My Size, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited consolidated financial statements; amounts below are in U.S. dollars and, unless noted, thousands.
Business context
My Size develops smartphone-based measurement technology, primarily for apparel e-commerce, with additional shipping and DIY applications. The company was in the commercialization phase and reported minimal revenue. It changed its parent-company functional currency from the Israeli shekel to the U.S. dollar effective January 1, 2020; its Israeli subsidiary continues to use the shekel.
Financial highlights
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $30 | $20 |
| Gross profit | $29 | $19 |
| Gross margin | 96.7% | 95.0% |
| Operating expenses | $1,489 | $1,282 |
| Operating loss | $(1,460) | $(1,263) |
| Net loss | $(1,459) | $(1,527) |
| Basic and diluted loss per share | $(0.58) | $(0.76) |
| Cash used in operations | $(1,436) | $(1,199) |
| Cash, cash equivalents and restricted cash at period-end | $1,691 | $1,466 at Dec. 31, 2019 |
| Total assets / liabilities | $3,070 / $1,387 | $2,958 / $1,907 at Dec. 31, 2019 |
| Lease liabilities | $719 | $761 at Dec. 31, 2019 |
Cash and cash equivalents excluding restricted cash were $1,418 at March 31, 2020. The filing reports no conventional debt balance; lease obligations are shown separately. Current assets were $1,970 and current liabilities were $777.
Changes versus the prior comparable period
- Revenue rose 50%, from $20 to $30, primarily due to additional pilot and license agreements; revenue remained very small relative to operating costs.
- Operating loss widened by $197, or 16%, as operating expenses increased. Sales and marketing costs rose, principally from hiring a sales team and higher marketing and share-based compensation; R&D costs also increased. G&A costs declined.
- Net loss improved by $68, mainly because financial results shifted from $264 of net expense to $1 of net income, including a $12 gain from marketable securities revaluation.
- Operating cash use increased by $237. A January registered offering generated $1,694 net financing proceeds; cash, cash equivalents and restricted cash increased by $225 during the quarter.
- Total liabilities declined, primarily reflecting the $328 reclassification of warrants from liabilities to equity after the functional-currency change. The company also issued 514,801 shares in January.
Outlook, risks and unusual items
- Management expects continuing losses and negative operating cash flows and states that there is substantial doubt about the company’s ability to continue as a going concern. It plans to commercialize products and seek additional equity, debt or strategic-partner funding; financing may not be available on acceptable terms or at all.
- Management did not expect meaningful revenue in the upcoming quarters, citing customer integration and rollout lead times. Three international-retailer pilots were halted amid COVID-19 disruptions; conferences, customer meetings and fundraising were also at risk.
- On May 8, 2020, after quarter-end, the company completed an offering for $5,000 gross proceeds and approximately $4,300 net proceeds. It issued 1,925,001 shares, pre-funded warrants that were subsequently exercised, and warrants to purchase up to 4,545,454 shares. Proceeds were intended for a proposed joint venture, working capital and general corporate purposes; the financing does not remove the filing’s stated funding and execution risks.
- The company reported Nasdaq compliance with the stockholders’ equity requirement on May 12, 2020, closing that listing matter.
- North Empire LLC litigation remained in discovery. The company seeks damages of at least $616,000; North Empire’s counterclaims allege $10,958,589 in damages. The court dismissed a related third-party complaint against the CEO and former board chair in January 2020. The company said it believed the counterclaims were more likely than not to be denied.
- A non-binding letter of intent proposed a logistics joint venture in which My Size would initially hold 68%; formation remained subject to a definitive agreement.
Most important facts to verify
- Whether the May offering proceeds and subsequent warrant exercises provide sufficient runway, given Q1 operating cash use of $1,436 and management’s going-concern warning.
- The scale and timing of revenue conversion from pilots and customer agreements, including the status of COVID-19-delayed retailer pilots.
- Potential dilution from the May offering warrants and other outstanding warrants, alongside the 7,146,155 common shares reported outstanding as of May 14, 2020.
- The status and possible financial exposure of the North Empire litigation and whether the proposed logistics joint venture becomes binding.
- The MD&A results table gives Q1 2019 sales and marketing and G&A expenses as $371 and $619, respectively, while the financial statements show $345 and $645. The reported combined operating expenses match; investors should verify the line-item presentation.