orgad
Acquisition
On
February 7, 2022, My Size Israel 2014 Ltd, or My Size Israel, entered into a Share Purchase Agreement, or the Orgad Agreement, with Amar
Guy Shalom and Elad Bretfeld, or the Orgad Sellers, pursuant to which the Orgad Sellers agreed to sell to My Size Israel all of the issued
and outstanding equity of Orgad.
Orgad
operates an omnichannel e-commerce platform engaged in online retailing in the global market. It operates as a third-party seller on
Amazon.com, eBay and others. Orgad currently manages more than 1,000 stock-keeping units, or SKUs, mainly in fashion, apparel and shoes.
The
Orgad Sellers are the sole title and beneficial owners of 100% of the shares of Orgad. In consideration of the shares of Orgad, the Orgad
Sellers are entitled to receive (i) up to $1,000,000 in cash, or the Orgad Cash Consideration, (ii) an aggregate of 111,602 shares,
or the Orgad Equity Consideration, of our common stock, and (iii) earn-out payments of 10% of the operating profit of Orgad for the years
2022 and 2023. The transaction closed on the same day.
The
Orgad Cash Consideration is payable to the Orgad Sellers in three installments, according to the following payment schedule: (i) $300,000
which we paid upon closing, (ii) $350,000 payable on the two-year anniversary of the closing, and (iii) $350,000 payable on the three-year
anniversary of the closing, provided that in the case of the second and third installments certain revenue targets are met and subject
further to certain downward post-closing adjustment.
The
Equity Consideration is payable to the Orgad Sellers according to the following payment schedule: (i) 55,801 shares were issued at
closing, and (ii) 55,801 shares will be issued in eight equal quarterly installments until the lapse of two years from closing,
subject to certain downward post-closing adjustment.
The
payment of the second and third cash installments, the equity installments and the earn out are further subject in each case to the Orgad
Sellers being actively engaged with Orgad at the date such payment is due (except if the Orgad Sellers resign due to reasons relating
to material reduction of salary or adverse change in their position with Orgad or its affiliates).
In
connection with the Orgad Agreement, each of the Orgad Sellers entered into employment agreements with Orgad and six-month lock-up agreements
with us.
Naiz
Acquisition
On
October 7, 2022, we entered into a Share Purchase Agreement, or the Naiz Agreement, with Borja Cembrero Saralegui, or Borja, Aritz Torre
Garcia, or Aritz, Whitehole, S.L., or Whitehole, Twinbel, S.L., or Twinbel and EGI Acceleration, S.L., or EGI. Each of Borja, Aritz,
Whitehole, Twinbel and EGI shall be referred to as the Naiz Sellers herein. Pursuant to the Naiz Agreement, the Naiz Sellers agreed to
sell to My Size all of the issued and outstanding equity of Naiz, a limited liability company incorporated
under the laws of Spain. The acquisition of Naiz was completed on October 11, 2022.
In
consideration of the purchase of the shares of Naiz, the Naiz Agreement provided that the Naiz Sellers are entitled to receive (i) an
aggregate of 240,000 shares, or the Naiz Equity Consideration, of My Size common stock, or the Shares, representing in the aggregate,
immediately prior to the issuance of such shares at the closing of the transaction, not more than 19.9% of the issued and outstanding
Shares and (ii) up to $2,050,000 in cash, the Naiz Cash Consideration.
The
Naiz Equity Consideration was issued to the Naiz Sellers at closing of the transaction of which 94,632 shares of My Size common stock
were issued to Whitehole constituting 6.6% of our outstanding shares following such issuance. The Naiz Agreement also provides that,
in the event that the actual value of the Naiz Equity Consideration (based on the average closing price of the Shares on the Nasdaq Capital
Market over the 10 trading days prior to the closing of the transaction, or the Equity Value Averaging Period) is less than $1,650,000,
My Size shall make an additional cash payment, or the Shortfall Value to the Naiz Sellers within 45 days of our receipt of Naiz’s
2025 audited financial statements; provided that certain revenue targets are met. Following the Equity Value Averaging Period, it was
determined that the Shortfall Value is $459,240.
The
Naiz Cash Consideration is payable to the Naiz Sellers in five installments, according to the following payment schedule: (i) US$500,000
at closing, (ii) up to US$500,000 within 45 days of My Size’s receipt of Naiz’s 2022 audited financial statements, (iii)
up to US$350,000 within 45 days of My Size’s receipt of Naiz’s unaudited financial statements for the six months ended June
30, 2023, (iv) up to $350,000 within 45 days of My Size’s receipt of Naiz’s unaudited financial statements for the six months
ended December 31, 2023, and (v) up to $350,000 within 45 days of My Size’s receipt of Naiz’s 2024 audited financial statements;
provided that in the case of the second, third, fourth and fifth installments certain revenue targets are met.
The
payment of the second, third, fourth and fifth cash installments are further subject to the continuing employment or involvement of Borja
and Aritz, or the Key Persons, by or with Naiz at the date such payment is due (except if a Key Person is terminated from Naiz due to
a Good Reason (as defined in the Naiz Agreement).
The
Naiz Agreement contains customary representations, warranties and indemnification provisions. In addition, the Naiz Sellers are subject
to non-competition and non-solicitation provisions pursuant to which they agree not to engage in competitive activities with respect
to My Size’s business.
In
connection with the Naiz Agreement, (i) each of the Naiz Sellers entered into six-months lock-up agreements, or the Lock-Up Agreement,
with My Size, (ii) Whitehole, Twinbel and EGI entered into a voting agreement, or the Voting Agreement, with My Size and (iii) each of
the Key Persons entered into employment agreements and services agreements with Naiz.
The
Lock-Up Agreement provides that each Naiz Seller will not, for the six-months period following the closing of the transaction, (i) offer,
pledge, sell, contract to sell, sell any option, warrant or contract to purchase, purchase any option, warrant or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible
into or exercisable or exchangeable for Shares in each case, that are currently or hereafter owned of record or beneficially (including
holding as a custodian) by such Naiz Seller, or publicly disclose the intention to make any such offer, sale, pledge, grant, transfer
or disposition; or (ii) enter into any swap, short sale, hedge or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of such Naiz Seller’s Shares regardless of whether any such transaction described in clause (i) or this
clause (ii) is to be settled by delivery of Shares or such other securities, in cash or otherwise. The Lock-Up Agreement also contains
an additional three-months “dribble-out” provision that provides following the expiration of the initial six-months lock-up
period, without My Size’s prior written consent (which My Size shall be permitted to withhold at its sole discretion), each Naiz
Seller shall not sell, dispose of or otherwise transfer on any given day a number of Shares representing more than the average daily
trading volume of the Shares for the rolling 30 day trading period prior to the date on which such Seller executes a trade of the Shares.
The
Voting Agreement provides that the voting of any Shares held by each of Whitehole, Twinbel and EGI, or the Naiz Acquisition Stockholders,
will be exercised exclusively by a proxy designated by My Size’s board of directors from time to time, or the Proxy, and that each
Naiz Acquisition Stockholder will irrevocably designate and appoint the then-current Proxy as its sole and exclusive attorney-in-fact
and proxy to vote and exercise all voting right with respect to the Shares held by each Naiz Acquisition Stockholder. The Voting Agreement
also provides that, if the voting power held by the Proxy, taking into account the proxies granted by the Naiz Acquisition Stockholders
and the Shares owned by the Proxy, represents 20% or more of the voting power of My Size’s stockholders that will vote on an item,
or the Voting Power, then the Proxy shall vote such number of Shares in excess of 19.9% of the Voting Power in the same proportion as
the Shares that are voted by My Size’s other stockholders. The Voting Agreement will terminate on the earliest to occur of (i)
such time that such Naiz Acquisition Stockholder no longer owns the Shares, (ii) the sale of all or substantially all of the assets of
My Size or the consolidation or merger of My Size with or into any other business entity pursuant to which stockholders of My Size prior
to such consolidation or merger hold less than 50% of the voting equity of the surviving or resulting entity, (iii) the liquidation,
dissolution or winding up of the business operations of My Size, and (iv) the filing or consent to filing of any bankruptcy, insolvency
or reorganization case or proceeding involving My Size or otherwise seeking any relief under any laws relating to relief from debts or
protection of debtors.
Warehouse
Fire
On January 2, 2023, Orgad experienced a fire at its warehouse in Israel.
we are not aware of any casualties or injuries associated with the fire. We shifted Orgad’s operation to its headquarters. The value
of the inventory that was in the warehouse was approximately $450,000. We believe that this incident did not affect the future sales results
of Orgad for the year of 2023. The inventory was not insured and it is too early to determine the potential impact of this incident on
the other parties that were involved in the incident (lessor and others that leased properties near the warehouse).
January
2023 Financing
On
January 10, 2023, we entered into a securities purchase agreement, or the
RD Purchase Agreement, pursuant to which we agreed to sell and issue in the RD Offering an aggregate of 162,000 of our shares of common
stock, or the RD Shares, and pre-funded warrants, or the Pre-funded Warrants, to purchase up to 279,899 shares of common stock and, in
a concurrent private placement, unregistered warrants to purchase up to 883,798 shares of common stock, or the RD Warrants, consisting
of Series A warrants, or Series A Warrants, to purchase up to 441,899 shares of common stock and Series B warrants, or Series B Warrants,
to purchase up to 441,899 shares of common stock, at an offering price of $3.055 per RD Share and associated Series A and Series B Warrants
and an offering price of $3.054 per Pre-funded Warrant and associated Series A and Series B Warrants.
In
addition, we entered into a securities purchase agreement, or the PIPE
Purchase Agreement, and together with the RD Purchase Agreement, the Purchase Agreements, pursuant to which we agreed to sell and issue
in the PIPE Offering an aggregate of up to 540,098 unregistered Pre-funded Warrants and unregistered warrants to purchase up to an aggregate
of 1,080,196 shares of common stock, or the PIPE Warrants and together with the RD Warrants, the Warrants, consisting of Series A Warrants
to purchase up to 540,098 shares of common stock and Series B Warrants to purchase up to 540,098 shares of common stock at an offering
price of $3.054 per Pre-funded Warrant and associated Series A and Series B Warrants.
The
Pre-funded Warrants are immediately exercisable at an exercise price of $0.001 per share and will not expire until exercised in full.
The Warrants are immediately exercisable upon issuance at an exercise price of $2.805 per share, subject to adjustment as set forth therein.
The Series A Warrants have a term of five and one-half years from the date of issuance and the Series B Warrants have a term of 28 months
from the date of issuance. The Warrants may be exercised on a cashless basis if there is no effective registration statement registering
the shares underlying the warrants.
In
connection with the PIPE Purchase Agreement, we entered into a registration
rights agreement, or the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, we are required to file a resale
registration statement, or the Registration Statement, with the Securities and Exchange Commission, or the SEC, to register for resale
the shares issuable upon exercise of the unregistered Pre-funded Warrants and the Series A and Series B Warrants, within 20 days of the
signing date of the PIPE Purchase Agreement, or the Signing Date, and to have such Registration Statement declared effective within 60
days after the Signing Date in the event the Registration Statement is not reviewed by the SEC, or 90 days of the Signing Date in the
event the Registration Statement is reviewed by the SEC. we will be obligated to pay certain liquidated damages if we fail to maintain
the effectiveness of the Registration Statement.
The
Purchase Agreements and the Registration Rights Agreements also contain
representations, warranties, indemnification and other provisions customary for transactions of
this nature. In addition, subject to limited exceptions, the Purchase Agreements provide that for a period of one year following the closing
of the Offerings, we will not effect or enter into an agreement to effect a “variable rate transaction” as defined in the
Purchase Agreements.
Aggregate
gross proceeds to the Company in respect of the Offerings was approximately $3.0 million, before deducting fees payable to the placement
agent and other offering expenses payable by the Company.
We
also entered into a letter agreement, or the Engagement Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, pursuant to which
Wainwright agreed to serve as the exclusive placement agent for the Company in connection with the Offerings. We paid Wainwright
a cash placement fee equal to 7% of the aggregate gross proceeds raised in the Offerings, a management fee of 1% of the aggregate gross
proceeds raised in the Offerings, a non-accountable expense allowance of $85,000 and clearing fees of $15,950. Wainwright also received
placement agent warrants, or the Placement Agent Warrants, with substantially the same terms as the Series A Warrants issued in the Offering
in an amount equal to 7% of the aggregate number of Shares and Pre-funded Warrants sold in the Offerings, or 68,740 shares, at an exercise
price of $3.8188 per share and a term expiring on January 10, 2028.
Our
Solution
Our
cloud-based software platform provides highly accurate sizing and measurement with broad applications including the online fashion/apparel
industry, logistics and courier services and home DIY. Currently, we are mainly focusing on the e-commerce fashion/apparel industry.
This proprietary technology is driven by several patented algorithms which are able to calculate and record measurements in a variety
of novel ways. Although specific functionality varies by product, we believe that our core solutions address the need for highly accurate
measurements in a variety of consumer friendly, every day uses.
We
have developed three products, MySizeID for the fashion/apparel industry, BoxSize for the logistics and courier services
market and SizeUp for the home DIY market.
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MySizeID
enables shoppers to generate highly accurate measurements of their body to find proper fitting clothes and accessories, through
the use of our application on their mobile phone or through a simple questionnaire if the user decides not to download the application.
