My Size, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The company develops smartphone-based measurement technology for apparel e-commerce and other applications. It reported no operating revenue and said it had no commercial products; its development efforts remained at an early stage. Financial amounts below are in U.S. dollars, thousands, unless noted.
Key financial results and position
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $207 | $177 |
| Marketing, general and administrative expense | $879 | $326 |
| Total operating expenses / operating loss | $1,086 | $503 |
| Net income (loss) from continuing operations | $(1,394) | $111 |
| Basic loss per share | $(0.08) | Basic earnings per share: $0.01 |
| Net cash used in operating activities | $(1,012) | $(479) |
Gross margin and operating margin are not meaningful because the company reported no revenue. Financial expense, net, was $308 in Q1 2017, compared with financial income of $614 in Q1 2016; the company attributed the change mainly to revaluation of its marketable securities versus gains on financial instruments in the prior-year quarter.
At March 31, 2017, cash and cash equivalents were $359, versus $34 at December 31, 2016; marketable securities were $362. Current assets totaled $2,044 and current liabilities $865, with no long-term debt shown on the balance sheet. Total assets were $2,481, stockholders’ equity was $1,616, and accumulated deficit was $13,038. The filing reports cash provided by financing activities of $1,349, including $1,149 from guarantees and $200 from share/warrant issuance. Cash used in investing activities was $3.
Material changes and notable items
- Operating expenses rose to $1,086 from $503. Management cited higher subcontractor and employee costs in R&D, and higher share-based compensation, public and investor relations, and salary costs in marketing, general and administrative expenses.
- Operating cash use increased to $1,012 from $479, which management attributed to increased payments to service providers and employees.
- The company recorded a net loss of $1,394, compared with net income of $111 a year earlier. The filing also reports a $340 revaluation loss on marketable securities in the cash-flow reconciliation.
- In February 2017, the company issued 200,000 shares and warrants for 250,000 shares for $200. The warrants are exercisable at $3.50 through November 22, 2017 and were recorded as a $168 liability at quarter-end.
- Consultant arrangements included proposed shares and options that had not yet been issued as of the report date. The filing records $958 related to one consultant arrangement in trade receivables; the accounting and collection implications merit review.
Outlook, liquidity, risks, and contingencies
Management said committed investments were expected to fund operations for 12 months following approval of the financial statements, but this depends on collecting commitments, selling DIMN shares, and/or raising additional funds. The company warned that collection, sale, and financing are uncertain; failure to secure funds could require it to curtail operations. It disclosed significant doubt about its ability to continue as a going concern if commitments are not collected or replaced. The financial statements contain no adjustments for a possible failure to continue as a going concern.
As of March 31, the company reported fundraising agreements totaling $8,015, of which $4,596 had been received in cash and $1,410 in DIMN marketable securities. The filing separately reports guaranteed notes and checks outstanding after quarter-end and says $550 of notes and $40 of checks were subsequently redeemed. A pro forma balance sheet assumes collection of $1,419 from remaining guarantees and checks, which would raise equity to $3,035. The filing notes the guarantee provider was not rated.
Significant legal matters include claims relating to alleged failures to register shareholder shares, a shareholder demand for approximately $1.4 million, and a settled convertible-loan dispute with a further NIS 50,000 payment stated as due under specified conditions. The company estimated differing potential damages in one share-registration case; the outcome and any financial exposure remain uncertain.
After quarter-end, the company corrected its April 18, 2017 announcement concerning Israel Post, explaining there was no definitive agreement. Israel Post then terminated discussions. A shareholder class-action application filed in May alleges the announcement was misleading and estimates damages of NIS 18.8 million; the company disputes causation and the alleged damages. Other commercial collaborations described in the filing were pilots, delayed integrations, or contingent on further testing and negotiation; the filing does not establish material recurring revenue from them.
Important facts for investors to verify
- Whether the stated $8,015 of fundraising commitments, remaining guarantees and checks, and any further financing were collected, and whether available funds support the company’s operating plan.
- The recoverability and market liquidity of the $362 DIMN securities, and the impact of further price changes on results and liquidity.
- The composition and collectability of the $1,619 in other receivables and prepaid expenses, including the $958 consultant-related receivable, and the basis for the related share-based compensation entries.
- The status and potential exposure of shareholder litigation and the Israel Post-related class-action application, including subsequent court developments.
- Whether product development, pilots, and commercial integrations have progressed to completed deployments or revenue-generating contracts; the filing provides no revenue guidance or clear commercialization timetable.