My Size, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. Financial amounts are in U.S. dollars, in thousands, unless otherwise indicated. The company develops measurement technology for apparel e-commerce and other applications; it reported no operating revenue and said it had no commercial products.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $172 | $112 | $500 | $217 |
| Marketing, general and administrative expense | $434 | $364 | $1,359 | $1,128 |
| Total operating expenses / operating loss | $606 / $(606) | $476 / $(476) | $1,859 / $(1,859) | $1,345 / $(1,345) |
| Net loss from continuing operations | $(724) | $(1,614) | $(4,120) | $(2,871) |
| Basic and diluted loss per share | $(0.04) | $(0.11) | $(0.26) | $(0.19) |
Margins are not meaningful because the company had no revenue. Q3 financial expense was $118, versus $1,138 in Q3 2015; nine-month financial expense rose to $2,261 from $1,526, primarily from the creation and revaluation of options, derivatives, and marketable securities.
- Liquidity at September 30: Cash and cash equivalents were $143, down from $919 at December 31, 2015. Current assets were $692, including $485 of other receivables and prepaid expenses and $64 of restricted cash. Marketable securities were $687, compared with $1,808 at year-end; the company held approximately 3.617 million DIMN shares. It reported the shares’ value at about $506 as of the financial-statement release.
- Cash flows, nine months: Operating cash outflow was $1,748, compared with $913 in 2015; investing outflow was $31, compared with $21; financing inflow was $1,018, compared with $1,937. Cash ended the period at $143.
- Debt and equity: Short-term convertible loans were zero at quarter-end, versus $3,470 at year-end 2015. The company reported converting loans into 2,091,566 shares for $7,320 during the period. Current liabilities were $434 and total assets were $1,457. Stockholders’ equity was $1,023, versus a $2,613 deficiency at year-end; accumulated deficit was $11,430.
Material changes and developments
- Nine-month operating expenses increased, including R&D expense that more than doubled, as the company expanded activity, subcontracting, and staffing. The nine-month net loss widened, while the Q3 net loss narrowed, partly because derivative-related financial expense decreased.
- On June 10, 2016, the company received Nasdaq listing approval; its shares began trading there July 25. Convertible loans were converted into equity, and outstanding shares increased.
- The company amended warrants in January, changing the exercise price from U.S. dollars to NIS; the warrants were reclassified from liabilities to equity. The reported $1,041 reclassification affected equity accounting.
- A courier-technology collaboration progressed to a beta integration. The company announced the BoxSizeID app launch on November 7, 2016, after quarter-end, and said it was piloting the app with Katz Deliveries.
- A March 2016 collaboration with LSY International provides for a 7.5% share of qualifying sales, monthly maintenance fees, and implementation payments subject to milestones. At the reporting date, only $10 had been received and recorded as deferred revenue.
Outlook, risks, contingencies, and unusual items
- Funding outlook: Management said available cash and amounts under bank guarantees were expected to fund intended objectives for 20 months; a note also said the company anticipated meeting obligations for the next year. Fundraising agreements totaled $7,815, of which $4,258 was reported received in cash and marketable securities and $3,557 in checks and guarantees from an unrated financial institution. An additional $400 was received in cash after quarter-end. The company depended on collecting guarantees and selling securities and warned that failure to do so, or inability to obtain further financing on acceptable terms, could require it to curtail operations. No firm additional financing commitment was reported.
- The company had incurred an accumulated deficit of approximately $11.3 million since inception, expected further losses, and said development was at an early stage, with costs and completion timing not estimable. It had not capitalized development costs.
- A shareholder claim concerning registration of shares seeks financial compensation, including alleged damages of NIS 2,622,500 and other amounts. The company said the requested remedy was more likely to be accepted than dismissed, but the financial exposure was difficult to estimate; management considered the recorded provision sufficient. Another loan-related lawsuit was settled for NIS 250,000, with a further NIS 50,000 payable upon a specified event; the filing said that event had not occurred by signing.
- Other disclosed matters include litigation concerning shares tied to the Metamorefix transaction and a denied demand letter seeking about $1.4 million. An older cooperation agreement with IN SITU includes potential compensation of €60,000 for failure to meet integration obligations; the parties reportedly continued cooperation on an extended timetable.
- Management reported disclosure controls were effective as of period-end and no material change in internal control over financial reporting during the quarter. The company identified itself as a smaller reporting company.
Important facts for investors to verify
- Whether the outstanding checks and bank guarantees were collected, and the actual cash runway following the reported post-quarter receipt.
- Current liquidity and realizable value of DIMN shares, including the change from $687 at quarter-end to approximately $506 at the financial-statement release.
- Progress toward monetizing the measurement and BoxSizeID technology, since the company reported no operating revenue and only $10 of deferred revenue from LSY at quarter-end.
- Developments and potential exposure in the shareholder litigation, the Metamorefix matter, and the settlement payment obligations.
- Share-count reconciliation: the balance sheet and cover page report 17,405,359 shares outstanding, while the equity statement lists 17,405,539 at September 30; verify the correct figure and subsequent dilution.