MySizeID syncs the user’s measurement data to a sizing chart and presents items for purchase that match their measurements
to ensure a correct fit. MySizeID is available for license by retailers and accessable by consumers through a web page. |
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BoxSize
enables customers to quickly and easily measure the size and volume of a parcel to accurately calculate shipping fees. It also
offers shipping companies a variety of precise logistical data for more efficiently managing their supply chain, providing them with
an accurate way to compare the physical package with what is in the shipping manifest. BoxSize solution is available for license
on both iOS and Android operating systems. BoxSize is available on the Honeywell Marketplace and in August 2019 was approved
for Honeywell’s Independent Software Vendor Program, and MySize was granted an independent software vendor (ISV) status on
the Zebra Technologies and on DataLogic platforms. |
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SizeUp
is a digital tape measure that allows users to measure length, width and height of a surface by moving their smartphone from
point to point of an object or space. SizeUp is a value-add for DIY and home improvement retailers whose customers struggle
to find the appropriately sized items (like blinds or curtains) for their homes or projects due to inaccurate measurements. SizeUp
also is designed to replace rulers, tape measures and other measuring tools used for DIY projects. SizeUp is available
for consumer download on both iOS and Android operating systems. |
The
following are some select key features of our solutions:
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Integration
Capability. We design our solutions to be flexible and configurable, allowing our clients to match their use of our algorithms
and software with their specific business processes and workflows. Our platform has been organically developed from a common code
base, data structure and user interface, providing a consistent user experience with powerful features that are easily adaptable
to our clients’ needs. The MySizeID widget can be integrated via one-line JavaScript code, or through RESTful API; |
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Intuitive
user experience. Our intuitive, easy-to-use interface is based on current technology, multiple focus groups and automatically
adapts to users’ devices, including mobile platforms, thereby significantly increasing accessibility of our solutions; |
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Big
Data Generation. While we supply to the user the information he/she requires, we gather certain vital information such as
body measurement and package volume which can be used anonymously to help the retailer acquire predictive size information on stocking,
operations and consumers that may be in between sizes. All the information is being gathered and stored on our servers where it can
be used by retailers; |
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Non-Invasive.
In taking measurements using our solution, the smartphone camera is not utilized; instead, the measurements are captured
by scanning the smartphone over the consumer’s body or package, thus ensuring greater privacy. |
Our
Growth Strategy
We
aim to drive revenue primarily through penetration of the U.S. and Europe markets through a business to business to consumer (B2B2C)
model in the verticals we are targeting. We are pursuing the following growth strategies:
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Sign
Additional Commercial Agreements with U.S. Retailers. During 2022, we expanded our commercial agreements with Levi’s,
introducing North America (U.S. and Canada) and Latin America regions, and by extension Levis’ native apps in EU and U.S. regions.
We also entered into commercial agreements with Baby Fresh, Galax, Punto Blanco, GEF France, Diesel, Gaala, Superdry, Uniontex Industries,
and Temperlay London among others. We are in various stages of discussions with U.S. and foreign retailers for the deployment of
our size recommendation and measurement technology with a view to entering into additional commercial agreements. |
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Pursue
a Two-Pronged Commercialization Strategy. We are seeking to accelerate adoption of our solutions both through direct partnerships
with e-commerce websites as well as through third-party platform websites. While we seek to directly enter into partnerships with
companies maintaining e-commerce websites in the apparel, courier and DIY markets, we are also seeking to deploy our solutions on
third-party platforms. Furthermore, with the expansion of MySizeID through the release of our FirstLook Smart Mirror, which
we are offering to brick and mortar stores to digitize the physical stores, MySizeID is now available for online retailers
utilizing the WooCoomerce, Shopify, Lightspeed, PrestaShop, Bitrix and Wix platforms and to brick and mortar stores through GK Software
POS solution while BoxSize is available on the Honeywell, Zebra Technologies and Datalogic. |
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Ongoing
Investment in our Technology Platform. We continue to invest in building new software capabilities and extending our platform
to bring the power of accurate measurement to a broader range of applications. In particular, we seek not only to deliver size recommendations
but to provide a robust, end-to-end,artificial intelligence, or AI-driven platform that inspires consumer confidence and drives revenue
growth by providing a superior consumer journey to both online and the brick and mortar stores. |
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Grow
our database. As the usage of our measurement apps increases, our database of information including user behaviour and body
measurements generates valuable statistics. Such data can be used in the big data market for targeted advertising and for blind consumer
data mining. |
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Identify
and acquire synergistic businesses. In order to reduce our time to market and obtain complementary technologies, we are seeking
to acquire technologies and businesses that are synergistic to our product offering. We recently completed an acquisition of Orgad
which operates an omnichannel e-commerce platform and Naiz which provides SaaS technology solutions that solve size and fit issues
for fashion ecommerce companies. |
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Partnerships
and cooperation. In order to bring a wider solution for the retail market we are working to partner and integrate our technology
with partners that can increase our penetration and offering to the market. |
Market
Opportunity
The
global e-commerce market was $5.7 trillion in 2022, and the industry is expected to grow significantly in the coming years with no signs
of slowing down. Market specialists expect a compound annual growth rate of 27.43% from 2023 to 2028: according to data from Statista,
the market is expected to reach $6.5 trillion in 2023. While many sectors have found ways to increase revenue through e-commerce, e-commerce
is still plagued by issues that cut into profits and negatively impact the bottom line, such as customer returns, low consumer conversion,
and associated restocking and shipping costs.
Fashion/Apparel
Since
the onset of the COVID-19 pandemic, an immense shift to digital was recorded, with 85.9% growth vs. pre-pandemic, according to Mastercard,
and over 2 billion people worldwide who shop online, according to data from Oberlo. In November 2022, online shoppers broke records with
$11.3 billion in spending on Cyber Monday, driving 5.8% year-over-year growth and making the day the biggest online shopping day of all
time, according to Adobe Analytics.
In
2021, fashion companies invested between 1.6% and 1.8% of their revenues in technology, according to Mckinsey, and are expected to double
the investment by 2030 in order to keep up with digital natives and keep a competitive edge. Personalization in e-commerce and hybrid
connectivity in brick-and-mortar retail are two key themes in the future of fashtech, according to Mckinsey’s 2022 State of Fashion
Technology.
In
the upcoming years, inflation is expected to impact the fashion world. As prices for goods increase, the challenge will be to inspire
confidence in consumers, via different smart digital tools. Brands will need to embrace creative digital tools and new channels to deepen
customer relationships, and as Mckinsey forecasts in their State of Fashion report for 2023, they will need to execute on priorities
such as sustainability and digital acceleration.
The
global fashion e-commerce market size is expected to grow from $744.4 billion in 2022 to $821.19 billion in 2023 at a compound annual
growth rate of 10.3%. In 2027, the market size is expected to grow to $1,222.32 billion, at a compound annual growth rate of 10.5%, according
to BRC.
Based
on the importance which shoppers attribute to free shipping - 50% of cart abandonment rate is due to extra shipping costs (Baymard Institute)
- the need for fashion retailers to substantiate the optimal size for a customer, thus minimizing returns, has never been more crucial.
As
brands move online or significantly expand their online presence, we believe that developing innovative ways to connect with shoppers,
both online and offline, has become a top priority.
Shipping/Parcel
According
to Pitney Bowes, parcel revenue in 13 major countries around the world increased by 17% year over year from $420 billion in 2020 (reflecting
131 billion parcels) to $491 billion in 2021 (reflecting 159 billion parcels). In the shipping/parcel industry, the dimensions of a package
are critical. It is not merely the measurement of a package or box – but rather the amount of space that the package or box will
take up on a truck, airplane, or ship that will be transporting the package or box. Far too often, retailers use unfit packaging for
their items, adding additional costs in materials and shipping fees.
DIY
Similar
to issues in the apparel and fashion market, big box, hardware, furniture, and DIY stores are plagued by returns due to incorrect fit
and measurements. In an industry where precise measurement for projects is an absolute necessity, e-commerce has not grown as quickly
as in other industries which we believe is due to lack of consumer confidence in measurements at home and buying the correct item online.
MySizeID
We
have released the MySizeID app for both iOS and Android which assists consumers to take highly accurate measurement of their own
body in order to size clothing in the best way possible without the need to try the clothes on before purchasing. MySizeID is
designed to simplify the process of purchasing clothes online and significantly reduce the rate of returns of poor-fitting clothing.
During 2022, MySizeID delivered over 23.5 million size recommendations.
The
application is the result of a research and development effort that combines:
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anthropometric
research – analyses of information pertaining to body measurements derived from a survey and the subsequent determination of
correlations between body parts; |
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body
measurement algorithm research – an algorithm created by us to measure body parts; and |
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retailers
size chart analyses – adopting a deep understanding of the size charts of retailers and the corresponding “body to garment
size.” |
MySizeID
allows consumers to create a secure, online profile of their personal measurements, which can then be utilized, with partnered online
retailers, to ensure that no matter the manufacturer or size chart, they will get the right fit. MySizeID operates based on the
use of existing sensors in smart phones which enable, through a specific purpose application, the measurement of the body of any consumer
by moving the smartphone along his or her body. The MySizeID application does not rely on user photographs or any additional hardware;
all a user needs to do is scan their body with their smartphone and the application records their measurements. The measurements can
then be saved in our database in the cloud, enabling the user to search for clothes in various retailer websites without worrying about
size. When a search is made, the retailer will connect to our cloud database, and then provide results based on the user’s measurements
and other parameters as he or she may have defined. This data is also saved for use when a customer enters a brick-and-mortar store to
help serve the customer more efficiently and to provide a better shopping experience.

Figure
1: Screenshot of MySizeID on smartphone and e-commerce website
As
part of the integration process, we offer to the retailer five main components:
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Mobile
App. MySizeID comes in the form of a native app or website. Our native app can be used “as is” integrated
into the retailer’s e-commerce website. The website users can build a body profile on the app and receive size recommendations
for their profile both in the app and on a widget integrated with their website. |

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Widget.
When a consumer enters into the retailer’s website and looks for a specific item, he or she can click on the MySizeID widget
which will inform the consumer of his or her recommended size, based on his or her actual measurements, as measured using the app
and the item he or she is looking at. |
The
widget has two features:
AI
Wizard mode - allows the user to obtain size from the following parameters: gender, height, weight, belly shape, hip shape and bra
size only. The gender, height and weight questions are mandatory, while the body shape questions are optional and can be added to increase
accuracy for specific apparel categories.
Guest
mode - allows a user that does not wish to sign up to MySizeID as a user to obtain size recommendations as well.
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Analytic
Pixel. MySizeID analytic pixel allows retailer to track and analyze the widget usage. By adding the pixel to the retailer’s
website, MySizeID BI team can track engagement, order, and return data and provide retailers with tools to understand the advantages
and benefits of MySizeID. |
Use
your own device - using MySizeID instore solution, shoppers can receive size recommendations for all store items, when shopping in the
offline stores. The shoppers can build their body profile using an easy to use 3 to 6 questions form, scan an item barcode and receive
a size recommendation for the scanned item based on their body profile and the item’s size chart.
Another
feature we added is the “in-between sizing” feature. Our system can detect a user that has body dimensions that place the
user in-between the clothes sizes being offered and lets the user know that. A user can then choose between the two sizes according to
the user’s fit preference (tight/loose/average).
In
addition, we have recently released our Instant-App feature which allows shoppers to generate their body measurements directly from our
widget, without the need to download our mobile app. Using this technology, the shoppers can create their online profile of their personal
measurements and complete a purchase faster and easier with minimum distractions.
The
body profile can be created while shoppers are viewing the page from their mobile phone, or by scanning a QR code on desktop that will
open the same page on the mobile phone.
Screenshot
of Instant-App widget on desktop on yumyumfashion website
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MyDash
Platform. The MyDash platform is a smart back-office system where the retailer enters all the information regarding
its size charts that correlates to every product in its e-commerce site, and where the retailer can access the information on its
users. This system is customizable based on the retailer’s needs. In 2021, we changed the MyDash system to increase
the system’s accessibility, added walkthroughs, user guides and changed the user interface and much more for the ease of use.
We added the option to use our generic size charts, added the option upload size chart files instead of typing the size charts values
manually, added more widget styling options and changed the pairing mechanism between the size chart and the products to be more
user-friendly. |

Figure
3: Screenshot of Back-Office System
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FirstLook
Smart Mirror. The Smart Mirror provides an interactive, mirror-like touch display that allows brands to provide in-store
customers with an enhanced, online shopping experience, contactless checkout and obtains the recommended size. The MySizeID
FirstLook Smart Mirror can be placed in numerous locations throughout a retail store, including the fitting rooms (without cameras)
or other high-traffic locations of the store. Highlight capabilities of the FirstLook Smart Mirror include a 3D “Try-it-on”
interactive avatar experience, personalized and highly accurate size recommendations by MySizeID, third-party point of sale
systems integration, styling recommendations and contactless “select and collect” at the register feature. |

Illustration
of MySizeID “first look” smart mirror in a fashion store
We
are currently offering MySizeID technology to retailers through either a pay-per-use model or a monthly subscription model. In
our pay-per-use business model, every time the consumer obtains a recommended size, the retailer is charged for the usage.
BoxSize
BoxSize
is a parcel measurement application that can provide real-time logistic data on package volumes and transportation, resulting in
improved operational efficiency and reduced operating expenses. In addition, BoxSize allows customers to easily measure the size
of their parcel with their smartphone, calculate shipping costs and arrange for a convenient pick-up time for the package. BoxSize
is available both on iOS and Android.
In
2020 we released the “One Click” feature on BoxSize that enables the user to measure a package with just one swipe
of the handheld device. Previously, measurements through BoxSize would require three separate swipes.

Figure
4: Screenshot of BoxSize
Our
BoxSize mobile measurement solution is available on the Honeywell Marketplace. In addition, BoxSize was approved for Honeywell’s
Global Vendor Program, and is available to provide highly accurate mobile measurement solutions for thousands of Honeywell clients. We
also developed a new dashboard for the courier companies to have all the required data about each package in one place. It includes package
dimensions, pictures, scan geo location and more. The dashboard also let the courier use Webhooks, which allows him to get the information
from his own system.
