| SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES The
consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”),
applied on a consistent basis, as follows: a.
Use of estimates The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Information
about assumptions made by the Company with respect to the future and other reasons for uncertainty with respect to estimates that have
a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are
included in the following units reporting: Estimated
impairment of non-financial assets The Company examines on an annual basis whether there is an impairment of goodwill, intangibles and property, plant
and equipment that are allocated to reporting units, in accordance with the accounting policy presented in Note 1 (h) below. The fair
value calculations of reporting units require the use of estimates. For
information on key assumptions used in calculation of the fair value, see NOTE 7 – Goodwill and other Intangible assets. b.
Functional currency : The
currency of the primary economic environment in which the operations of the Company is conducted is the United States Dollar and thus
it is the Company’s functional currency. The reporting currency according to which these financial statements are prepared is the
U.S. dollar. The
currency of the primary economic environment in which the operation of the Subsidiary, My Size Israel and Orgad International Marketing
Ltd. functional currency is the New Israeli Shekel (“NIS”). The
currency of the primary economic environment in which the operation of the Subsidiary, My Size LLC, functional currency is Russian Ruble. The
currency of the primary economic environment in which the operation of the Subsidiary, Naiz fit, functional currency is Euro. MY
SIZE, INC. AND ITS SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS U.S.
dollars in thousands (except share data and per share data) NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) c. Principles of consolidation The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated upon consolidation. d.
Cash equivalents Cash
equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or
less at the date acquired. e.
Restricted cash Restricted
cash are deposits for rent, credit card and for hedging activities. f.
Inventories Inventories
are measured at the lower of cost or net realizable value. The cost of inventories comprises of the costs incurred in bringing the inventories
to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business. At the
point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances
do not result in the restoration or increase in that newly established cost basis. The costs of purchase of inventories comprise the purchase price and other costs directly
attributable to the acquisition of finished goods. Net realizable value is the estimated selling price in the ordinary course of business.
At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly established cost basis. In 2023, the company recorded an inventory
mark-down of $ 39 g.
Property and equipment Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated
useful lives of the assets, at the following annual rates: SCHEDULE
OF PROPERTY AND EQUIPMENT ANNUAL RATE
%
Computers and peripheral equipment 33
Office furniture and equipment 7 20
Leasehold improvements Over the term of the lease or the useful life of the improvements, whichever is shorter h.
Impairment of long-lived assets The
Company’s property and equipment are reviewed for impairment in accordance with ASC 360, “Property Plant and Equipment”,
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to
be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. During the periods ended December 31, 2023 and 2022, no i. Business combinations The
Company applies the provisions of ASC 805, “Business Combination” and allocates the fair value of purchase consideration
to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess
of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
When determining the fair values of assets acquired and liabilities assumed, the Company estimated the future expected cash flows from
acquired platform, customer relationships, Technology and trademark from a market participant perspective, useful lives and discount
rates. In addition, management makes significant estimates and assumptions, which are uncertain, but believed to be reasonable. Acquisition-related
costs are recognized separately from the acquisition and are expensed as incurred. MY
SIZE, INC. AND ITS SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS U.S.
dollars in thousands (except share data and per share data) NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) j.
Goodwill Goodwill
represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination.
Under ASC 350, “Intangible - Goodwill and Other”, goodwill is not amortized, but rather is subject to an annual impairment
test. ASC
350 requires goodwill to be tested for impairment at the reporting unit level at least annually, the fourth quarter, or between annual
tests in certain circumstances, and written down when impaired. Goodwill is tested for impairment by comparing the fair value of the
reporting unit with it carrying value. ASC
350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill
impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further
impairment testing is required. If it does result in a more likely than not indication of impairment, the impairment test is
performed. Goodwill is not deductible for income tax purposes. Goodwill from the Orgad acquisition was allocated to the fashion and
equipment e-commerce platform segment and goodwill from Naiz acquisition was allocated to the Naiz segment based innovative
artificial intelligence driven measurement solutions. Alternatively,
ASC 350 permits an entity to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step
of the goodwill impairment test. Impairment charge of $ 671 k. Intangible assets Intangible
assets consist of identifiable intangible assets that the Company has acquired from previous business combinations. Intangible assets
are recorded at costs, net of accumulated amortization. The Company amortizes its intangible assets reflecting the pattern in which the
economic benefits of the intangible assets are consumed. When a pattern cannot be reliably determined, the Company uses a straight-line
amortization method. Amortization is calculated by the straight-line method over the estimated useful lives of the following assets. The
estimated useful lives of the company’s intangible assets are as follows: SCHEDULE OF INTANGIBLE ASSETS ESTIMATED USEFUL LIVES
years
Customer
Relationships 7
Technology 5
Trademark 5
Selling
Platform 3 Each
period the Company evaluates the estimated remaining useful lives of its intangible assets and whether events or changes in circumstances
warrant a revision to the remaining period of amortization l. Severance pay The
Subsidiary’s liability for severance pay is covered by Section 14 of the Israeli Severance Pay Law (“Section 14”).
