My Size, Inc. — FY 2015 Form 10-K
Reporting period: Year ended December 31, 2015. Financial amounts below are in U.S. dollars, in thousands, unless otherwise noted. The company is an early-stage technology developer focused on smartphone-based measurement applications; it reported no revenue since inception.
Business context and progress
My Size is developing smartphone measurement products, principally MySizeID for apparel sizing and retailer integration, alongside courier measurement tools and SizeUp, a consumer tape-measure app. Its business model is not yet established; proposed apparel-platform revenue includes transaction-based fees or royalties, with other potential sources including advertising and in-store services.
- A pilot with Spanish apparel retailer Trucco was underway. The filing described focus-group and web-widget work as completed, with final integration then scheduled for Q2 2016.
- The company agreed with Israeli courier Katz Delivery Services to develop and integrate its technology; it expected an application in Q2 2016 and hoped to begin generating revenue in the second half of 2016.
- SizeUp launched in Q3 2015 and had more than 70,000 downloads through January 2016. It was free at the time of the filing.
- The company reported patent applications pending or under review, but no granted patents. It stated that its commercial success depended substantially on development, retailer integration, fundraising and intellectual-property protection.
Financial results and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $301 | $78 |
| Marketing, general and administrative expense | $1,594 | $586 |
| Total operating expenses / operating loss | $1,895 | $664 |
| Net financial expense | $1,542 | $9 |
| Net loss | $3,437 | $468 |
| Net loss per share | $0.22 | $0.04 |
| Net cash used in operating activities | $1,439 | $733 |
| Cash and cash equivalents at year-end | $919 | $645 |
Revenue-based margins are not meaningful because the company reported no revenue. Operating expenses rose 185% and net loss rose substantially year over year. Management attributed expense growth mainly to subcontractors, development activity, marketing and share-based compensation. Financial expense increased primarily from revaluation of new loans and warrants; the cash-flow statement includes $1,573 of noncash warrant and derivative valuation adjustments.
At December 31, 2015, total assets were $3,738, including $919 cash, $1,808 of marketable securities, $764 in DIMN share put options and $62 restricted cash. Current liabilities totaled $6,351, including $3,470 of short-term convertible loans, $1,239 of embedded derivative liabilities and $1,449 of warrant liabilities. Stockholders’ equity was negative $2,613. The filing does not provide a conventional debt-to-equity measure that is meaningful given the negative equity balance and convertible/derivative accounting.
Operating cash use was funded in part by $1,763 of financing cash flow, principally convertible-loan and warrant proceeds. Investing cash use was $47. Year-end cash alone was below the reported annual operating cash use; the company also held marketable securities, but its ability to meet future needs depended on additional financing.
Material changes and unusual items
- Net loss increased from $468 in 2014 to $3,437 in 2015, while operating expenses increased from $664 to $1,895.
- Convertible-loan and warrant accounting produced substantial derivative and warrant liabilities and increased financial expense. The balance sheet also included a DIMN share investment and related put-option asset.
- Subsequent to year-end, the company entered into additional convertible-loan and warrant agreements for $3,450, with receipt pending Israeli Securities Authority approval as of the filing. It reported that conversion and warrant amendments, together with the new financing, would increase equity by $9,608 on a pro forma basis, assuming the loans converted upon a U.S. national-exchange listing.
- The company had 15,313,793 common shares outstanding at December 31, 2015. The filing also disclosed outstanding warrants and options that could dilute existing holders.
Outlook, risks and contingencies
Management planned to continue product development and retailer integration over the following 12 months, subject to successful fundraising. It expected to pursue additional retailer relationships and described a possible AIM listing by Q2 2016. These are forward-looking expectations, not reported results. The company was not profitable and gave no assurance it would achieve profitability or secure sufficient financing.
The independent auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern because of continuing losses and negative operating cash flows. The company said continued operations depended on raising additional funds; no assurance was given that adequate financing would be available.
Legal matters included a shareholder claim alleging failure to register shares for trading, with claimed damages of NIS 2,622,500 plus other requested compensation; a claim for repayment of an older NIS 200 loan plus interest, for which the company recorded a provision and its advisers considered compromise reasonably possible; other claims related to registration of Metamorefix transaction shares, whose outcomes management could not estimate; and a separate approximately $1.4 million demand letter for which no allowance was recorded. The company also disclosed a potential €60,000 compensation obligation under the Trucco agreement if specified integration obligations were not met within the contractual period, while noting the parties had an understanding to continue cooperation.
Other key risks include dependence on future financing, lack of commercial validation and revenue, reliance on key personnel and retailer partners, competition from better-resourced companies, pending rather than granted patents, potential dilution, and limited U.S. trading access. The common stock traded on the Tel Aviv Stock Exchange, not a U.S. exchange; the company stated it had no plans to pay dividends.
Investor verification priorities
- Confirm the actual status and terms of the post-year-end $3,450 financing, its regulatory approval, and any conversion or listing-related conditions.
- Verify cash runway and access to financing, including the liquidity and valuation of marketable securities and DIMN-related put options.
- Check whether Trucco and Katz integrations were completed, whether pilots demonstrated effectiveness, and whether any revenue was realized after the filing.
- Review the status and potential financial exposure of the disclosed lawsuits, loan claim and Trucco contractual obligation.
- Reconcile outstanding shares, convertible instruments, warrants, options and subsequent amendments to assess dilution and liability treatment.
- Review the going-concern disclosure and the internal-control statement: the filing says controls were assessed at December 31, 2015 but also refers to an assessment date of July 31, 2012, an apparent inconsistency.