In
2020, we announced our partnership with Datalogic, a company focused on the automatic data capture and process automation markets. The
partnership makes our BoxSize measurement solution available to thousands of Datalogic customers in the Transportation and Logistics
vertical.
Agreement
with Delhivery Private Limited, India
We
entered into an agreement with Delhivery Private Limited, one of the largest courier pickup, delivery, and online shipping services in
India. Delhivery’s reputation as a front-runner in delivery and logistics tech makes its decision to select Boxsize a particularly
strong testament to the value the solution provides. BoxSize provides Delhivery’s employees on the B2B side with critical
information that will allow them to effortlessly optimize loading efficiency and add even more real-time visibility to operations.
SizeUp
We
are working on additional consumer applications, including a DIY application. Our SizeUp application is a smart tape measure for
the business to consumer market which allows users to utilize their smartphone as a tape measure. The application provides measurements
with an accuracy of within two centimeters. Through the use of SizeUp, users will be able to visualize how an object or a piece
of furniture will fit in an existing room in their home or office. It also added Google Vision for image content analysis, object detection,
and title suggestions.
Currently
the SizeUp app for Android and iOS is available for free for the first 30 days, after which a user will be required to register
via e-mail and pay a one-time fee of $1.99 to continue using the application. To date, revenues from downloads have been minimal.

Research
and Development
Our
research and development team are responsible for the research, algorithm, design, development, and testing of all aspects of our measurement
platform technology. We invest in these efforts to continuously improve, innovate, and add new features to our solutions.
We
incurred research and development expenses of approximately $1.7 million
in 2022 and $4.25 million in 2021, relating to the development of its applications and technologies. The decrease from the corresponding
period primarily resulted from share based payment in amount of $2,618,000 attributed to the share issuance to Shoshana Zigdon under the
Amendment to Purchase Agreement dated May 26, 2021. We intend to continue to invest in our research and development capabilities to extend
our platform and bring our measurement technology to a broader range of applications.
In
2022, the R&D department experienced significant success in their efforts to improve the performance of their size recommendation
system. Through a combination of optimized algorithms and the incorporation of cutting-edge technologies, the team was able to achieve
a threefold increase in the system’s speed. This breakthrough not only makes the system one of the fastest and most accurate on
the market, but also reduced the operation costs, making it more cost-effective for businesses to use. Additionally, the solution is
now highly scalable, allowing it to easily adapt to the needs of businesses of any size. The R&D team is now focused on further improving
the system and exploring new applications for the technology.
Sales
and Marketing
In
2019, we launched a commercialization strategy that directs our sales efforts toward both sales to e-commerce players in specific
vertical markets such as fashion/apparel and shipping/delivery as well as to e-commerce third-party platform providers. As of March
15, 2023, our products are being sold in the following countries: US, UK, France, Netherlands, Spain, Portugal Turkey, Germany, Israel and Italy, generating customer leads, building out a sales pipeline, and developing customer
relationships.
We
believe an effective method to market our suite of products is for users to actively use and explore its capabilities. We encourage free
trials of one or more of our products in order to successfully convert those accounts to paid subscriptions.
Proprietary
Rights
We
rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as
contractual protections, to protect our proprietary technology.
As
of December 31, 2022, we owned 18 issued patents: six in Europe, four in the U.S., three in each of Russia and Japan and one in each
of Canada and Israel which expire between January 20, 2033 and August 18, 2036, and we have two additional patent applications in process.
As of such date, we do not have any registered trademarks.
We
cannot provide any assurance that our proprietary rights with respect to our products will be viable or have value in the future since
the validity, enforceability and type of protection of proprietary rights in software-related industries are uncertain and still evolving.
Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine
the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States, and effective
copyright, trademark, trade secret and patent protection may not be available in those jurisdictions. Our means of protecting our proprietary
rights may not be adequate to protect us from the infringement or misappropriation of such rights by others.
Further,
in recent years, there has been significant litigation in the United States involving patents and other intellectual property rights,
particularly in the software and Internet-related industries. We can become subject to intellectual property infringement claims as the
number of our competitors grows and our products and services overlap with competitive offerings. These claims, even if not meritorious,
could be expensive to defend and could divert management’s attention from operating our business. If we become liable to third
parties for infringing their intellectual property rights, we could be required to pay a substantial award of damages and to develop
non-infringing technology, obtain a license or cease selling the products that contain the infringing intellectual property. We may be
unable to develop non-infringing technology or obtain a license on commercially reasonable terms, if at all.
Government
Regulation
We
are subject to a number foreign and domestic laws and regulations that involve matters central to our business. These laws and regulations
may involve privacy, data protection, intellectual property, or other subjects. Many of the laws and regulations to which we are subject
are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the application
and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry in which
we operate. Because global laws and regulations have continued to develop and evolve rapidly, it is possible that we, our products, or
our platform may not be, or may not have been, compliant with each such applicable law or regulation.
In
particular, we are subject to a variety of federal, state and international laws and regulations governing the processing of personal
data. Many U.S. states have passed laws requiring notification to data subjects when there is a security breach of personally identifiable
data. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign
governments concerning data protection. In addition, data protection laws in Europe and other jurisdictions outside the United States
can be more restrictive than those within the United States, and the interpretation and application of these laws are still uncertain
and in flux.
For
example, the General Data Protection Regulation, or GDPR, which took effect on May 25, 2018, enhances data protection obligations for
entities that process personal data about individuals, including obligations to cooperate with European data protection authorities,
implement security measures and keep records of personal data processing activities. Noncompliance with the GDPR can trigger fines equal
to the greater of €20 million or 4% of global annual revenue. In addition, the California Consumer Privacy Act of 2018, or CCPA,
effective as of January 1, 2020, gives California residents expanded rights to access and require deletion of their personal information,
opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA
provides for civil penalties for violations, as well as a private right of action for data breaches, that is expected to increase data
breach litigation. Further, failure to comply with the Israeli Privacy Protection Law of 1981, and its regulations, as well as the guidelines
of the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including class actions) and in certain
cases criminal liability. Current pending legislation may result in a change of the current enforcement measures and sanctions. Given
the breadth and depth of changes in data protection obligations, meeting the requirements of GDPR and other applicable laws and regulations
has required significant time and resources, including a review of our technology and systems currently in use against the requirements
of GDPR and other applicable laws and regulations. We have taken various steps to prepare for complying with GDPR and other applicable
laws and regulations however there can be no assurance that these steps are sufficient to assure compliance. Further, additional EU laws
and regulations (and member states’ implementations thereof) further govern the protection of individuals and of electronic communications.
If our efforts to comply with GDPR or other applicable laws and regulations are not successful, we may be subject to penalties and fines
that would adversely impact our business and results of operations, and our ability to use personal data of individuals could be significantly
impaired.
Competition
We
operate in a highly competitive industry that is characterized by constant change and innovation. Changes in the applications and the
programing languages used to develop applications, devices, operating systems, and technology landscape result in evolving customer requirements.
Our competitors include True Fit, Fit analytics and 3DLook.
The
principal competitive factors in our market include the following:
|
● |
High
Accuracy Size Recommendations: the highest accuracy and the lowest margin of error by combining patented technology including
AI and ML, size chart or spec data, and MySizeID property body data measurement; |
|
○ |
Fast
1 week integration including size chart size chart review and product mapping |
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○ |
Easy
1 line of “all included” script implementation |
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○ |
Very
small library that weighs ±50kb (minimum widget loading time on product page) |
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○ |
Ultra-Fast
loading and size recommendation presenting |
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Restful
API option (API integration with any website or app) |
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○ |
Adjustments
of size charts based on performance |
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○ |
Widget
usage analysis by FashTech and BI teams |
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○ |
Automatic
pairing of size charts with products/collections |
|
○ |
Easy
to use interface (10-15 seconds to receive size recommendations) |
|
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|
○ |
Option
to add/deduct questions to/from widget wizards |
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○ |
Users
automatically receive size recommendations on all products after initial sign up |
|
● |
Product
and platform features, architecture, reliability, privacy and security, performance, effectiveness, and supported environments; |
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|
● |
Product
extensibility and ability to integrate with other technology infrastructures; |
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● |
Digital
operations expertise; |
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|
● |
Ease
of use of products and platform capabilities; |
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|
● |
Total
cost of ownership; |
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|
● |
Adherence
to industry standards and certifications; |
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|
● |
Strength
of sales and marketing efforts; |
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|
● |
Brand
awareness and reputation; and |
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|
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Focus
on customer success |
We
believe we generally compete favorably with our competitors on the basis of these factors. We expect competition to increase as other
established and emerging companies enter our markets, as customer requirements evolve, and as new products and technologies are introduced.
We expect this to be particularly true as we offer a smartphone-based offering that does not need to utilize the smartphone’s camera,
and our competitors may also seek to repurpose their existing offerings to provide similar solutions. Many of our competitors have substantially
greater financial, technical, and other resources, greater name recognition, larger sales and marketing budgets, broader distribution,
and larger and more mature intellectual property portfolios.
Human
Capital Management
As
of March 31, 2023, we had a total of 35 employees, of which 30 were full-time
employees, including 9 in sales and marketing, 12 in technology and development and 9 in administration and finance.
None
of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relationship
with our employees to be good. Our future success depends on our continuing ability to attract and retain highly qualified engineers,
sales and marketing, account management, and senior management personnel.
We
also believe we have built a strong sales team focused on expanding into new markets through the acquisition of Naiz and our current team.
We
believe that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel. In particular,
we depend on the skills, experience and performance of our senior management and research personnel. We compete for qualified personnel
with other hi-tech companies, as well as universities and non-profit research institutions.
We
provide competitive compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs
(which vary by country/region and employment classification) include incentive compensation plan, pension, and insurance benefits, paid
time off, , among others. We also use targeted equity-based grants with vesting conditions to facilitate retention of personnel, particularly
for our key employees.
The
success of our business is fundamentally connected to the well-being of our people. Accordingly, we implemented an hybrid work policy
in which the employees can work from home twice a week.
We
consider our employees to be a key factor to our success and we are focused on attracting and retaining the best employees at all levels
of our business. Inclusion and diversity is a strategic, business priority. We employ people based on relevant qualifications, demonstrated
skills, performance and other job-related factors. We do not tolerate unlawful discrimination related to employment, and strive to ensure
that employment decisions related to recruitment, selection, evaluation, compensation, and development, among others, are not influenced
by race, color, religion, gender, age, ethnic origin, nationality, sexual orientation, marital status, or disability. Continuous monitoring
to ensure pay equity has been a focus in 2022. We have continued to improve gender balance in 2022 with a focus on increasing the representation
of women hired as new college graduates. We are committed to creating a trusting environment where all ideas are welcomed and employees
feel comfortable and empowered to draw on their unique experiences and backgrounds.
We
consider our relations with our employees to be good.
Company
Information
Our
principal executive offices are located at HaYarden 4 St., POB 1026, Airport City, Israel 7010000, and our telephone number is +972-3-600-9030.
Our website address is www.mysizeid.com. Any information contained on, or that can be accessed through, our website is not incorporated
by reference into, nor is it in any way a part of, this Annual Report on Form 10-K.
We
use our website (www.mysizeid.com) as a channel of distribution of Company information. The information we post through this channel
may be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and
public conference calls and webcasts. The contents of our website are not, however, a part of this Annual Report on Form 10-K.
Corporate
History
We
were incorporated in the State of Delaware on September 20, 1999 under the name Topspin Medical, Inc. In December 2013, we changed our
name to Knowledgetree Ventures Inc. Subsequently, in February 2014, we changed our name to MySize, Inc. In 2020, we created a subsidiary
in the Russian Federation, My Size LLC.
From
inception through 2012, we were engaged in research and development of a medical magnetic resonance imaging, or MRI, technology for interventional
cardiology and in the development of MRI technology for use in the diagnosis and treatment of prostate cancer. In January 2012, we acquired
Metamorefix Ltd., or Metamorefix. Metamorefix was incorporated in 2007, and was engaged in the development of innovative solutions for
the rehabilitation of tissues, particularly skin tissues. By the end of 2012, we ceased operations and in January 2013, we sold our entire
ownership interest in Metamorefix.
In
September 2013, Ronen Luzon, our Chief Executive Officer, acquired control of the Company from Asher Shmuelevitch, according to which
Mr. Luzon purchased 70,238 shares of common stock from Mr. Shmuelevitch, which shares represented approximately 40% of the issued and
outstanding capital stock of the Company at such time, thus becoming a controlling shareholder of the Company. In connection with the
acquisition, Mr. Luzon reached a settlement with our then creditors pursuant to which the main creditor, Mr. Shmuelevitch, was paid a
total sum of approximately $140,000 in consideration for a full and final waiver of any and all his claims that he may have relating
to any monetary indebtedness of the Company to the creditors.
In
February 2014, My Size Israel, our wholly owned subsidiary, entered into a Purchase Agreement, or the Purchase Agreement, with Shoshana
Zigdon, who at the time was a beneficial owner of more than 20% of our outstanding shares, with respect to the acquisition by us of certain
rights related to the collection of data for measurement purposes including rights in the venture, the method and a patent application
that had been filed by the Seller (PCT/IL2013/050056), or the Assets. In consideration for the sale of the Assets, we agreed to pay to
Ms. Zigdon, 18% of our operating profit, directly or indirectly connected with the Assets together with value-added tax in accordance
with the law for a period of seven years from the end of the development period of the aforementioned venture. In addition to the foregoing,
the Purchase Agreement provided that all developments, improvements, knowledge and know-how developed and/or accumulated by us after
the execution of the Purchase Agreement will be owned by us. Further, Ms. Zigdon agreed not to compete, directly or indirectly, with
us in any matter relating to the Assets for a period of seven years from the end of the development period of the venture.
