My Size, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited financial statements; amounts below are U.S. dollars in thousands unless stated otherwise. My Size develops mobile-device measurement technology, with a current focus on apparel e-commerce and additional shipping and DIY applications.
Financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $88 | $6 | $139 | $31 |
| Gross profit | $87 | $6 | $137 | $30 |
| Operating expenses | $1,729 | $1,605 | $4,572 | $4,455 |
| Operating loss | $(1,642) | $(1,599) | $(4,435) | $(4,425) |
| Net loss | $(1,674) | $(1,350) | $(4,437) | $(4,243) |
| Basic and diluted loss per share | $(0.23) | $(0.75) | $(0.89) | $(2.10) |
- Gross margin was approximately 99% in Q3 and 99% for the nine-month period, reflecting very low reported cost of revenue.
- Revenue rose substantially from a small base; management attributed the increases to MySizeID usage under customer licenses and customer project fees. The company remained in an early commercialization phase.
- Q3 operating expenses increased 8% year over year. For the nine months, sales and marketing rose to $1,632 from $1,387; R&D was $1,085 versus $1,066; and G&A was $1,855 versus $2,002.
- Operating cash used was $3,791 for the first nine months, compared with $4,082 in 2019. Investing activities used $209; financing activities provided $6,094, principally from January and May securities offerings.
Balance sheet and liquidity
- At September 30, cash and cash equivalents were $3,524; restricted cash was $80 and restricted deposits were $182. Total current assets were $3,923 and current liabilities were $934.
- Total assets were $4,983, total liabilities $1,506, and stockholders’ equity $3,477. Reported liabilities include operating lease obligations, trade payables and accounts payable; the balance sheet presents no separate interest-bearing debt balance.
- Accumulated deficit was $32,951. Cash, cash equivalents and restricted cash at period-end totaled $3,604; management separately reported cash, cash equivalents, restricted cash and restricted deposits of $3,786.
- The January offering generated net proceeds of approximately $1,694; the May offering generated approximately $4,300. The May financing included common shares, pre-funded warrants that were exercised in May, and warrants, resulting in potential dilution.
Changes, outlook and risks
- Management expects continued losses and negative operating cash flows and estimated available cash would fund operations only through the end of Q2 2021. The filing states there is substantial doubt about the company’s ability to continue as a going concern. Management intends to commercialize products and seek additional equity, debt or strategic-partner financing; funding may not be available on acceptable terms or at all.
- The company said it did not expect meaningful revenue in upcoming quarters. Customer integrations, pilots and rollouts take time, and future revenue depends on adoption and utilization.
- COVID-19 disrupted marketing and sales: three international-retailer pilots were halted, in-person conferences and customer meetings were constrained, and some sales processes were delayed or cancelled. Management also reported increased demand for MySizeID, but the net future effect remained uncertain.
- A non-binding letter of intent proposed a joint venture with Logystico for U.S. micro-fulfillment centers using BoxSize, with an intended initial ownership split of 68% My Size and 32% Logystico; a definitive agreement remained necessary.
- Warrants previously classified as a $328 liability were reclassified to equity following the company’s prospective change in functional currency to the U.S. dollar on January 1, 2020. The May offering also triggered an anti-dilution reduction in the exercise price of certain outstanding warrants.
- Litigation with North Empire remains in discovery. The company seeks damages of at least $616; North Empire counterclaims for $10,958.589. The court dismissed North Empire’s third-party complaint against the CEO and former chairman; the company said it believes the counterclaims are more likely than not to be denied.
- Nasdaq closed its prior listing-compliance matter after determining the company met the $2.5 million stockholders’ equity requirement in May 2020. The filing identifies financing, commercialization, COVID-19, competition, litigation and continued listing among its risks.
Important facts to verify
- The MD&A results table gives nine-month 2019 net loss as $2,243, while the financial statements report $4,243 and the MD&A narrative also reports $4,243. Confirm the correct comparative figure.
- The MD&A says Q3 G&A decreased year over year, but the reported figures show an increase from $684 to $777. The nine-month figures do show a decrease.
- Confirm cash runway and financing assumptions against subsequent results and capital raises, given the stated going-concern doubt and projected funding through Q2 2021.
- Assess the dilution and potential proceeds associated with outstanding warrants and equity awards, and monitor the North Empire litigation and proposed Logystico joint venture.