My Size, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2016. The filing cover contains an apparent typo (“March 31, 2106”); the statements and index identify the period as 2016. Financial amounts below are in U.S. dollars, thousands, unless noted.
Business context
My Size was developing mobile measurement technology for clothing fit and related applications. It reported one operating segment, with long-lived assets in Israel. The filing provides no clear revenue figure for the quarter; the income statement presents operating expenses and financial income but no revenue line.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Research and development expense | $177 | $36 |
| Marketing, general and administrative expense | $326 | $306 |
| Total operating expenses / operating loss | $503 / ($503) | $342 / ($342) |
| Net financial income (expense) | $614 | ($22) |
| Net income (loss) | $111 | ($364) |
| Total comprehensive income (loss) | $88 | ($371) |
| Operating cash flow | ($479) | ($219) |
| Investing cash flow | ($13) | ($9) |
The $614 net financial income, primarily from warrant valuation, more than offset the operating loss; the resulting quarterly profit therefore does not reflect profitable operations. No operating margin is calculable from the reported income statement. The filing reports basic earnings per share of $0.01; diluted per-share figures are inconsistent within the filing and should be verified.
At March 31, cash and cash equivalents were $425, down from $919 at December 31, 2015. Current assets were $2,634 versus current liabilities of $4,240, including $3,930 of short-term convertible loans. Total assets were $2,706; stockholders’ deficiency was $1,534. The company also held $1,012 in marketable securities and $989 in put options on DIMN shares. No conventional interest-bearing debt total or debt maturity schedule is clearly provided beyond the convertible-loan disclosures.
Material changes and unusual items
- Operating expenses rose 47% year over year, mainly because R&D expense increased with subcontractor costs related to a new client engagement. Management also identified $37 of irregular legal expenses and $45 of U.S. and U.K. listing-related expenses in the quarter.
- Warrant and embedded-conversion-option liabilities fell sharply after warrant terms were amended in January 2016: exercise prices changed from U.S. dollars to NIS, allowing warrants to be classified in equity. The filing records a $1,041 noncash reclassification to additional paid-in capital. The warrant/derivative valuation was the principal source of reported financial income.
- Operating cash use increased from $219 to $479 year over year, while cash declined by $494 during the quarter. There was no financing cash flow reported for the quarter.
- In March, the company signed a collaboration and license agreement with LSY International. Terms include a 7.5% share of sales, monthly maintenance/service fees, implementation fees totaling $100, and potential exclusivity subject to minimum income conditions. The company had received $10, recorded as deferred revenue, by the reporting date.
- A courier-app collaboration had completed initial Android and iOS development, but the filing says the application was not final and further development continued.
Liquidity, outlook, risks and contingencies
Management disclosed continuing operating losses and negative operating cash flow that raised substantial doubt about the company’s ability to continue as a going concern. It stated that sufficient funds had been raised to meet expected obligations for the next 12 months and that this alleviated the going-concern conditions. The company nevertheless depends on obtaining additional funding; no revenue or profitability guidance is provided, and management cautions that quarterly results are not indicative of full-year results.
Subsequent events included a May 16 appointment of a trustee for $3.45 million of investment funds, available to the company on demand; May amendments extending $7.35 million of convertible loans to March 31, 2018; and approval of additional convertible loans totaling $1.055 million. The filing also presents a pro forma balance sheet using $4.505 million of additional convertible-loan investments and automatic loan conversion upon a U.S. national exchange listing; these are pro forma assumptions, not March 31 reported balances.
Legal exposures include a shareholder claim seeking damages related to share registration, which the company said it could not quantify; a separate disputed loan claim for which a provision was recorded and counsel saw a reasonable chance of compromise; other shareholder litigation with outcomes not estimable; and a prior demand for approximately $1.4 million that the company denied and for which it recorded no allowance. The filing also describes a possible €60 compensation obligation under the IN SITU cooperation agreement if specified integration obligations were not met; the parties reportedly intended to continue cooperating after delays.
Disclosed business risks include the need for additional capital and possible dilution, uncertain consumer and retailer acceptance, technology and intellectual-property protection, dependence on key personnel, public-company compliance costs, litigation, and limited trading liquidity. The filing states that the common stock was listed only on the Tel Aviv Stock Exchange and that no active market existed.
Investor verification checklist
- Confirm the correct reporting-period date and reconcile the filing’s inconsistent diluted EPS disclosures.
- Determine whether the $614 financial gain is nonrecurring and understand the valuation assumptions for warrants, derivatives, and DIMN put options.
- Verify the status, availability, and conditions of the $3.45 million trustee-held funds, the $7.35 million loan extensions, and the additional $1.055 million financing.
- Assess actual cash runway, loan conversion and maturity terms, and whether further capital raises or dilution are likely.
- Check progress toward commercial integration, revenue recognition, and contractual minimum-income or exclusivity requirements under the LSY agreement.
- Monitor the shareholder claims, related legal provisions, and any potential liabilities not quantified in the filing.