On
May 26, 2021, we, My Size Israel, and Ms. Zigdon entered into an Amendment to Purchase Agreement, or the Amendment, which made certain
amendments to the Purchase Agreement. Pursuant to the Amendment, Ms. Zigdon agreed to irrevocably waive (i) the right to repurchase certain
assets related to the collection of data for measurement purposes that My Size Israel acquired from Ms. Zigdon under the Purchase Agreement
and upon which our business is substantially dependent, or the Assets, and (ii) all past, present and future rights in any of the intellectual
property rights sold, transferred and assigned to My Size Israel under the Purchase Agreement and any modifications, amendments or improvements
made thereto, including, without limitation, any compensation, reward or any rights to royalties or to receive any payment or other consideration
whatsoever in connection with such intellectual property rights, or the Waiver. In consideration of the Waiver, we issued 100,000 shares
of common stock to Ms. Zigdon.
In
September 2005, we commenced trading on the Tel Aviv Stock Exchange, or TASE. Between 2007 and 2012 we reported as a public company with
the SEC. In August 2012, we suspended our reporting obligations. In mid-2015 we resumed reporting as a public company. On July 25, 2016,
our common stock began publicly trading on the Nasdaq Capital Market under the symbol “MYSZ”.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other
information in this Annual Report on Form 10-K before investing in our common stock. Our business and results of operations could be
seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition
and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be
materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part
of your investment.
Summary
Risk Factors
The
principal factors and uncertainties that make investing in our ordinary shares risky, include, among others:
Risks
Related to Our Financial Position and Capital Requirements
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● |
We
have historically incurred significant losses and there can be no assurance when, or if, we will achieve or maintain profitability. |
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|
● |
Our
limited operating history makes it difficult to evaluate our business and prospects. |
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● |
We
will need to raise additional capital to meet our business requirements in the future, which is likely to be challenging, could be
highly dilutive and may cause the market price of our common stock to decline. |
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|
● |
The
report of our independent registered public accounting firm contains an explanatory paragraph regarding substantial doubt about our
ability to continue as a going concern. |
Risks
Related to Our Company and Our Business
|
● |
The
market for our measurement technology is new and unproven, may experience limited growth and is highly dependent on U.S. retailers
and online third-party resellers adopting our flagship product, MySizeID. |
|
● |
Failure
to effectively develop and expand our sales and marketing capabilities could harm our ability to grow our business and achieve broader
market acceptance of our products. |
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● |
We
expect our sales cycle to be long and unpredictable and require considerable time and expense before executing a customer agreement,
which may make it difficult to project when, if at all, we will obtain new customers and when we will generate revenue from those
customers. |
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● |
We
recently acquired Orgad and Naiz and may in the future engage in additional acquisitions, joint ventures or collaborations which
may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities, and subject
us to other risks. We may not realize the benefits of these acquisitions, joint ventures or collaborations. |
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● |
If
we are not able to enhance our brand and increase market awareness of our company and products, then our business, results of operations
and financial condition may be adversely affected. |
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● |
If
we do not develop enhancements to our products and introduce new products that achieve market acceptance, our business, results of
operations and financial condition could be adversely affected. |
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● |
The
mobile technology industry is subject to rapid technological change and, to compete, we must continually enhance our mobile device
applications and custom development services. |
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● |
Our
growth depends, in part, on the success of our strategic relationships with third parties. |
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Changes
in economic conditions could materially affect our business, financial condition and results of operations. |
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We
rely upon third parties to provide distribution for our applications, and disruption in these services could harm our business. |
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We
rely on third-party hosting and cloud computing providers to operate certain aspects of our business. Any failure, disruption or
significant interruption in our network or hosting and cloud services could adversely impact our operations and harm our business. |
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● |
Real
or perceived errors, failures, or bugs in our products could adversely affect our operating results and growth prospects. |
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● |
We
could be harmed by improper disclosure or loss of sensitive or confidential company, employee, or customer data, including personal
data. |
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● |
A
material breach in security relating to our information systems and regulation related to such breaches could adversely affect us. |
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Our
products and our business are subject to a variety of U.S. and international laws and regulations, including those regarding privacy,
data protection and information security, and our customers may be subject to regulations related to the handling and transfer of
certain types of sensitive and confidential information. Any failure of our products to comply with or enable our customers to comply
with applicable laws and regulations would harm our business, results of operations and financial condition. |
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● |
We
may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely
affect our business. |
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● |
We
may face intense competition and expect competition to increase in the future, which could limit us in developing a customer base
and generating revenue. |
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● |
Our
business operations and future development could be significantly disrupted if we lose key members of our management team. |
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● |
If
we are able to expand our operations, we may be unable to successfully manage our future growth. |
Risks
Related to Our Operations in Israel and Russia
|
● |
Our
headquarters and most of our operations are located in Israel, and therefore, political conditions in Israel may affect our operations
and results. |
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● |
Russia’s
invasion of Ukraine and sanctions brought against Russia could disrupt our operations in Russia. |
Risks
Related to Our Common Stock
|
● |
A
more active, liquid trading market for our common stock may not develop, and the price of our common stock may fluctuate significantly. |
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● |
Our business, operating results and growth rates may be adversely affected by current or future unfavorable economic and market conditions
and adverse developments with respect to financial institutions and associated liquidity risk; |
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● |
Sales
by our stockholders of a substantial number of shares of our common stock in the public market could adversely affect the market
price of our common stock. |
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● |
Our
securities are traded on more than one market which may result in price variations. |
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We
are a former “shell company” and as such are subject to certain limitations not generally applicable to other public
companies. |
Risks
Related to Our Financial Position and Capital Requirements
We
have historically incurred significant losses and there can be no assurance when, or if, we will achieve or maintain profitability.
We
realized a net loss of approximately $8.3 million and $10.5 million for the years ended December 31, 2022 and 2021 and had an
accumulated deficit of $53.5 million as at December 31, 2022. Because of the numerous risks and uncertainties associated with
the development and commercialization of our products and business, we are unable to predict the extent of any future losses or when
we will become profitable, if at all. Expected future operating losses will have an adverse effect on our cash resources,
shareholders’ equity and working capital. Our failure to become and remain profitable could depress the value of our stock and
impair our ability to raise capital, expand our business, maintain our development efforts, or continue our operations. A decline in
our value could also cause you to lose all or part of your investment in us.
Our
limited operating history makes it difficult to evaluate our business and prospects.
We
have only been developing our measurement technology since 2014. Since then, our operating history has been primarily limited to
research and development, pilot studies, raising capital, and more recently acquisitions and sales and marketing efforts. Therefore,
it may be difficult to evaluate our business and prospects. We have not yet demonstrated an ability to commercialize our products.
Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assess our ability
to complete development and/or commercialize our products, and any future products.
We
will need to raise additional capital to meet our business requirements in the future, which is likely to be challenging, could be highly
dilutive and may cause the market price of our common stock to decline.
Based
on our projected cash flows and the cash balances as of the date of this
Annual Report on Form 10-K, our existing cash is insufficient to fund operations for a period of more than 12 months. As a result, there
is substantial doubt about our ability to continue as a going concern. In order to meet our business objectives in the future, we will
need to raise additional capital, which may not be available on reasonable terms or at all. Additional capital would be used to accomplish
the following:
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finance
our current operating expenses; |
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pursue
growth opportunities; |
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hire
and retain qualified management and key employees; |
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● |
respond
to competitive pressure; |
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comply
with regulatory requirements; and |
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maintain
compliance with applicable laws. |
Current
conditions in the capital markets are such that traditional sources of capital may not be available to us when needed or may be available
only on unfavorable terms. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic
conditions, and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot
assure you that we will be able to successfully raise additional capital at all or on terms that are acceptable to us. If we cannot raise
additional capital when needed, it may have a material adverse effect on our business, results of operations and financial condition.
To
the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities
could result in substantial dilution for our current stockholders. The terms of any securities issued by us in future capital transactions
may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative
securities, which may have a further dilutive effect on the holders of any of our securities then-outstanding. We may issue additional
shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock in connection with hiring
or retaining personnel, option or warrant exercises, future acquisitions or future placements of our securities for capital-raising or
other business purposes. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may
cause the market price of our common stock to decline and existing stockholders may not agree with our financing plans or the terms of
such financings. In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees,
legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required
to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely
impact our financial condition. Furthermore, any additional debt or equity financing that we may need may not be available on terms favorable
to us, or at all. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities
and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, or we may have to cease our operations, which would have
a material adverse effect on our business, results of operations and financial condition.
Management
has concluded that there is substantial doubt about our ability to continue as a going concern which could prevent us from obtaining
new financing on reasonable terms or at all.
We
have incurred significant losses and negative cash flows from operations and have an accumulated deficit that raises substantial doubt
about its ability to continue as a going concern. Our audited consolidated financial statements for the year ended December 31, 2022
were prepared under the assumption that we would continue our operations as a going concern. Our independent registered public accounting
firm has included a “going concern” explanatory paragraph in its report on our financial statements for the year ended December
31, 2022. If we are unable to improve our liquidity position, by, among other things, raising capital through public or private offerings
or reducing our expenses, we may exhaust our cash resources and will be unable to continue our operations. If we cannot continue as a
viable entity, our shareholders would likely lose most or all of their investment in us.
Risks
Related to Our Company and Our Business
The
market for our measurement technology is new and unproven, may experience limited growth and is highly dependent on U.S. retailers and
online third-party resellers adopting our flagship product, MySizeID.
The
market for our measurement technology is relatively new and unproven and is subject to a number of risks and uncertainties. We believe
that our future success will depend in large part on market adoption of our flagship product, MySizeID, by U.S. retailers and
online third-party resellers. In order to grow our business, we intend to focus on educating retailers and resellers and other potential
customers about the benefits of our measurement technology, expanding the functionality of our products and bringing new products to
market to increase market acceptance and use of our technology. Our ability to develop and expand the market that our products address
depends upon a number of factors, including the cost savings, performance and perceived value associated with such products. The market
for our products could fail to develop or there could be a reduction in interest or demand for our products as a result of a lack of
consumer acceptance, technological challenges, competing products and services, weakening economic conditions and other causes. We may
never successfully commercialize our products and if our products fail to achieve market acceptance, this would have a material adverse
effect on our business, results of operations and financial condition.
Failure
to effectively develop and expand our sales and marketing capabilities could harm our ability to grow our business and achieve broader
market acceptance of our products.
Our
ability to achieve customer adoption, especially among U.S. retailers will depend, in part, on our ability to effectively organize, focus
and train our sales and marketing personnel. We have limited experience selling to U.S. retailers and only recently established a U.S.
sales force. We believe that there is significant competition for experienced sales professionals with the skills and industry knowledge
that we require. Our ability to achieve significant revenue growth in the future will depend, in part, on our ability to recruit, train
and retain a sufficient number of experienced sales professionals, particularly those with experience selling to U.S. retailers. In addition,
even if we are successful in hiring qualified sales personnel, new hires require significant training and experience before they achieve
full productivity, particularly for sales efforts targeted at U.S. retailers and new markets. Because we only recently started sales
efforts, we cannot predict whether, or to what extent, our sales efforts will be successful.
We
expect our sales cycle to be long and unpredictable and require considerable time and expense before executing a customer agreement,
which may make it difficult to project when, if at all, we will obtain new customers and when we will generate revenue from those customers.
In
this market segment, the decision to adopt our products may require the approval of multiple technical and business decision makers,
including security, compliance, procurement, operations and IT. In addition, while U.S. retailers may be willing to deploy our products
on a limited basis, before they will commit to deploying our products at scale, they often require extensive education about our products
and significant customer support time, engage in protracted pricing negotiations and seek to secure readily available development resources.
As a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these customers. As part
of our sales cycle, we may incur significant expenses before executing a definitive agreement with a prospective customer and before
we are able to generate any revenue from such agreement. We have no assurance that the substantial time and money spent on our sales
efforts will generate significant revenue. If conditions in the marketplace generally or with a specific prospective customer change
negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any of these expenses. If
we are not successful in targeting, supporting and streamlining our sales processes and if revenue expected to be generated from a prospective
customer is not realized in the time period expected or not realized at all, our ability to grow our business, and our operating results
and financial condition may be adversely affected. If our sales cycles lengthen, our future revenue could be lower than expected, which
would have an adverse impact on our operating results and could cause our stock price to decline.
We
recently acquired Orgad and Naiz and may in the future engage in additional acquisitions, joint ventures or collaborations which may
increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities, and subject us to
other risks. We may not realize the benefits of these acquisitions, joint ventures or collaborations.
In
order to reduce time to market and obtain complementary technologies, we are seeking to acquire technologies and businesses that are
synergistic to our product offering. For example, we recently acquired Orgad which operates an omnichannel e-commerce platform and Naiz
which provides SaaS technology solutions that solve size and fit issues for fashion ecommerce companies. We evaluate from time to time
various acquisitions and collaborations, including licensing or acquiring complementary technologies, intellectual property rights, or
businesses. The process for acquiring a company may take from several months up to a year and costs can vary greatly. We may also compete
with others to acquire companies, and such competition may result in decreased availability of, or an increase in price for, suitable
acquisition candidates. In addition, we may not be able to consummate acquisitions or investments that we have identified as crucial
to the implementation of our strategy for other commercial or economic reasons. As a result, it may be more difficult for us to identify
suitable acquisition or investment targets or to consummate acquisitions or investments on acceptable terms or at all. If we are not
able to execute on any acquisition, we may not be able to achieve a future growth strategy and may lose market share.
