My Size, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated financial statements; amounts below are in U.S. dollars, thousands, except per-share data. My Size develops mobile-device measurement technology, with a primary focus on apparel e-commerce and additional shipping and DIY applications.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $31 | $88 | $88 | $139 |
| Gross profit | $31 | $87 | $88 | $137 |
| Operating expenses | $2,507 | $1,729 | $7,943 | $4,572 |
| Operating loss | $2,026 | $1,642 | $7,855 | $4,435 |
| Net loss | $2,008 | $1,674 | $7,805 | $4,437 |
| Basic and diluted loss per share | $(0.13) | $(0.23) | $(0.62) | $(0.89) |
- Revenue fell 65% year over year in Q3 and 37% for the nine-month period. Management attributed the decline mainly to customer-project fees in the prior-year periods; increased MySizeID traffic partly offset the decrease.
- Reported cost of revenue was zero in 2021, producing a 100% gross margin on the small revenue base. The 2020 statements show a small negative cost of revenue; reported gross profit therefore slightly exceeded revenue.
- Nine-month operating expenses rose 74%. Research and development expense increased to $3,842, including a $2,618 noncash charge for shares issued in exchange for a shareholder’s waiver of rights to business-critical intellectual property. Excluding that charge, reported expense growth would be materially lower.
- Cash, cash equivalents and restricted cash were $3,809 at September 30, versus $1,774 at December 31, 2020. Nine-month operating cash use was $3,984; investing activities provided $172 and financing activities provided $5,857. Stockholders’ equity was $3,088.
- Current assets were $3,967 and current liabilities $1,391, implying working capital of $2,576. Total liabilities were $1,884, including operating lease liabilities of $623; the filing reports no material capital-expenditure commitments for the next 12 months.
- Financing included January and March 2021 public offerings and a May overallotment, plus warrant exercises. After quarter-end, warrant exercises generated $2,889, and October offerings generated approximately $7,560 net proceeds. The company had 15,069,587 shares outstanding at quarter-end; 23,982,503 were reported outstanding on November 10, 2021.
Changes, outlook, and risks
- Management said it expects continued losses and negative operating cash flow and does not expect meaningful revenue in the upcoming quarters. Retailer integration, pilots and rollout take time before they may generate material revenue.
- Taking account of post-quarter warrant proceeds and the October financing, management believed cash would cover obligations for more than 12 months. It also said additional capital would be needed in the future and may not be available on acceptable terms, if at all; equity financing could substantially dilute shareholders.
- COVID-19 disrupted sales and marketing: three international-retailer pilots were halted, and customer meetings, conferences and sales processes were delayed or curtailed. Management noted increased demand for MySizeID but said the duration and effects of the pandemic remained uncertain.
- On May 26, the company issued 2.5 million shares to Shoshana Zigdon for a waiver of repurchase and other rights relating to acquired assets and intellectual property on which the business is substantially dependent. The related $2,618 expense was recorded in research and development.
- Legal matters include the company’s dispute with North Empire, with summary-judgment motions filed and the company stating it believes the counterclaims are more likely than not to be denied; a separate Israeli claim seeking approximately $450 in monetary relief plus declaratory relief, which the company said it could not yet evaluate; and shareholder activism litigation. A November 4 settlement with the Lazar Parties provided for a $275 payment and a five-year standstill, among other terms.
- Management identified risks including ongoing losses and financing needs, customer adoption of new technology, competition, COVID-19, litigation, dependence on key personnel and the political and security situation in Israel. Disclosure controls were concluded to be effective as of September 30, 2021, with no material quarterly change in internal control over financial reporting.
Investor verification priorities
- Confirm current cash runway and subsequent financing terms, including the share and warrant dilution and any warrant exercises after the reported dates.
- Track revenue conversion from MySizeID usage, customer pilots and retailer integrations against management’s expectation that meaningful revenue will take time.
- Reconcile Q3 general and administrative expense: the financial statements and MD&A table report $1,074, while the MD&A narrative cites $799 for Q3 2021.
- Monitor the North Empire, Fidelity Venture Capital and remaining SDNY litigation matters, as well as the costs and obligations under the shareholder settlement.