My Size, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Financial amounts are in U.S. dollars, in thousands, except per-share data. The filing’s index refers to a quarter ended June 30, but the cover page and financial statements identify September 30, 2019.
Business context
My Size develops mobile measurement technology for apparel e-commerce, shipping and parcel services, and do-it-yourself applications. It reported initial revenue in 2019 while commercializing its products, including MySizeID and BoxSize. Management said customer integration, pilots and rollouts take time and that meaningful revenue was not expected in the upcoming quarters.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $6 | $0 | $31 | $0 |
| Gross profit | $6 | $0 | $30 | $0 |
| Research and development | $395 | $311 | $1,066 | $807 |
| Marketing, general and administrative | $1,210 | $771 | $3,389 | $3,103 |
| Operating loss | $(1,599) | $(1,082) | $(4,425) | $(3,910) |
| Net loss | $(1,350) | $(1,561) | $(4,243) | $(5,393) |
| Basic and diluted loss per share | $(0.05) | $(0.05) | $(0.14) | $(0.19) |
Nine-month gross margin was approximately 97% ($30 gross profit on $31 revenue); Q3 gross margin was 100% on $6 revenue. These margins reflect very small revenue amounts. Financial income was $182 for the nine months and $249 for Q3, including favorable warrant revaluations; the company remained loss-making.
At September 30, cash and cash equivalents were $2,561, restricted cash was $262, and total current assets were $3,254. Current liabilities were $1,511, including $700 of warrant and derivative liabilities; total liabilities were $1,524. The balance sheet showed no conventional borrowings. Stockholders’ equity was $1,910, down from $5,294 at December 31, 2018.
Nine-month operating cash use was $4,082, versus $2,798 in 2018. Investing activities provided $1,360, principally from deposit withdrawals; financing activities provided no cash, compared with $9,313 in 2018. Cash, cash equivalents and restricted cash ended the period at $2,823, down from $5,230 at year-end 2018.
Changes and management commentary
- Revenue began in 2019: $31 for the first nine months, primarily from pilot and license agreements; Q3 revenue of $6 was primarily attributed to a new license agreement.
- Operating loss increased year over year in both Q3 and the nine-month period as R&D and administrative and marketing costs rose. Management cited new hires, including a U.S. sales team, higher sales and marketing spending, and higher Q3 insurance costs.
- Net loss narrowed year over year, mainly because of favorable warrant and other liability revaluations and lower share-based and professional-services expenses, partly offset by higher payroll and sales and marketing expenses.
- The company adopted lease accounting in 2019 and recorded $30 of right-of-use assets and $30 of lease liabilities at September 30. It also signed a 36-month office lease beginning in August 2019, with monthly rent and utilities of approximately NIS 35,000.
Outlook, risks and unusual items
- Going concern: Management expects continued losses and negative operating cash flow and said existing cash was expected to fund operations only through the end of Q1 2020. The filing states there is substantial doubt about the company’s ability to continue as a going concern. Management plans to commercialize products and seek equity, debt or strategic-partner funding; financing may not be available on acceptable terms or at all.
- Potential dilution: A September 2019 at-the-market agreement permits sales of up to $5.5 million of common stock. No shares had been sold under the program as of the filing. The company warned that future equity or convertible financing could dilute existing stockholders.
- Nasdaq listing: Nasdaq granted an extension through January 20, 2020 to regain the minimum bid-price requirement and satisfy other continued-listing requirements. The company planned a reverse stock split, for which stockholders had authorized a ratio from 1-for-2 to 1-for-30.
- Litigation: In a dispute with North Empire LLC, the company seeks damages of at least $616,000; North Empire’s counterclaims allege damages of $10,958,589. Discovery was ongoing. The company said it believed the counterclaims were more likely than not to be denied.
- Other stated risks include customer adoption and commercialization, competition, access to capital, reliance on key personnel and strategic relationships, cybersecurity, litigation, and political and security conditions in Israel.
Important facts for investors to verify
- Whether the company secured financing after quarter-end and how long available cash ultimately funded operations.
- Revenue conversion from pilots, licenses and retailer integrations, including whether meaningful commercial revenue developed.
- Whether the company regained Nasdaq bid-price compliance by January 20, 2020, including any reverse split and continued-listing conditions.
- Any ATM share sales, other financing, and resulting dilution.
- Updates to the North Empire litigation and any changes to the going-concern assessment.