In
addition, the acquisition of Orgad, Naiz and any potential future acquisition, joint venture or collaboration may entail numerous potential
risks, including:
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operating expenses and cash requirements; |
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assimilation
of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new
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the
diversion of our management’s attention from our existing programs and initiatives in pursuing such a strategic merger or acquisition; |
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retention
of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships; |
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risks
and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing
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our
inability to generate revenue from acquired technologies or products sufficient to meet our objectives in undertaking the acquisition
or even to offset the associated acquisition and maintenance costs. |
All
of the foregoing risks may be magnified as the cost, size or complexity of an acquisition or acquired company increases, or where the
acquired company’s products, market or business are materially different from ours, or where more than one integration is occurring
simultaneously or within a concentrated period of time. We may not be able to obtain the necessary regulatory approvals, including those
of antitrust authorities and foreign investment authorities, in countries where we seek to consummate acquisitions or make investments.
For those and other reasons, we may ultimately fail to consummate an acquisition, even if we announce the intended acquisition.
In
addition, we may require significant financing to complete an acquisition or investment, whether through bank loans, raising of equity
or debt or otherwise. We cannot assure you that such financing options will be available to us on reasonable terms, or at all. If we
are not able to obtain such necessary financing, it could have an impact on our ability to consummate a substantial acquisition or investment
and execute a future growth strategy. Alternatively, we may issue a significant number of shares as consideration for an acquisition,
which would have a dilutive effect on our existing shareholders. For example, in partial consideration for the acquisition of Orgad,
we agreed to issue up to 111,602 shares of our common stock and in the Naiz acquisition we issued
240,000 shares of our common stock. Furthermore, if we undertake acquisitions, we may incur large one-time expenses and acquire
intangible assets that could result in significant future amortization expense.
If
we are not able to enhance our brand and increase market awareness of our company and products, then our business, results of operations
and financial condition may be adversely affected.
We
believe that enhancing the “MySize” brand identity and increasing market awareness of our company and products, particularly
among U.S. retailers, is critical to achieving widespread acceptance of our products. Our ability to successfully develop new retailers
may be adversely affected by a lack of awareness or acceptance of our brand. To the extent that we are unable to foster name recognition
and affinity for our brand, our growth may be significantly delayed or impaired. The successful promotion of our brand will depend largely
on our continued marketing efforts, market adoption of our products, and our ability to successfully differentiate our products from
competing products and services. Our brand promotion may not be successful or result in revenue generation. Any incident that erodes
consumer affinity for our brand could significantly reduce our brand value and damage our business. If consumers perceive or experience
a reduction in quality, or in any way believe we fail to deliver a consistently positive experience, our brand value could suffer and
our business may be adversely affected.
In
particular, adverse weather conditions can impact guest traffic at our retailers, and, in more severe cases, cause temporary retail closures,
sometimes for prolonged periods. Our business is subject to seasonal fluctuations, with retail sales typically higher during certain
months, such as December. Adverse weather conditions during our most favorable months or periods may exacerbate the effect of adverse
weather on consumer traffic and may cause fluctuations in our operating results from quarter-to-quarter within a fiscal year.
If
we do not develop enhancements to our products and introduce new products that achieve market acceptance, our business, results of operations
and financial condition could be adversely affected.
Our
ability to attract new customers depends in part on our ability to enhance and improve our existing products, increase adoption and usage
of our products and introduce new products. The success of any enhancements or new products depends on several factors, including timely
completion, adequate quality testing, actual performance quality, and overall market acceptance. Enhancements and new products that we
develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may have interoperability difficulties
with our platform or other products or may not achieve the broad market acceptance necessary to generate significant revenue. Furthermore,
our ability to increase the usage of our products depends, in part, on the development of new use cases for our products and may be outside
of our control. If we are unable to successfully enhance our existing products to meet evolving customer requirements, increase adoption
and usage of our products, develop new products, then our business, results of operations and financial condition would be adversely
affected.
The
mobile technology industry is subject to rapid technological change and, to compete, we must continually enhance our mobile Apps and
custom development services.
We
must continue to enhance and improve the performance, functionality and reliability of our products. The mobile technology industry is
characterized by rapid technological change, changes in user requirements and preferences, frequent new product and services introductions
embodying new technologies and the emergence of new industry standards and practices that could render our products obsolete. Our success
will depend, in part, on our ability to both internally develop and enhance our existing products, develop new products that address
the increasingly sophisticated and varied needs of our customers, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis. The development of our technology involves significant technical and business risks.
We may fail to use new technologies effectively or to adapt our proprietary technology and systems to customer requirements or emerging
industry standards. If we are unable to adapt to changing market conditions, customer requirements or emerging industry standards, we
may not be able to increase our revenue and expand our business.
Changes
in economic conditions could materially affect our business, financial condition and results of operations.
Because
our primary target customers include U.S. retailers , we, together with the rest of the fashion/apparel industry, will depend upon consumer
discretionary spending. Increases in unemployment rates, reductions in home values, increases in home foreclosures, investment losses,
personal bankruptcies and reductions in access to credit and reduced consumer confidence, may impact consumers’ ability and willingness
to spend discretionary dollars. In addition, volatile economic conditions may repress consumer confidence and discretionary spending.
Any of the foregoing may have a material adverse effect on our business, financial condition and results of operations.
Our
growth depends, in part, on the success of our strategic relationships with third parties.
To
grow our business, we anticipate that we will continue to depend on relationships with third parties, such as our customers and third-party
platforms. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. If
we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or
to grow our revenue could be impaired, and our results of operations may suffer. Even if we are successful, we cannot assure you that
these relationships will result in increased customer usage of our products or increased revenue.
We
rely upon third parties to provide distribution for our applications, and disruption in these services could harm our business.
We
currently utilize, and plan on continuing to utilize over the current fiscal year, third-party networking providers and distribution
through companies including, but not limited to, Apple and Google as well as Shopify, WooCommerce and, Datalogic, Honeywell and Zebra
to distribute our technologies. If disruptions or capacity constraints occur, we may have no means of replacing these services, on a
timely basis or at all. This could cause a material adverse condition for our operations and financial earnings.
We
rely on third-party hosting and cloud computing providers to operate certain aspects of our business. Any failure, disruption or significant
interruption in our network or hosting and cloud services could adversely impact our operations and harm our business.
Our
technology infrastructure is critical to the performance of our products and customer satisfaction. Our products run on a complex distributed
system, or what is commonly known as cloud computing. We own, operate and maintain elements of this system, but significant elements
of this system are operated by third-parties that we do not control and which would require significant time to replace. We expect this
dependence on third-parties to continue. In particular, a significant portion, if not almost all data storage, data processing and other
computing services and systems is hosted by cloud computing providers. Any disruptions, outages and other performance problems relating
to such services, including infrastructure changes, human or software errors and capacity constraints, could adversely impact our business,
financial condition or results of operations.
Real
or perceived errors, failures, or bugs in our products could adversely affect our operating results and growth prospects.
We
update our products on a frequent basis. Despite efforts to test our updates, errors, failures or bugs may not be found in our products
until after they are deployed to a customer. We have discovered and expect we will continue to discover errors, failures and bugs in
our products and anticipate that certain of these errors, failures and bugs will only be discovered and remediated after deployment.
Real or perceived errors, failures or bugs in our platform could result in negative publicity, government inquiries, loss of or delay
in market acceptance of our products, loss of competitive position, or claims by customers for losses sustained by them. In such an event,
we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the
problem.
We
could be harmed by improper disclosure or loss of sensitive or confidential company, employee, or customer data, including personal data.
In
connection with the operation of our business, we store, process and transmit data, including personal and payment information, about
our employees and customers, a portion of which is confidential and/or personally sensitive. Unauthorized disclosure or loss of sensitive
or confidential data may occur through a variety of methods. These include, but are not limited to, systems failure, employee negligence,
fraud or misappropriation, or unauthorized access to or through our information systems, whether by our employees or third parties, including
a cyberattack by computer programmers, hackers, members of organized crime and/or state-sponsored organizations, who may develop and
deploy viruses, worms or other malicious software programs. Such disclosure, loss or breach could harm our reputation and subject us
to government sanctions and liability under our contracts and laws that protect sensitive or personal data and confidential information,
resulting in increased costs or loss of revenues. It is possible that security controls over sensitive or confidential data and other
practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. The
potential risk of security breaches and cyberattacks may increase as we introduce new products and offerings. Further, data privacy is
subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions in which we provide services.
Any failure or perceived failure to successfully manage the collection, use, disclosure, or security of personal information or other
privacy related matters, or any failure to comply with changing regulatory requirements in this area, could result in legal liability
or impairment to our reputation in the marketplace.
A
material breach in security relating to our information systems and regulation related to such breaches could adversely affect us.
Information
security risks have generally increased in recent years, in part because of the proliferation of new technologies and the use of the
Internet, and the increased sophistication and activity of organized crime, hackers, terrorists, activists, cybercriminals and other
external parties, some of which may be linked to terrorist organizations or hostile foreign governments. For example, a cybercriminal
could use cybersecurity threats to gain access to sensitive information about another company or to alter or disrupt news or information
to be distributed by PR Newswire. Cybersecurity attacks are becoming more sophisticated and include malicious software, ransomware, attempts
to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in critical systems, unauthorized
release of confidential or otherwise protected information and corruption of data, substantially damaging our reputation. Any person
who circumvents our security measures could steal proprietary or confidential customer information or cause interruptions in our operations.
We incur significant costs to protect against security breaches, and may incur significant additional costs to alleviate problems caused
by any breaches. Our failure to prevent security breaches, or well-publicized security breaches affecting the Internet in general, could
significantly harm our reputation and business and financial results.
Our
products and our business are subject to a variety of U.S. and international laws and regulations, including those regarding privacy,
data protection and information security, and our customers may be subject to regulations related to the handling and transfer of certain
types of sensitive and confidential information. Any failure of our products to comply with or enable our customers to comply with applicable
laws and regulations would harm our business, results of operations and financial condition.
We
and our customers that use our products may be subject to privacy- and data protection-related laws and regulations that impose obligations
in connection with the collection, processing and use of personal data, financial data, health or other similar data. The U.S. federal
and various state and foreign governments have adopted or proposed limitations on, or requirements regarding, the collection, distribution,
use, security and storage of personally identifiable information of individuals. The U.S. Federal Trade Commission and numerous state
attorneys general are applying federal and state consumer protection laws to impose standards on the online collection, use and dissemination
of data, and to the security measures applied to such data.
Similarly,
many foreign countries and governmental bodies, including the EU member states, have laws and regulations concerning the collection and
use of personally identifiable information obtained from individuals located in the EU or by businesses operating within their jurisdiction,
which are often more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection,
use, storage, disclosure and security of personally identifiable information that identifies or may be used to identify an individual,
such as names, telephone numbers, email addresses and, in some jurisdictions, IP addresses and other online identifiers.
For
example, the GDPR, which took full effect on May 25, 2018. The GDPR enhances data protection obligations for businesses and requires
service providers (data processors) processing personal data on behalf of customers to cooperate with European data protection authorities,
implement security measures and keep records of personal data processing activities. Noncompliance with the GDPR can trigger fines equal
to or greater of €20 million or 4% of global annual revenues. In addition, the CCPA, effective as of January 1, 2020, gives California
residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing,
and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations,
as well as a private right of action for data breaches, that is expected to increase data breach litigation. Further, failure to comply
with the Israeli Privacy Protection Law of 1981, and its regulations, as well as the guidelines of the Israeli Privacy Protection Authority,
may expose us to administrative fines, civil claims (including class actions) and in certain cases criminal liability. Current pending
legislation may result in a change of the current enforcement measures and sanctions. There are also additional laws and regulations
in additional jurisdictions around the world which govern the protection of consumers and of electronic communications. If our efforts
to comply with GDPR, CCPA or other applicable laws and regulations are not successful, we may be subject to penalties and fines that
would adversely impact our business and results of operations, and our ability to conduct business could be significantly impaired.
Additionally,
although we endeavor to have our products comply with applicable laws and regulations, these and other obligations may be modified, they
may be interpreted and applied in an inconsistent manner from one jurisdiction to another, and they may conflict with one another, other
regulatory requirements, contractual commitments or our internal practices. We also may be bound by contractual obligations relating
to our collection, use and disclosure of personal, financial and other data or may find it necessary or desirable to join industry or
other self-regulatory bodies or other privacy- or data protection-related organizations that require compliance with their rules pertaining
to privacy and data protection.
We
expect that there will continue to be new proposed laws, rules of self-regulatory bodies, regulations and industry standards concerning
privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet
determine the impact such future laws, rules, regulations and standards may have on our business. Moreover, existing U.S. federal and
various state and foreign privacy- and data protection-related laws and regulations are evolving and subject to potentially differing
interpretations, and various legislative and regulatory bodies may expand current or enact new laws and regulations regarding privacy-
and data protection-related matters. Because global laws, regulations and industry standards concerning privacy and data security have
continued to develop and evolve rapidly, it is possible that we or our products or platform may not be, or may not have been, compliant
with each such applicable law, regulation and industry standard and compliance with such new laws or to changes to existing laws may
impact our business and practices, require us to expend significant resources to adapt to these changes, or to stop offering our products
in certain countries. These developments could adversely affect our business, results of operations and financial condition.
We
may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely affect
our business.