Under Section 14, employees in Israel are entitled to have monthly deposits, at a rate of 8.33 MY
SIZE, INC. AND ITS SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS U.S.
dollars in thousands (except share data and per share data) NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) m.
Research and development costs Research
and development costs are charged to the statement of operations, as incurred. Most of the research and development expenses are for
wages, related expenses and subcontractors. Software development costs also include costs to develop software to be used solely to meet internal needs and cloud-based
applications used to deliver our services. The Company capitalize development costs related to these software applications once the preliminary
project stage is complete and it is probable that the project will be completed and the software will be used to perform the function
intended. Costs capitalized for developing such software applications were not material for the periods presented and therefore were not
capitalized. n.
Income taxes The
Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Companies’
tax returns. Deferred taxes are determined based on the difference between the financial statement carrying amount and the tax basis
of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company
assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based
upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized.
The Company establishes a valuation allowance, if necessary, to reduce deferred tax assets to the amount more likely than not to be realized.
As of December 31, 2023, and 2022, a valuation allowance was established by the Company. The
Company implements a two-step approach to recognize and measure the benefit of its tax positions. The first step is to evaluate the tax
position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely
than not that, on an evaluation of the technical merits, the tax position will be sustained on examination, including resolution of any related
appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is greater than 50 percent
(cumulative basis) likely to be realized upon settlement. o.
Accounting for stock-based compensation The
Company accounts for its employees’ stock-based compensation as an expense in the financial statements based on ASC 718. All awards
are equity classified and therefore such costs are measured at the grant date fair value of the award and graded vesting attribution
approach to recognize compensation cost over the vesting period. The Company estimates stock option grant date fair value using the Binomial
and Black Scholes option pricing-model. The
Company recorded stock options issued to non-employees at the grant date fair value, and recognizes expenses over the related service
period by using the straight-line attribution approach in accordance with ASU 2018-07. All awards are equity classified. The
expected volatility of the share prices reflects the assumption that the historical volatility of the share prices is reasonably indicative
of expected future trends. The
risk-free interest rate for grants with an exercise price denominated in USD for employees and several consultants is based on the yield
from US treasury zero-coupon bonds with an equivalent term. The
Company has historically not paid dividends and has no foreseeable plans to pay dividends. MY
SIZE, INC. AND ITS SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS U.S.
dollars in thousands (except share data and per share data) NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) p.
Fair value of financial instruments ASC
820, Fair Value Measurements and Disclosures, relating to fair value measurements, defines fair value and established a framework for
measuring fair value. The ASC 820 fair value hierarchy distinguishes between market participant assumptions developed based on market
data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant
assumptions developed based on the best information available in the circumstances. ASC 820 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date, essentially an exit price. In addition, the fair value of assets and liabilities should include consideration of non-performance
risk, which for the liabilities described below includes the Company’s own credit risk. As
a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the
valuation methodologies in measuring fair value:
Level
1 - Valuations
based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and
block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly
available in an active market, valuation of these products does not entail a significant degree of judgment.
Level
2 - Valuations
based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly
or indirectly.
Level
3 - Valuations
based on inputs that are unobservable and significant to the overall fair value measurement. The
Company holds share certificates in iMine Corporation (“iMine”) formerly known as Diamante Minerals, Inc., a publicly-traded
company on the OTCQB. Due
to sales restrictions on the sale of the iMine shares, the fair value of the shares was measured on the basis of the quoted market price
for an otherwise identical unrestricted equity instrument of the same issuer that trades in a public market, adjusted to reflect the
effect of the sales restrictions and is therefore, ranked as Level 2 asset. q.
Basic and diluted net loss per share Basic
net loss per share is computed based on the weighted average number of shares of common stock outstanding during each year. Diluted net
income per share is computed based on the weighted average number of shares of common stock outstanding during each year plus dilutive
potential equivalent common stock considered outstanding during the year, in accordance with ASC 260, “Earnings per Share”.
For the years ended December 31, 2023 and 2022, all outstanding options and warrants have been excluded from the calculation of the diluted
net loss per share since their effect was anti-dilutive. r. Concentrations of credit risk Financial
instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and
cash equivalents. Cash
and cash equivalents are invested in banks in Israel, Spain and United States. Such deposits in Israel may be in excess of insured limits
and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company’s investments
are financially sound and, accordingly, minimal credit risk exists with respect to these investments. The
Company and its subsidiaries have no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts
or other foreign hedging arrangements. MY
SIZE, INC. AND ITS SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS U.S.
dollars in thousands (except share data and per share data) NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) s.
