My Size, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Unaudited results are presented in U.S. dollars; financial statement amounts are in thousands except per-share data. The company develops measurement technology for apparel e-commerce, courier services and DIY applications. It reported no operating revenue and said it had no commercial products.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $311 | $213 | $807 | $624 |
| Marketing, general and administrative expense | $771 | $611 | $3,103 | $2,667 |
| Total operating expenses / operating loss | $1,082 | $824 | $3,910 | $3,291 |
| Net financial expense | $479 | Income of $17 | $1,483 | $228 |
| Net loss | $1,561 | $807 | $5,393 | $3,519 |
| Loss per share, basic and diluted | $0.05 | $0.04 | $0.19 | $0.19 |
| Operating cash used | Not stated by quarter | $2,798 | $2,472 |
No gross profit or margin was reported because the company had no operating revenue. Nine-month total comprehensive loss was $5,870, including $477 of foreign-currency translation loss.
Liquidity, debt and capital
- At September 30, cash and cash equivalents were $5.406 million, restricted cash $77,000, and short-term deposits $2.384 million. Together these totaled approximately $7.867 million; the cash-flow statement reports cash, cash equivalents and restricted cash of $5.483 million.
- Total assets were $8.438 million; current liabilities were $2.730 million. The balance sheet showed no short-term loan at September 30, compared with $558,000 at December 31, 2017; the remaining loan was repaid in February 2018.
- Nine-month investing cash outflow was $2.404 million, mainly reflecting placement of $2.380 million in short-term deposits. Financing cash inflow was $9.313 million, including securities offerings and warrant and option exercises.
- The February 2018 public offering raised $6.0 million gross and approximately $5.464 million net. Warrant exercises generated additional proceeds. Shares outstanding rose from 22.239 million at year-end 2017 to 29.710 million at September 30, 2018; 29.852 million were reported outstanding on November 16, 2018.
- Stockholders’ equity was $5.708 million, versus a $1.152 million deficit at December 31, 2017. Accumulated deficit was $22.441 million.
Changes and management commentary
- Nine-month net loss increased by $1.874 million year over year; Q3 net loss increased by $754,000. Management cited higher share-based compensation and professional-services costs, plus increased financial expenses from revaluation of warrants, derivatives and share-based compensation liabilities.
- R&D and marketing, general and administrative costs increased in both comparison periods. Management attributed higher R&D costs mainly to subcontractors and employee share-based payments; higher administrative and marketing costs included share-based payments, marketing and professional services.
- Financial results were affected by valuation movements: the company recorded a $338,000 gain on marketable securities for the nine months, while warrant and other liability revaluations contributed to financial expense. The filing describes fair-value measurement of the restricted iMine shareholding as a Level 2 valuation.
- Management said cash on hand was expected to fund obligations for more than 12 months. This is not earnings guidance: the company expected continued losses, had no commercial products, and said it could not estimate the cost or timing of completing product development.
Risks, contingencies and notable events
- Going-concern and execution risk: The company reported significant losses and negative operating cash flow, and had generated no operating revenue since inception. Continued operations depend on funding and product development and commercialization.
- Legal claims: North Empire asserted counterclaims alleging damages of approximately $10.959 million in a dispute over stock certificates; the company is seeking damages of at least $616,000. Management, citing counsel, believed the counterclaims were more likely than not to be denied. The filing does not establish the ultimate outcome.
- A class action related to Lightcom was dismissed with prejudice on November 19, 2018, after the reporting date. A separate shareholder appeal was dismissed and settlement endorsed in July 2018.
- The company received a Nasdaq minimum-bid-price deficiency notice in September 2018, then regained compliance on October 10, 2018, after the stock met the $1.00 threshold for 10 consecutive business days.
- Disclosure controls were deemed ineffective as of September 30, 2018 because of a material weakness in controls over fair-value measurement of a financial asset. Management said it established quarterly assessment controls and involved a valuation specialist. No material change in internal control over financial reporting was reported during the quarter.
- After quarter-end, the company entered employment agreements effective September 1, 2018 for its CEO, CFO, chief product officer and board chair. Monthly base salaries were NIS 50,000, NIS 30,000, NIS 40,000 and NIS 35,000, respectively, plus potential bonuses and benefits.
Important facts for investors to verify
- Progress toward commercial products, customer adoption and revenue generation, given the absence of revenue and the early stage of development.
- Cash burn and the assumptions underlying management’s estimate that available cash will last more than 12 months, including the availability and restrictions on deposits and cash.
- Warrant and share-based liability valuations, related non-cash earnings volatility, and the impact of further warrant exercises or equity financing on dilution.
- Developments in the North Empire litigation and any related financial exposure, as well as compliance with Nasdaq listing requirements.
- Whether the remediation of the fair-value control material weakness is effective in subsequent reporting periods.