Our
ability to implement our business plan successfully depends in part on our ability to build brand recognition using our trademarks, service
marks and other proprietary intellectual property, including our names and logos. We currently have no registered trademarks. While we
plan to register a number of our trademarks; however, no assurance can be given that our trademark applications will be approved. As
of December 31, 2022, we own 18 issued patents: six in Europe, four in the U.S., three in each of Russia and Japan and one in each of
Canada and Israel which expire between January 20, 2033 and August 18, 2036, and we have two additional patent applications in process.
As of such date, we do not have any registered trademarks., No assurance can be given that our patent applications which are in process
will be approved. If our patent applications are not approved, our ability to expand or develop our business may be negatively affected.
Third
parties may also oppose our trademark or patent applications, or otherwise challenge our use of the trademarks or patents. In the event
that our trademarks or patents are successfully challenged, we could be forced to rebrand our goods and services or redesign our technology,
which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands and
products.
If
our efforts to register, maintain and protect our intellectual property are inadequate, or if any third-party misappropriates, dilutes
or infringes on our intellectual property, the value of our brands may be harmed, which could have a material adverse effect on our business
and might prevent our brands from achieving or maintaining market acceptance. We may also face the risk of claims that we have infringed
third parties’ intellectual property rights. If third parties claim that we infringe upon their intellectual property rights, our
operating profits could be adversely affected. Any claims of intellectual property infringement, even those without merit, could be expensive
and time consuming to defend, require us to rebrand our services, if feasible, divert management’s attention and resources or require
us to enter into royalty or licensing agreements in order to obtain the right to use a third-party’s intellectual property.
Any
royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement
against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the
sale of certain products or services, any of which could have a negative impact on our operating profits and harm our future prospects.
We
may face intense competition and expect competition to increase in the future, which could prohibit us from developing a customer base
and generating revenue.
We
face significant competition in every aspect of our business. Our competitors include True Fit, Virtusize, EasyMeasure, AR MeasureKit,
Smart Measure and 3DLook. These companies may already have an established market in our industry. Most of these companies have significantly
greater financial and other resources than us and have been developing their products and services longer than we have been developing
ours.
In
addition, some of our larger competitors have substantially broader product offerings and leverage their relationships based on other
products or incorporate functionality into existing products to gain business in a manner that discourages potential customers from purchasing
our products. Potential customers may also prefer to purchase from their existing solution providers rather than a new solution provider
regardless of product performance or features. These larger competitors often have broader product lines and market focus and will therefore
not be as susceptible to downturns in a particular market. Conditions in our market could change rapidly and significantly as a result
of technological advancements, partnering by our competitors or continuing market consolidation. New start-up companies that innovate
and large competitors that are making significant investments in research and development may invent similar or superior products and
technologies that compete with our products. In addition, some of our competitors may enter into new alliances with each other or may
establish or strengthen cooperative relationships. Any such consolidation, acquisition, alliance or cooperative relationship could lead
to pricing pressure and our loss of any future market share and could result in a competitor with greater financial, technical, marketing,
service and other resources, all of which could harm our ability to compete. Furthermore, organizations may be more willing to incrementally
add solutions to their existing infrastructure from competitors than to replace their existing infrastructure with our products. Any
failure to meet and address these factors could harm our business, results of operations and financial condition.
Our
business operations and future development could be significantly disrupted if we lose key members of our management team.
The
success of our business continues to depend to a significant degree upon the continued contributions of our senior officers and key employees,
both individually and as a group. Our future performance will be substantially dependent in particular on our ability to retain and motivate
Ronen Luzon, our Chief Executive Officer, and certain of our other senior executive officers. The loss of the services of our Chief Executive
Officer, senior officers or other key employees could have a material adverse effect on our business and plans for future development.
We have no reason to believe that we will lose the services of any of these individuals in the foreseeable future; however, we currently
have no effective replacement for any of these individuals due to their experience, reputation in the industry and special role in our
operations. We also do not maintain any key man life insurance policies for any of our employees.
If
we are able to expand our operations, we may be unable to successfully manage our future growth.
Our
growth may strain our infrastructure and resources. Any such growth could place increased strain on our management, operational, financial
and other resources, and we will need to train, motivate, and manage employees, as well as attract management, sales, finance and accounting,
international, technical, and other professionals. Any failure to expand these areas and implement appropriate procedures and controls
in an efficient manner and at a pace consistent with our business objectives could have a material adverse effect on our business, results
of operations and financial condition.
Our
business operations are conducted in multiple languages and could be disrupted due to miscommunications or translation errors.
The
success of our business continues to depend on our marketing efforts in the United States, Europe and Israel, each of which is conducted
in the local language. Miscommunications or inaccurate foreign language translations could have a material adverse effect on our business
operations and financial conditions. Additionally, contracts, communications and complex technical information must be accurately translated
into foreign languages.
We
will continue to incur costs and be subject to various obligations as a result of being a public company, listed in the United States
and in Israel.
We
will continue to incur significant legal, accounting and other expenses as a result of being a public company, listed in the United States
and in Israel. Although we will incur costs each year associated with being a publicly-traded company, it is possible that our actual
costs of being a publicly-traded company will vary from year to year and may be different than our estimates. In estimating these costs,
we take into account expenses related to insurance, legal, accounting and compliance activities.
Furthermore,
the need to maintain the corporate infrastructure demanded of a public company may divert management’s attention from implementing
our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made,
and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our
reporting obligations as a U.S. publicly traded company. However, the measures we take may not be sufficient to satisfy our obligations
as a publicly traded company.
Any
future or current litigation could have a material adverse impact on our results of operations, financial condition and liquidity.
From
time to time, we may be subject to litigation, including, among others, potential stockholder derivative actions and class actions. Risks
associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant
periods of time. Subject to certain exceptions, our Amended and Restated Certificate of Incorporation, or Certificate of Incorporation,
and Amended and Restated Bylaws, or Bylaws, require us to indemnify and advance expenses to our officers and directors involved in legal
proceedings. To date we have obtained directors and officers’ liability, or D&O, insurance to cover some of the risk exposure
for our directors and officers. Such insurance generally pays the expenses (including amounts paid to plaintiffs, fines, and expenses
including attorneys’ fees) of officers and directors who are the subject of a lawsuit as a result of their service to us. There
can be no assurance that we will be able to continue to maintain this insurance at reasonable rates or at all, or in amounts adequate
to cover such expenses should such a lawsuit occur. Without D&O insurance, the amounts we would pay to indemnify our officers and
directors should they be subject to legal action based on their service to us could have a material adverse effect on our financial condition,
results of operations and liquidity. Such lawsuits, and any related publicity, may result in substantial costs and, among other things,
divert the attention of management and our employees. An unfavorable outcome in any claim or proceeding against us could have a material
adverse impact on our financial position and results of operations for the period in which the unfavorable outcome occurs, and potentially
in future periods. Further, any settlement announced by us may expose us to further claims against us by third parties seeking monetary
or other damages which, even if unsuccessful, would divert management attention from the business and cause us to incur costs, possibly
material, to defend such matters, which could have a material adverse impact on our financial position. See “Legal Proceedings”
for more information regarding our involvement in ongoing litigation matters.
Federal,
state and local or Israeli tax rules may adversely impact our results of operations and financial position.
We
are subject to federal, state and local taxes in the U.S., as well as local taxes in Israel in respect to our operations in Israel. Although
we believe our tax estimates are reasonable, if the Internal Revenue Service or other taxing authority disagrees with the positions we
have taken on our tax returns, we could face additional tax liability, including interest and penalties. If material, payment of such
additional amounts upon final adjudication of any disputes could have a material impact on our results of operations and financial position.
In addition, complying with new tax rules, laws or regulations could impact our financial condition, and increases to federal or state
statutory tax rates and other changes in tax laws, rules or regulations may increase our effective tax rate. Any increase in our effective
tax rate could have a material impact on our financial results.
A
significant majority of Orgad’s revenue is from sales of products on Amazon’s U.S. Marketplace and any change, limitation
or restriction on our ability to operate on Amazon’s platform or any other marketplace could have a material adverse impact to
our business, results of operations, financial condition and prospects.
Orgad,
our wholly owned subsidiary, operates an omnichannel e-commerce platform engaged in online retailing in the global market. It operates
as a third-party seller on Amazon.com, eBay and others. A substantial percentage of Orgad’s revenue is driven by sales on Amazon’s
U.S. marketplace and Orgad is subject to terms of service of Amazon and other maketplaces and various other seller policies and services
that apply to third parties selling products on Amazon and other marketplaces. Generally, a marketplace has the right to terminate or
suspend its agreement with Orgad at any time and for any reason. Such marketplace may take other actions against Orgad such as suspending
or terminating a seller account or product listing and withholding payments owed to Orgad indefinitely. For example, in July 2022, Amazon
deactivated Orgad’s Amazon U.S. store as a result of complaints submitted due to an error in the listed manufacturer of certain
products on Orgad’s store. Although its account was subsequently reinstated in September 2022, if the deactivation were to occur
in the future for a prolonged period of time, or if Amazon were to terminate Orgad’s account, this would have a material adverse
effect on our business, results of operations, financial condition and prospects. While Orgad endeavors to materially comply with the
terms of services of the marketplaces on which it operates, we can provide no assurance that these marketplaces will have the same determination
with respect to our compliance.
In
addition, Amazon and other marketplaces can make changes to its platform that could require Orgad to change the manner in which it operates,
limit its ability to successfully launch new products or increase its costs to operate and such changes could have an adverse effect
on our business, results of operations, financial condition and prospects. Examples of changes that could impact us relate to platform
fee charges (i.e., selling commissions), exclusivity, inventory warehouse availability, excluded products and limitations on sales and
marketing. Any change, limitation or restriction on our ability to sell on Amazon’s platform or any other marketplace, even if
temporary, could have a material impact on our business, results of operations, financial condition and prospects.
Orgad
also relies on services provided by Amazon’s fulfillment platform, including Prime Certification, which provides for expedited
shipping to the consumer, an important aspect in the buying decision for consumers. For products that Orgad fulfills itself, Orgad is
qualified to offer our products for sale with Prime Certification delivery. Any inability to market our products for sale with expedited
delivery provided under Prime Certification could have a material impact on our business, results of operations, financial condition
and prospects. Failure to remain compliant with the best fulfillment practices on Amazon’s platform could have a material impact
on our business, results of operations, financial condition and prospects. In addition, due to the COVID-19 pandemic, Amazon has changed
the amount of inventory it accepts per product for a period of time. If this were to continue it could cause us to miss sales and/or
pay additional shipping costs which would harm our business operations and financial conditions.
Orgad’s
business depends on its ability to build and maintain strong product listings on e-commerce platforms. Orgad may not be able to maintain
and enhance our product listings if it receives unfavorable customer complaints, negative publicity or otherwise fails to live up to
consumers’ expectations, which could materially adversely affect our business, results of operations and growth prospects.
Maintaining
and enhancing Orgad’s product listings is critical in expanding and growing its business. However, a significant portion of Orgad’s
perceived performance to the customer depends on third parties outside of its control, including suppliers and third-party delivery agents
as well as online retailers such as Amazon and eBay. Because Orgad’s agreements with its online retail partners are generally terminable
at will, it may be unable to maintain these relationships, and our results of operations could fluctuate significantly from period to
period. Because Orgad relies on third parties to deliver its products, it is subject to shipping delays or disruptions caused by inclement
weather, natural disasters, labor activism, health epidemics or bioterrorism. It may also experience shipping delays or disruptions due
to other carrier-related issues relating to their own internal operational capabilities. Further, Orgad relies on the business continuity
plans of these third parties to operate during pandemics, like the COVID-19 pandemic, and it has limited ability to influence their plans,
prevent delays, and/or cost increases due to reduced availability and capacity and increased required safety measures.
Customer
complaints or negative publicity about its products, delivery times, or marketing strategies, even if not accurate, especially on blogs,
social media websites and third-party market sites, could rapidly and severely diminish consumer view of Orgad’s product listings
and result in harm to its brand. Customers may also make safety-related or other types of claims regarding products sold through our
online retail partners, such as Amazon, which may result in an online retail partner removing the product from its marketplace. We also
use and rely on other services from third parties, such as our telecommunications services, and those services may be subject to outages
and interruptions that are not within our control.
Orgad
faces risks related to successfully optimizing and operating its fulfillment and customer service operations.
Failures
to adequately predict customer demand or otherwise optimize and operate its fulfillment and customer service operations successfully
from time to time result in excess or insufficient fulfillment or customer service capacity, increased costs, and impairment charges,
any of which could materially harm our business. As Orgad continues to add fulfillment and customer service capability or add new businesses
with different requirements, its fulfillment and customer service operations become increasingly complex and operating them becomes more
challenging. There can be no assurance that Orgad will be able to operate our operations effectively.
In
addition, failure to optimize inventory in our fulfillment operations increases net shipping cost by requiring long-zone or partial shipments.
Orgad may be unable to adequately staff its fulfillment and customer service operations. Orgad’s failure to properly handle such
inventory or to accurately forecast product demand may result in it being unable to secure sufficient storage space or to optimize its
fulfillment operations or cause other unexpected costs and other harm to our business and reputation.
Orgad
relies on a limited number of shipping companies to deliver inventory to it and completed orders to our customers. The inability to negotiate
acceptable terms with these companies or performance problems or other difficulties experienced by these companies could negatively impact
our operating results and customer experience. In addition, Orgad’s ability to receive inbound inventory efficiently and ship completed
orders to customers also may be negatively affected by natural or man-made disasters, extreme weather, geopolitical events and security
issues, labor or trade disputes, and similar events.
The
variability in Orgad’s retail business places increased strain on its operations.