Revenue Recognition The
Company’s revenues are comprised of two main categories: (1) selling products to customers, and (2) licensing cloud-enabled software
subscriptions, associated software maintenance and support. The
Company recognizes revenue in accordance with ASC Topic 606, Revenues from Contracts with Customers (“ASC 606”). A contract
with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations,
the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”),
the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and
it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that
will be transferred to the customer. Revenues
from licensing cloud-enabled software subscriptions include subscription fees from customers accessing the Company’s enterprise
cloud services. Cloud Services allow customers to use the Company’s software without taking possession of the software. Revenue
is generally recognized ratably over the contract term. Substantially all of the Company’s subscription service arrangements are
non-cancelable and do not contain refund-type provisions. The Company also sells products directly to customers
mainly through its online Amazon stores. Under the Company ’ s
standard contract terms, customers have a right of return within 30 until 90 days. For contracts with rights of return, the Company recognizes
revenue based on the amount of the consideration which the Company expects to receive for products which are not expected to be returned
and recognizes a refund liability for the amount not expected to be received. At the end of each reporting period, the Company updates
its estimates of expected product returns and adjusts the refund liabilities with a corresponding adjustment in revenues. The Company
recorded an allowance for returns in the amounts of $ 260 161 The
Company maintains a returns policy that allows its customers to return product within a specified period of time. The estimate of the
provision for returns is based upon historical experience with actual returns. Principal
versus Agent Considerations The
Company follows the guidance provided in ASC 606 for determining whether it is a principal or an agent in arrangements with customers,
by assessing whether the nature of the Company’s promise is a performance obligation to provide the specified goods (principal)
or to arrange for those goods to be provided by the other party (agent). With regard to products being sold by Orgad through Amazon,
this determination involves judgment. The Company determined it is a principal, as it has determined that it controls the promised product
before it is transferred to the end customers, it is primarily responsible for fulfilling the promise to provide the goods, and it has
discretion in establishing prices. Therefore, the revenues are recorded on a gross basis. MY
SIZE, INC. AND ITS SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS U.S.
dollars in thousands (except share data and per share data) NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) t. Contingencies and Commitments Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable
that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies
are expensed as incurred. u.
Derivative instruments The
Company accounts for its derivative instruments as either assets or liabilities and measures them at fair value through profit or loss. v.
Leases The
Company leases include an office space lease agreement for 36 months, with an option to extend for an additional 36 months and 36 months
cancelable operating lease agreements on behalf of personnel vehicles. The lease term includes a non-cancellable period of the lease
plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably
certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. ROU
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on
the present value of lease payments over the lease term. The company generally use its incremental borrowing rate based on the estimated
rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Lease expense for lease
payments is recognized on a straight-line basis over the lease term. For
the office rent lease, the Company has elected to account for the lease and non-lease maintenance components as a single lease component.
Therefore, the lease payments used to measure the lease liability include all of the fixed consideration in the contract, including in-substance
fixed payments, owed over the lease term. w.
Impact of recently issued accounting standards
1. In June 2016, the FASB issued
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”,
which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform
credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify
implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As an Emerging Growth Company,
ASU 2016-13 is effective for fiscal years beginning after December 15, 2022.
2. In June 2022, the FASB issued ASC 2022-03 “Fair Value Measurement of Equity Securities Subject to Contractual
Sale Restrictions”. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of
the unit of account of the equity security and, therefore, is not considered in measuring its fair value. The ASU also clarifies that
an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The ASU also introduces new disclosure
requirements for equity securities subject to contractual sale restrictions. As an Emerging Growth Company, the ASU is effective for fiscal
years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and
annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the effect
that ASU 2022-03 will have on its consolidated financial statements and related disclosures.
3. In December, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disclosure
of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies
other income tax-related disclosures. The ASU will be effective for fiscal years beginning after December 15, 2024, and allows adoption
on a prospective basis, with a retrospective option. The Company is in the process of assessing the impacts and method of adoption. This
ASU will impact the Company’s income tax disclosures, but not Consolidated Financial Statements.
4. In November 2023, the FASB issued ASU 2023-07, Segment
Reporting (Topic 280): Improvements to Reportable Segment Disclosures, This guidance expands public entities’ segment disclosures
primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and
included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items,
and interim disclosures of a reportable segment’s profit or loss and assets which updates reportable segment disclosure requirements
primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after
December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments
should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating this
ASU to determine its impact on the Company’s segment disclosures.
5. In March 2024, the SEC adopted new rules relating to the disclosure of a range of climate-hange-related physical and
transition risks, data, and opportunities. The adopted rule contains several new disclosure obligations, including, (i) disclosure on
how the board of directors and management oversee climate-related risks and certain climate-related governance items, (ii) disclosure
of information related to a registrant’s climate-related targets, goals, and/or transition plans, and (iii) disclosure on whether
and how climate-related events and transition activities impact line items above a threshold amount on a registrant’s consolidate
financial statements, including the impact of the financial estimates and the assumptions used. This new rule will be effective in the
Company’s annual disclosures starting from the year ending December 31, 2027. The Company is in the process of assessing the impact
on its consolidated financial statements and disclosures. MY
SIZE, INC. AND ITS SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS U.S.
dollars in thousands (except share data and per share data) |
