My Size, Inc. — Form 10-Q summary
Reporting period: Quarter and six months ended June 30, 2016; amounts are in U.S. dollars unless noted. The filing cover contains an apparent date typo (“June 30, 2106”); the statements and filing contents identify the period as June 30, 2016.
Business context
My Size develops measurement technology based on algorithms, with intended applications in apparel e-commerce and other mobile applications. The filing reports no revenue line or gross profit; margins therefore are not available. Results reflect a development-stage business with operating expenses and financing-related fair-value changes.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Operating expenses | $750,000 (2015: $527,000) | $1.253 million (2015: $869,000) |
| Operating loss | $750,000 (2015: $527,000) | $1.253 million (2015: $869,000) |
| Financial expense, net | $2.757 million (2015: $366,000) | $2.143 million (2015: $388,000) |
| Net loss | $3.507 million (2015: $893,000) | $3.396 million (2015: $1.257 million) |
| Basic and diluted loss per share | $0.23 (2015: $0.06) | $0.22 (2015: $0.08) |
At June 30, cash and cash equivalents were $98,000, versus $919,000 at year-end 2015. Marketable securities were $1.519 million; total assets were $1.884 million. Current assets of $291,000 were below current liabilities of $1.080 million, yielding reported negative working capital of $789,000. The balance sheet showed no short-term convertible loans, but included $618,000 of embedded-conversion derivative liabilities and $33,000 of warrant liabilities. Stockholders’ equity was $804,000, versus a $2.613 million deficiency at year-end.
Six-month operating cash use was $1.064 million (2015: $597,000); investing cash use was $23,000, and financing cash provided was $279,000. Management cited a current monthly cash burn of about $154,000. It reported fundraising agreements totaling $8.405 million, of which $4.179 million had been received by June 30; the remaining $4.226 million was subsequently received in cash, checks, or guarantees. The company said it relied on these receipts and guarantees to meet foreseeable obligations.
Changes versus prior period and notable items
- Six-month operating expenses rose 44% year over year, with R&D increasing to $328,000 from $105,000, primarily due to subcontractors and new employees. Marketing, general and administrative expense rose to $925,000 from $764,000.
- Financial expense increased substantially, mainly from creation and revaluation of warrant and derivative components. This non-operating expense was a major contributor to the larger net loss.
- In January, warrants were amended to use a shekel exercise price and reclassified from liabilities to equity, adding $1.041 million to additional paid-in capital. Convertible loans were also converted into equity following Nasdaq listing approval; after the period, the company issued about 1.529 million shares for $5.350 million of loans.
- Cash declined by $821,000 during the first half. The company held about 3.617 million Diamante Minerals shares, valued at $1.519 million at June 30; it later reported receiving Inrob Tech shares valued at $440,000.
Outlook, risks and contingencies
The filing provides no quantified revenue or earnings guidance. Management warned that first-half results are not necessarily indicative of full-year results. Commercialization efforts included a package-measurement application with a courier, a collaboration with a luxury-clothing seller, and other technology integrations; the agreements and testing/integration milestones make prospective income conditional. Under the LSY agreement, the company reported receiving $10,000 in setup fees, recorded as deferred revenue pending satisfaction of recognition conditions.
Liquidity is a significant risk: at period-end cash was limited, working capital was negative, operating cash flow was negative, and management depended on fundraising proceeds and guarantees. The company also faced litigation. In one share-registration case, management said the likelihood of the requested non-monetary remedy being granted exceeded the likelihood of dismissal, but assessed monetary exposure as insignificant at that stage. A separate loan dispute was settled for NIS 250,000, with a further NIS 50,000 payable upon specified conditions; the filing said the terms had not yet been implemented. Another shareholder demand sought about $1.4 million, for which the company recorded no allowance. The filing also describes other shareholder litigation and a potential contractual penalty under an older cooperation agreement.
Nasdaq trading began July 25, 2016. Disclosure controls were reported effective, and management reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether all $4.226 million of post-period fundraising was received in cleared cash or remains partly dependent on checks or guarantees, and the terms of the financing.
- The company’s cash runway, ongoing monthly burn, and ability to fund operations without further financing.
- The accounting and cash-flow effects of derivative and warrant revaluations, which materially increased reported losses.
- Share dilution from the post-quarter issuance of approximately 1.529 million shares and other convertible loans, options, or warrants; compare with 16,842,361 shares outstanding on August 12, 2016.
- Updates on litigation outcomes, settlement payments, and any potential liabilities or penalties.
- Commercial-launch progress, revenue recognition conditions, and whether collaboration agreements produce material recurring revenue.
- The apparent cover-page year typo and the precise post-period financing and share-issuance figures, which vary slightly in different filing passages.