Demand
for Orgad’s product listings can fluctuate significantly for many reasons, including as a result of seasonality, promotions, product
launches, or unforeseeable events, such as in response to natural or man-made disasters, extreme weather, or geopolitical events. For
example, Orgad expects a disproportionate amount of our retail sales to occur during our fourth quarter. Failure to stock or restock
popular products in sufficient amounts such that Orgad fails to meet customer demand could significantly affect our revenue and our future
growth. If too many customers access the websites on which Orgad engages in online retailing within a short period of time due to increased
demand, Orgad may experience system interruptions that make the websites unavailable or prevent us from efficiently fulfilling orders,
which may reduce the volume of goods its offers or sell and the attractiveness of its products. In addition, Orgad may be unable to adequately
staff for fulfillment of orders and customer service during these peak periods and delivery and other fulfillment companies and customer
service co-sourcers may be unable to meet the seasonal demand.
Our
business is subject to the risks of earthquakes, fire, power outages, floods, health risks and other catastrophic events, and to interruption
by man-made problems such as terrorism.
Natural
disasters, such as fire or floods, a significant power outage, telecommunications failure, terrorism, an armed conflict, cyberattacks,
epidemics and pandemics such as COVID-19, or other geo-political unrest could affect our supply chain, manufacturers, logistics providers,
channel partners, or end-customers or the economy as a whole and such disruption could impact us and the shipments and sales. These risks
may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the
above should result in delays or cancellations of customer orders, the loss of customers, or the delay in the deployment or shipment
of products, our business, financial condition, and operating results would be adversely affected.
For
example, on January 2, 2023, Orgad experienced a fire at its warehouse in Israel.
We are not aware of any casualties or injuries associated with the fire. We shifted Orgad’s operation to its headquarters. The value
of the inventory that was in the warehouse was approximately $450,000. We believe that this incident did not affect the future sales results
of Orgad for the year of 2023. The inventory was not insured and it is too early to determine the potential impact of this incident on
the other parties that were involved in the incident (lessor and others that leased properties near the warehouse).
Our
business could be negatively impacted by unsolicited takeover proposals, by shareholder activism or by proxy contests relating to the
election of directors or other matters.
Our
business could be negatively affected as a result of an unsolicited takeover proposal, by shareholder activism or a proxy contest. During
2021, an activist shareholder sought to make changes to our board of directors, among other matters, which ultimately resulted in us
entering into a settlement agreement with the activist shareholder and another shareholder, and for which considerable costs were incurred
and absorbed significant time and attention by management and the board of directors. A future proxy contest, unsolicited takeover proposal,
or other shareholder activism relating to the election of directors or other matters would most likely require us to incur significant
legal fees and proxy solicitation expenses and require significant time and attention by management and our Board of Directors. The potential
of a proxy contest, unsolicited takeover proposal, or other shareholder activism could interfere with our ability to execute our strategic
plan, give rise to perceived uncertainties as to our future direction, result in the loss of potential business opportunities or make
it more difficult to attract and retain qualified personnel, any of which could materially and adversely affect our business and operating
results.
Environmental,
social and corporate governance (ESG) issues, including those related to climate change and sustainability, may have an adverse effect
on our business, financial condition and results of operations and damage our reputation.
There
is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters. Additionally,
public interest and legislative pressure related to public companies’ ESG practices continue to grow. If our ESG practices fail
to meet regulatory requirements or investor, customer, consumer, employee or other shareholders’ evolving expectations and standards
for responsible corporate citizenship in areas including environmental stewardship, support for local communities, Board of Director and
employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate
governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers
may be unwilling to continue to do business with us.
Customers,
consumers, investors and other shareholders are increasingly focusing on environmental issues, including climate change, energy and water
use, plastic waste and other sustainability concerns. Concern over climate change may result in new or increased legal and regulatory
requirements to reduce or mitigate impacts to the environment. Changing customer and consumer preferences or increased regulatory requirements
may result in increased demands or requirements. Complying with these demands or requirements could cause us to incur additional manufacturing,
operating or product development costs.
If we
do not adapt to or comply with new regulations, including the SEC’s published proposed rules that would require companies to provide
significantly expanded climate-related disclosures in their periodic reporting, which may require us to incur significant additional costs
to comply and impose increased oversight obligations on our management and board of directors, or fail to meet evolving investor, industry
or stakeholder expectations and concerns regarding ESG issues, investors may reconsider their capital investment in our company, we may
become subject to penalties, and customers and consumers may choose to stop purchasing our products, if approved for commercialization,
which could have a material adverse effect on our reputation, business or financial condition.
Our
business, operating results and growth rates may be adversely affected by current or future unfavorable economic and market conditions
and adverse developments with respect to financial institutions and associated liquidity risk.
Our business
depends on the economic health of the global economies. If the conditions in the global economies remain uncertain or continue to be volatile,
or if they deteriorate, including as a result of the impact of military conflict, such as the war between Russia and Ukraine, terrorism
or other geopolitical events, our business, operating results and financial condition may be materially adversely affected. Economic weakness,
inflation and increases in interest rates, limited availability of credit, liquidity shortages and constrained capital spending have at
times in the past resulted, and may in the future result, in challenging and delayed sales cycles, slower adoption of new technologies
and increased price competition, and could negatively affect our ability to forecast future periods, which could result in an inability
to satisfy demand for our products and a loss of market share.
In addition,
increases in inflation raise our costs for commodities, labor, materials and services and other costs required to grow and operate our
business, and failure to secure these on reasonable terms may adversely impact our financial condition. Additionally, increases in inflation,
along with the uncertainties surrounding COVID-19, geopolitical developments and global supply chain disruptions, have caused, and may
in the future cause, global economic uncertainty and uncertainty about the interest rate environment, which may make it more difficult,
costly or dilutive for us to secure additional financing. A failure to adequately respond to these risks could have a material adverse
impact on our financial condition, results of operations or cash flows.
More
recently, the closures of SVB and Signature Bank and their placement into receivership with the FDIC created bank-specific and broader
financial institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve and the FDIC jointly released
a statement that depositors at SVB and Signature Bank would have access to their funds, even those in excess of the standard FDIC insurance
limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or the broader financial
services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs,
and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and
a deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such
economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the
current equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term
liquidity risk and also make any necessary debt or equity financing more difficult, more costly, more onerous with respect to financial
and operating covenants and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have
a material adverse effect on our growth strategy, financial performance and stock price and could require us to alter our operating plans.
In addition, there is a risk that one or more of our service providers, financial institutions, manufacturers, suppliers and other partners
may be adversely affected by the foregoing risks, which could directly affect our ability to attain our operating goals on schedule and
on budget.
Our
business may be adversely affected by the impact of any renewed outbreak of the COVID-19 pandemic.
Public
health epidemics or outbreaks could adversely impact our business. In late 2019, a novel strain of COVID-19, also known as coronavirus,
was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it spread worldwide. Many countries around
the world, including in Israel, implemented significant governmental measures to control the spread of the virus, including temporary
closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on the conduct of business.
These measures haven historically resulted in work stoppages and other disruptions. If there is a resurgence of the COVID-19 pandemic,
this could adversely impact our operations, including among others, our sales and marketing efforts and our ability to raise additional
funds, and accordingly, the impact of COVID-19 could have an adverse impact on our business and our financial results.
Risks
Related to Our Operations in Russia
Russia’s
invasion of Ukraine and sanctions brought against Russia could disrupt our operations in Russia.
In
addition to our Israel operations, we have operations in Russia through our wholly owned subsidiary, My Size LLC. Specifically, we undertake
some of our sales and marketing using personnel located in Russia and we engage two software developers through a third party who are
based in Ukraine. On February 24, 2022, Russia invaded Ukraine. The outbreak of hostilities between the two countries could result in
more widespread conflict and could have a severe adverse effect on the region. Following
Russia’s actions, various countries, including the U.S., Canada, the United Kingdom, Germany and France, as well as the European
Union, issued broad-ranging economic sanctions against Russia. Such sanctions included, among other things, a prohibition on doing business
with certain Russian companies, officials and oligarchs; a commitment by certain countries and the European Union to remove selected
Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) electronic banking network that connects
banks globally; and restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. In response
to sanctions, the Russian Central Bank raised its interest rates and banned sales of local securities by foreigners. Russia may take
additional counter measures or retaliatory actions in the future. While diplomatic efforts have been ongoing, the conflict between Russia
and Ukraine is currently unpredictable and has the potential to result in broadened military actions. The duration of ongoing hostilities
and such sanctions and related events cannot be predicted. Uncertainty as to future relations between Russia and the U.S. and other countries
in the west, or between Russia and other eastern European countries, may have a negative impact on our operations.
Such
international sanctions and potential responses to such sanctions, including those that may limit or restrict transfer funds into Russia,
may in the future significantly affect our ability to conduct our activities in Russia including paying our personnel. To
date, the conflict has had minimal impact on operations . Nevertheless, we have no way to predict the progress or outcome of the situation
in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged unrest, intensified military
activities or more extensive sanctions impacting the region could have a material adverse effect on our operations, results of operations,
financial condition, liquidity and business outlook.
Political,
military conditions or other risks in Russia could adversely affect our business.
Russia
is a federative state consisting of 85 constituent entities, or “subjects.” The Russian Constitution reserves some governmental
powers for the Russian Government, some for the subjects and some for areas of joint competence. In addition, eight “federal districts”
(“federal’nye okruga”), which are overseen by a plenipotentiary representative of the President, supplement the country’s
federal system. The delineation of authority among and within the subjects is, in many instances, unclear and contested, particularly
with respect to the division of tax revenues and authority over regulatory matters. For these reasons, the Russian political system is
vulnerable to tension and conflict between federal, subject and local authorities. This tension creates uncertainties in the operating
environment in Russia, which may prevent us from carrying out our strategy effectively. The risks associated with these events or potential
events could materially and adversely affect the investment environment and overall consumer and entrepreneurial confidence in Russia,
and our business, prospects, financial condition, hiring ability, and results of operations could be materially and adversely affected.
Furthermore,
high levels of corruption reportedly exist in Russia, including the bribing of officials for the purpose of initiating investigations
by government agencies. Corruption and other illegal activities could disrupt our ability to conduct our business effectively, and claims
that the we are involved in such corruption or illegal activities could generate negative publicity, of which could harm our development,
financial condition, results of operations or prospects.
Economic
and other risks in Russia could adversely affect our business.
Operating
a business in an emerging market such as Russia can involve a greater degree of risk than operating a business in more developed markets.
Over
the last two decades, the Russian economy has experienced or continues to experience at various times:
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The
Russian economy has been subject to abrupt downturns in the past, including as a result of the invasion of Ukraine, global financial
crisis, and, as an emerging market, remains particularly vulnerable to further external shocks and any future fluctuations in the global
markets. Any further deterioration in the general economic conditions in Russia (whether or not as a result of the events mentioned above)
could have a material adverse effect on the Russian economy and may result in hiring and operational difficulties, as well as potential
flight of human capital, which could have a material adverse effect on our business, product development and results of operations.
Legal
risks in Russia could materially adversely affect our operations and Russian tax legislation is subject to frequent change.
Among
the risks of the Russian legal system are: inconsistencies among laws, presidential decrees, and government and ministerial orders and
resolutions; conflicting local, regional and federal laws and regulations; the untested nature of the independence of the judiciary and
its sensitivity to economic or political influences; substantial gaps in the regulatory structure due to the delay or absence of implementing
legislation; a high degree of discretion on the part of governmental authorities; reported corruption within governmental entities and
other governmental authorities; the relative inexperience of judges and courts in interpreting laws applicable to complex transactions;
and the unpredictability of enforcement of foreign judgments and foreign arbitral awards. Many Russian laws and regulations are construed
in a way that provides for significant administrative discretion in application and enforcement. Unlawful, selective or arbitrary actions
of the Russian Government have reportedly included the denial or withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions,
and civil claims. Any of the above events may have a material adverse effect on our product development and results of operations.
Despite
certain improvements in the taxation system made by the Russian Government over the past decade, Russian tax legislation is still subject
to frequent change, varying interpretations, and inconsistent and selective enforcement. There are currently no clear rules for distinguishing
between lawful tax optimization and tax evasion. In addition, Russian tax laws do not contain detailed rules on the taxation in Russia
of foreign companies. As such, taxpayers often have to resort to court proceedings to defend their position against the Russian tax authorities.
However, in the absence of consistent court practice or binding precedents, there is inconsistency amongst court decisions. Further,
the possibility exists that the Russian Federation would impose arbitrary or onerous taxes and penalties in the future, which could have
a material adverse effect on our product development and results of operations.
Risks
Related to Our Operations In Israel
Our
headquarters and most of our operations are located in Israel, and therefore, political conditions in Israel may affect our operations
and results.
Our
headquarters and most of our operations are located in central Israel and our key employees, officers and directors are residents of
Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors.
Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners
could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. During the
winter of 2008, winter of 2012 and the summer of 2014, Israel was engaged in an armed conflict with Hamas, a militia group and political
party operating in the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese
Islamist Shiite militia group and political party. Israel faces political tension with respect to its relationships with Turkey, Iran
and certain Arab neighbor countries. In addition, recent conflicts involved missile strikes against civilian targets in various parts
of Israel, and negatively affected business conditions in Israel. Recent political uprisings and social unrest in various countries in
the Middle East and North Africa are affecting the political stability of those countries. This instability may lead to deterioration
of the political relationships that exist between Israel and these countries, and have raised concerns regarding security in the region
and the potential for armed conflict. Any armed conflicts, terrorist activities or political instability in the region could adversely
affect business conditions and could harm our results of operations. For example, any major escalation in hostilities in the region could
result in a portion of our employees and service providers being called up to perform military duty for an extended period of time. Parties
with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make
alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom
we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements
pursuant to force majeure provisions in such agreements. Any future deterioration in the political and security situation in Israel will
negatively impact our business.
