My Size, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Financial figures are in U.S. dollars in thousands, except per-share data and share counts. The interim financial statements are unaudited.
Business context and results
My Size develops mobile-device measurement technology for apparel e-commerce, shipping and parcel services, and do-it-yourself applications. The company reported its first operating revenue in 2019, from new pilot and license agreements.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $20 | $0 |
| Cost of revenue / gross profit | $1 / $19 | $0 / $0 |
| Research and development | $292 | $265 |
| Marketing, general and administrative | $990 | $1,612 |
| Operating loss | $(1,263) | $(1,877) |
| Net financial expense | $(264) | $(3,546) |
| Net loss | $(1,527) | $(5,423) |
| Basic and diluted loss per share | $(0.05) | $(0.20) |
Gross profit was $19 thousand on $20 thousand of revenue (approximately 95% gross margin); the small revenue base limits the significance of that margin. Total comprehensive loss was $1.363 million, including $164 thousand of foreign-currency translation income.
Financial position and cash flow
- At March 31, cash and cash equivalents were $5.277 million, restricted cash was $274 thousand, and total cash, cash equivalents and restricted cash were $5.551 million. Current assets were $5.734 million versus current liabilities of $1.877 million; working capital was approximately $3.857 million.
- Total assets were $5.938 million and total liabilities were $1.907 million. The filing reports no short-term loan outstanding; liabilities included $1.196 million of warrants, derivatives and stock-based compensation liabilities and $100 thousand of operating lease liabilities.
- Operating cash use was $1.199 million, compared with $1.192 million in Q1 2018. Investing activities provided $1.375 million, mainly from the release of short-term and restricted deposits. There was no financing cash flow, compared with $8.994 million provided in Q1 2018.
- Accumulated deficit was $24.544 million and stockholders’ equity was $4.031 million. Shares outstanding were 29,852,389 at quarter-end and 29,883,639 on May 10, 2019.
Changes versus Q1 2018 and unusual items
Net loss narrowed by $3.896 million. Management attributed the improvement mainly to lower marketing, general and administrative expenses and substantially lower net financial expenses, including an $87 thousand gain from the change in fair value of warrants versus $3.899 million of warrant-related expense in Q1 2018. Research and development expense increased by $27 thousand, which management linked primarily to new hires and employee share-based compensation. Marketable securities declined in value by $185 thousand in Q1 2019, compared with a $188 thousand gain in Q1 2018.
Revenue increased from zero, but remained minimal. The decrease in cash and cash equivalents plus restricted cash from $5.411 million at December 31, 2018 to $5.551 million at March 31, 2019 reflects cash movement between balances and release of deposits; the company also had $1.209 million in short-term deposits at year-end and none at quarter-end.
Outlook, risks and contingencies
- Management said cash on hand was expected to fund obligations for longer than 12 months from the report date. It also stated that additional capital would be needed to meet future business objectives and might not be available on acceptable terms or at all. Equity or convertible financing could dilute existing shareholders.
- The company reported significant losses and negative operating cash flows. Key risks include customer adoption and commercialization of its developing technology, competition, dependence on additional financing and key personnel, litigation, and the political and security situation in Israel. No specific financial guidance was provided.
- My Size is pursuing a lawsuit against North Empire seeking at least $616 thousand. North Empire asserted counterclaims alleging $10.959 million in damages and filed a related third-party complaint against the company’s CEO and chairman. The company said it believed the counterclaims were more likely than not to be denied; discovery was ongoing and a motion hearing was scheduled for May 14, 2019.
- Nasdaq notified the company in January 2019 that it was below the $1.00 minimum bid-price requirement and set July 22, 2019 as the initial deadline to regain compliance. Failure to regain compliance could put the listing at risk, subject to possible additional compliance time and appeal procedures.
- The company adopted lease accounting on January 1, 2019, recording $127 thousand of right-of-use assets and lease liabilities at adoption. At March 31, right-of-use assets were $103 thousand and lease liabilities totaled approximately $100 thousand.
- Management concluded disclosure controls and procedures were effective as of March 31, 2019. It reported implementing revenue-related order-to-cash controls during the quarter.
Important facts for investors to verify
- Whether pilot and license agreements produce recurring, material revenue and broader customer adoption.
- Cash burn and financing needs relative to management’s stated runway of more than 12 months, including the potential dilution and terms of any future financing.
- Progress toward Nasdaq’s minimum bid-price compliance deadline and any effect on continued listing.
- Developments in the North Empire litigation, including the company’s claims, counterclaims and potential exposure.
- Changes in fair-value liabilities and marketable-securities valuations, which materially affected the comparison of reported losses.