My Size, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unless stated otherwise, amounts are U.S. dollars in thousands. My Size develops mobile-device measurement technology, currently focused primarily on apparel e-commerce, with shipping and DIY applications. The company remains in the commercialization stage and reported only minimal revenue.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $21 | $5 | $51 | $25 |
| Gross profit | $21 | $5 | $50 | $24 |
| Operating expenses | $1,354 | $1,568 | $2,843 | $2,850 |
| Operating loss | $(1,333) | $(1,563) | $(2,793) | $(2,826) |
| Net loss | $(1,304) | $(1,366) | $(2,763) | $(2,893) |
| Basic and diluted loss per share | $(0.25) | $(0.75) | $(0.72) | $(1.50) |
Revenue increased year over year, primarily due to increased MySizeID usage under license agreements. Management said it does not expect meaningful revenue in upcoming quarters. The reported gross margin was approximately 100% in Q2 and 98% for the six-month period, based on rounded amounts.
Six-month operating cash outflow was $2,625, versus $2,424 in 2019. Investing activities used $200, compared with $1,366 provided in 2019; financing activities provided $6,011, versus none. Cash, cash equivalents and restricted cash were $4,642 at June 30; adding restricted deposits of $182 gives total cash and restricted funds of $4,824.
At June 30, total assets were $6,215, total liabilities $1,422, and stockholders’ equity $4,793. Liabilities included operating lease obligations of $713 in total. The balance sheet reported no warrants or derivatives liability at June 30. The company had an accumulated deficit of $31,277.
Changes and notable developments
- In January and May 2020, equity and warrant offerings generated net proceeds of approximately $1,694 and $4,300, respectively. The May offering included warrants to purchase 4,545,454 shares at $1.10; pre-funded warrants were exercised in May. These financings materially increased cash and shares outstanding.
- Shares issued and outstanding rose from 2,085,900 at December 31, 2019 to 7,157,836 at June 30, 2020. The filing reported 7,232,836 shares outstanding as of August 4, 2020.
- Operating loss narrowed 1% for the first half and 15% for Q2. Higher first-half sales and marketing costs were offset by lower general and administrative costs; financial income also improved versus the first-half 2019 loss.
- The company changed its functional currency from the Israeli shekel to the U.S. dollar effective January 1, 2020, and reclassified $328 of warrants from liabilities to equity.
- Nasdaq’s continued-listing matter was closed after the company regained compliance with the stockholders’ equity requirement in May 2020.
Outlook, risks and contingencies
- Going concern: Management expects continuing losses and negative operating cash flows and believes available cash will fund operations only until the end of Q2 2021. The filing states there is substantial doubt about the company’s ability to continue as a going concern. Further financing may be unavailable or dilutive; failure to obtain financing or commercialize products could force a curtailment or cessation of operations.
- Commercialization: Customer integration, pilots and rollouts take time, and management says meaningful revenue is not expected in the upcoming quarters. A non-binding letter of intent proposes a U.S. micro-fulfillment joint venture with Logystico, with My Size initially holding 68%; a definitive agreement remained to be completed.
- COVID-19: Management reported increased MySizeID demand, but three international retailer pilots were halted and sales and marketing were hindered by travel and meeting restrictions. Further effects on operations, sales and access to capital were uncertain.
- Litigation: In the North Empire dispute, My Size seeks damages of at least $616,000; North Empire’s counterclaims allege damages of $10,958,589. Discovery was ongoing. The court dismissed a related third-party complaint against the CEO and former board chairman; the company believes the counterclaims are more likely than not to be denied.
- Other risks: Risks include product adoption, competition, reliance on key personnel and strategic partners, possible future dilution, cybersecurity, litigation, the political and security situation in Israel, and maintaining Nasdaq listing compliance. No formal financial guidance was provided.
- Subsequent events: In August 2020, shareholders approved increasing the employee option plan limit to 1,450,000 shares, and the company granted options covering substantial additional shares to executives, employees and directors, plus performance-based restricted stock units to the CEO.
Key facts for investors to verify
- Whether cash runway and financing plans remain sufficient given the going-concern warning and continued operating cash burn.
- Whether halted retailer pilots resume and translate into customer adoption and material recurring revenue.
- The potential dilution from outstanding warrants, options and subsequent-August equity awards.
- The status and potential financial exposure of the North Empire litigation.
- Whether the proposed Logystico joint venture proceeds under a definitive agreement and contributes to commercial growth.