Our
commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle
East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks
or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have
a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect
business conditions and could harm our results of operations.
Further,
in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business
with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating
results, financial condition or the expansion of our business.
The
legislative power of the State resides in the Knesset, a unicameral parliament that consists of 120 members elected by nationwide voting
under a system of proportional representation. Israel’s most recent general elections were held on April 9, 2019, September 17,
2019, March 2, 2020 and November 1, 2022. The uncertainty surrounding the results of the recent elections may continue. Actual or perceived
political instability in Israel or any negative changes in the political environment, may individually or in the aggregate adversely
affect the Israeli economy and, in turn, our business, financial condition, results of operations and prospects.
Some
of our employees are obligated to perform military reserve duty in Israel.
Many
Israeli citizens, including our employees are obligated to perform one month, and in some cases more, of annual military reserve duty
until they reach the age of 40 (or older, for reservists with certain occupations) and, in the event of a military conflict, may be called
to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists.
It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups. Such
disruption could materially adversely affect our business, results of operations and financial condition.
It
may be difficult to enforce a non-Israeli judgment against the Company or its officers and directors.
The
operating subsidiary of ours is incorporated in Israel. All of our executive officers and directors are not residents of the United States,
and a substantial portion of our assets and the assets of our executive officers and directors are located outside the United States.
Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the
U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It
also may be difficult to affect service of process on these persons in the United States or to assert U.S. securities law claims in original
actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action
with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities
laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees
to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable,
the content of applicable U.S. law often involves the testimony of expert witnesses, which can be a time consuming and costly process.
Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters
described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, it may be impossible to collect
any damages awarded by either a U.S. or foreign court.
Our
international operations could expose us to additional risks, including exchange rate fluctuations, legal regulations and political or
economic instability that could harm our business and operating results.
Our
international operations expose us to the following risks which may have a material adverse effect on our business and operating results:
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devaluations
and fluctuations in currency exchange rates including fluctuations between the U.S. dollar and the NIS and the Russian Ruble; |
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costs
of compliance with local laws, including labor laws and intellectual property laws; |
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compliance
with domestic and foreign government policies, including compliance with Israeli securities laws and TASE; |
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changes
in trade regulations and procedures affecting approval, production, pricing, marketing, reimbursement for and access to, our products; |
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compliance
with applicable foreign anti-corruption laws, anti-trust/competition laws, anti-Boycott Israel law and anti-money laundering laws;
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economic
and geopolitical developments and conditions, including ongoing instability in global economies and financial markets, international
hostilities, acts of terrorism and governmental reactions, inflation, outbreaks of contagious disease (e.g., the COVID-19 pandemic)
and military and political alliances. |
Risks
Related to Our Common Stock
A
more active, liquid trading market for our common stock may not develop, and the price of our common stock may fluctuate significantly.
Although
our common stock is listed on the Nasdaq Capital Market, it has only been traded on the Nasdaq Capital Market since July 25, 2016. There
has been relatively limited trading volume in the market for our common stock, and a more active, liquid public trading market may not
develop or may not be sustained. Limited liquidity in the trading market for our common stock may adversely affect a stockholder’s
ability to sell its shares of common stock at the time it wishes to sell them or at a price that it considers acceptable. If a more active,
liquid public trading market does not develop, we may be limited in our ability to raise capital by selling shares of common stock and
our ability to acquire other companies or assets by using shares of our common stock as consideration. In addition, if there is a thin
trading market or “float” for our stock, the market price for our common stock may fluctuate significantly more than the
stock market as a whole. Without a large float, our common stock would be less liquid than the stock of companies with broader public
ownership and, as a result, the trading prices of our common stock may be more volatile and it would be harder for you to liquidate any
investment in our common stock. Furthermore, the stock market is subject to significant price and volume fluctuations, and the price
of our common stock could fluctuate widely in response to several factors, including:
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investment
recommendations by securities analysts following our business or our industry; |
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additions
or departures of key personnel; |
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changes
in the business, earnings estimates or market perceptions of our competitors; |
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our
failure to achieve operating results consistent with securities analysts’ projections; |
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changes
in industry, general market or economic conditions; |
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announcements
of legislative or regulatory changes; and |
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natural
disasters (including for example, the recent fire in the Orgad warehouse) and political and economic instability, including wars,
terrorism, political unrest, results of certain elections and votes, emergence of a pandemic, or other widespread health emergencies
(or concerns over the possibility of such an emergency, including for example, the recent the COVID-19 pandemic), boycotts, adoption
or expansion of government trade restrictions, and other business restrictions. |
The
stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices
of the securities of many companies. The changes often appear to occur without regard to specific operating performance. The price of
our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations could materially
reduce our stock price.
Sales
by our stockholders of a substantial number of shares of our common stock in the public market could adversely affect the market price
of our common stock.
If
any of our shareholders were to decide to sell large amounts of stock over a short period of time (presuming such sales were permitted)
such sales could cause the market price of our common stock to drop significantly, even if our business is doing well. Further, the market
price of our common stock could decline as a result of the perception that such sales could occur. These sales, or the possibility that
these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem
appropriate.
Our
securities are traded on more than one market which may result in price variations.
Our
securities have been trading on the Nasdaq Capital Market since July 2016 and on TASE since September 2005. Trading in our securities
on such exchanges occurs in different currencies (U.S. dollars on the Nasdaq Capital Market and NIS on the TASE), and at different times
(due to different time zones, trading days and public holidays in the United States and Israel). The trading prices of our securities
on the two exchanges may differ due to the foregoing and other factors. Any decrease in the price of our shares on the TASE could cause
a decrease in the trading price of our shares on the Nasdaq Capital Market and vice versa.
We
are a smaller reporting company and, as a result of the reduced disclosure and governance requirements applicable to such companies,
our common stock may be less attractive to investors.
We
are a smaller reporting company, (i.e. a company with “public float” held by non-affiliates with a market value of less than
$250 million) and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public
companies. We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will find our common stock
less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a
result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.
We
do not expect to pay any cash dividends in the foreseeable future.
We
have never declared or paid cash dividends on our common stock. We intend to retain our future earnings, if any, in order to reinvest
in the development and growth of our business and, therefore, do not intend to pay dividends on our common stock for the foreseeable
future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial
condition, results of operations, capital requirements, and such other factors as our board of directors deems relevant. Investors should
not purchase our common stock expecting to receive cash dividends. Because we do not pay dividends, and there may be limited trading,
investors may not have any manner to liquidate or receive any payment on their investment. Therefore, our failure to pay dividends may
cause investors to not see any return on investment even if we are successful in our business operations. In addition, because we do
not pay dividends we may have trouble raising additional funds, which could affect our ability to expand our business operations.
We
can sell additional shares of common stock without consulting stockholders and without offering shares to existing stockholders, which
would result in dilution of shareholders’ interests in the company and could depress our stock price.
Our
Certificate of Incorporation currently authorizes 250,000,000 shares of common stock, of which 2,446,780 are currently outstanding
as of March 31, 2023 and our board of directors is authorized to issue additional shares of our common stock. Although
our board of directors intends to utilize its reasonable business judgment to fulfil its fiduciary obligations to our then existing
stockholders in connection with any future issuance of our capital stock, the future issuance of additional shares of our capital
stock could cause immediate, and potentially substantial, dilution to our existing stockholders, which could also have a material
effect on the market value of the shares. Further, other than certain participation rights that we have granted in a past offering,
our shares do not have preemptive rights, which means we can sell shares of our capital stock to other persons without offering
purchasers in this offering the right to purchase their proportionate share of such offered shares. Therefore, any additional sales
of stock by us could dilute your ownership interest in our Company.
Our
quarterly operating results may fluctuate significantly.
We
expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous
factors, including:
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variations
in the level of expenses related to our research and development; |
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any
lawsuits in which we may become involved; |
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regulatory
developments affecting our products; and |
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our
execution of any collaborative, licensing or sales agreements, and the timing of payments under these arrangements. |
If
our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could
decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our common stock
to fluctuate substantially.
If
we fail to comply with the rules under the Sarbanes Oxley Act of 2002 related to accounting controls and procedures or if we discover
material weaknesses and deficiencies in our internal control and accounting procedures, our stock price could decline significantly and
raising capital could be more difficult.
If
we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover
material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly
and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness
of our internal control over financial reporting and, if we are no longer a non-accelerated filer, a report by our independent auditors
addressing these assessments. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and
maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective
internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls
are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide
reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our common stock could drop significantly.
Our
Certificate of Incorporation, Bylaws and Delaware law may have anti-takeover effects that could discourage, delay or prevent a change
in control, which may cause our stock price to decline.
Our
Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for a third-party to acquire us, even if closing such
a transaction would be beneficial to our stockholders. Provisions of our Certificate of Incorporation, Bylaws and Delaware law also could
have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control,
including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders
to replace or remove our management. In particular, the Certificate of Incorporation, Bylaws and Delaware law, as applicable, among other
things:
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provide
the board of directors with the ability to alter the Bylaws without stockholder approval; |
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the
classification of our board of directors; |
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place
limitations on the removal of directors; |
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provide
that vacancies on the Board of Directors may be filled by a majority of directors in office, although less than a quorum; |
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require
that stockholder actions must be affected at a duly called stockholder meeting and generally prohibiting stockholder actions by written
consent; |
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eliminate
the ability of stockholders to call a special meeting of stockholders; and |
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establish
advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon
at duly called stockholder meetings. |
We
are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations”
between a publicly-held Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder
who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date
that such stockholder became an interested stockholder. These provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our board. These
provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock and the
value of our securities to decline.
If
we fail to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price
of our common stock and our ability to access the capital markets could be negatively impacted.
Nasdaq
has established certain standards for the continued listing of a security on the Nasdaq Capital Market. The standards for continued
listing include, among other things, that the minimum bid price for the listed securities not fall below $1.00 per share for a
period of 30 consecutive trading days and that we maintain a minimum of $2,500,000 in shareholders’ equity. We have in the
past fallen below the minimum bid price and minimum shareholders’ equity.
No
assurance can be given that we will continue to be in compliance with the Rule. Failure to meet applicable Nasdaq continued listing standards
could result in a delisting of our common stock. A delisting of our common stock from Nasdaq could materially reduce the liquidity of
our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm
our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential
loss of confidence by investors, employees and fewer business development opportunities.
The
exercise of outstanding warrants and stock options will have a dilutive effect on the percentage ownership of our capital stock by existing
stockholders.
As
of March 15, 2023, we had outstanding warrants to acquire 2,299,115 shares of our common stock and stock options to purchase 1,659
shares of our common stock, which warrants and options are exercisable for prices ranging between $2.81 and $375. The expiration of
the term of such options and warrants range from 0.22 years to 4.83 years. If a significant number of such warrants and stock
options are exercised by the holders, the percentage of our common stock owned by our existing stockholders will be diluted.
Were
our common stock to become subject to the penny stock rules then this could result in U.S. broker-dealers becoming discouraged from effecting
transactions in shares of our common stock.
Rule
15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. If we do not retain a listing on the Nasdaq Capital Market or do not meet certain net tangible asset or average revenue requirements
and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. For any transaction involving
a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny
stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information
and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure
schedule prescribed by the SEC relating to the penny stock market, which: (a) sets forth the basis on which the broker or dealer made
the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior
to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock”
rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions
payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
Sales
of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares
and have a depressive effect on the price of the shares of our common stock.
A
portion of our outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities
Act of 1933, as amended, or the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required
under applicable state securities laws. Rule 144 provides in essence that an affiliate (as such term is defined in Rule 144(a)(1)) of
an issuer who has held restricted securities for a period of at least six months (one year after filing Form 10 information with the
SEC for shell companies and former shell companies) may, under certain conditions, sell every three months, in brokerage transactions,
a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly
trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the
OTC Markets). Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is
not an Affiliate of the Company and who has satisfied a one-year holding period. A sale under Rule 144 or under any other exemption from
the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect
upon the price of our shares of common stock in any active market that may develop.
We
are a former “shell company” and as such are subject to certain limitations not applicable to other public companies generally.
Prior
to our suspension of reporting in 2012, we were a public reporting “shell company,” as defined in Rule 12b-2 under the Exchange
Act. Although we are no longer a “shell company,” we are subject to certain restrictions under the Securities Act for the
resale of securities issued by issuers that have been at any time previously a shell company. Specifically, the Rule 144 safe harbor
available for the resale of our restricted securities is only available to our stockholders if we have filed all reports and other materials
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, as applicable,
during the preceding twelve months, other than current reports on Form 8-K, at the time of the proposed sale, regardless of whether the
restricted securities were initially issued at the time we were a shell company or subsequent to termination of such status. Accordingly,
holders of our “restricted securities” within the meaning of Rule 144 will be subject to the conditions set forth in Rule
144 with respect to our company. Other reporting companies that are not former shell companies and have been reporting for more than
twelve months are not subject to this same reporting threshold for non-affiliate reliance on Rule 144. Accordingly, any restricted securities
we have sold or sell in the future or issue to consultants or employees, in consideration for services rendered or for any other purpose,
may not be resold unless such securities are registered with the SEC or the requirements of Rule 144 have been satisfied. As a result,
it may be harder for us to fund our operations and pay our employees and consultants with our securities instead of cash. Furthermore,
it may be harder for us to raise funding through the sale of debt or equity securities unless we agree to register such securities with
the SEC, which could cause us to expend additional resources in the future. Our prior status as a “shell company” could prevent
us in the future from raising additional funds, engaging employees and consultants, and using our securities to pay for any acquisitions,
which could cause the value of our securities, if any, to decline in value or become worthless.