My Size, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited consolidated financial statements; amounts below are in U.S. dollars in thousands unless noted.
Business context and financial performance
My Size develops smartphone-based measurement technology for apparel e-commerce, shipping and DIY markets. The company reported its first operating revenue in 2019, from licensing its technology and a customer pilot.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $5 | $0 | $25 | $0 |
| Gross profit | $5 | $0 | $24 | $0 |
| Research and development | $379 | $231 | $671 | $496 |
| Marketing, general and administrative | $1,189 | $720 | $2,179 | $2,332 |
| Operating loss | $(1,563) | $(951) | $(2,826) | $(2,828) |
| Financial income (expenses), net | $197 | $2,542 | $(67) | $(1,004) |
| Net income (loss) | $(1,366) | $1,591 | $(2,893) | $(3,832) |
| Basic loss per share | $(0.05) | $0.05 | $(0.10) | $(0.13) |
Six-month gross margin was approximately 96% based on reported rounded figures. Q2 revenue was $5,000; reported cost of revenue was zero at the filing’s displayed precision.
Cash flow, balance sheet and liquidity
- At June 30, cash, cash equivalents and restricted cash totaled $4,412, versus $5,230 at year-end 2018. Cash and cash equivalents alone were $4,136; restricted cash was $276.
- For the six months, operating cash use was $2,424, investing cash provided was $1,366 (mainly deposit proceeds), and financing cash flow was zero. Cash, cash equivalents and restricted cash decreased by $818.
- Total assets were $4,783 and current liabilities were $1,692; total liabilities were $1,726. Stockholders’ equity was $3,057, compared with $5,294 at December 31, 2018.
- The balance sheet reports $1,042 of current warrant, derivative and stock-based compensation liabilities. Operating lease liabilities totaled $81 ($47 current and $34 non-current). No short-term loan or other interest-bearing debt balance is reported at June 30.
- Accumulated deficit was $25,910. Shares outstanding were 29,883,639 at June 30, 2019 and August 8, 2019.
Material changes and management commentary
- Revenue began in 2019, but remained very small relative to operating costs. Six-month R&D expense rose 35% to $671, mainly due to hiring and share-based compensation. Six-month marketing, general and administrative expense declined to $2,179 from $2,332, primarily reflecting lower consultant share-based payment and professional-services expenses, partly offset by higher marketing costs.
- Six-month net loss narrowed to $2,893 from $3,832. Management attributed the improvement partly to lower share-based and professional-services expenses and favorable changes in warrant and related liability valuations.
- Q2 shifted from $1,591 net income in 2018 to a $1,366 net loss in 2019. Management said the principal factor was much lower income from revaluation of warrants and related liabilities; Q2 2018 results included substantial non-cash valuation gains.
- Management expects continued losses and negative operating cash flows. It estimated existing cash would fund operations through the end of Q2 2020, but stated there is substantial doubt about the company’s ability to continue as a going concern. Plans include commercializing products and seeking additional equity, debt or strategic-partner funding; availability and terms are uncertain, and financing could dilute shareholders.
- No material capital-expenditure commitments for the next 12 months were reported. The company adopted lease accounting in 2019 and recognized $127 of right-of-use assets and lease liabilities at adoption.
Risks, contingencies and unusual items
- Nasdaq listing: The company did not cure its minimum-bid-price deficiency by July 22, 2019. On July 23 it received notice that Nasdaq staff had determined to delist its shares unless it requested a hearing. The company requested a hearing, which stays delisting at least pending the hearing process; a hearing was scheduled for September 19, 2019. A reverse stock split was among the options being considered, with no assurance of continued listing or compliance.
- Litigation: In its dispute with North Empire LLC, My Size seeks damages of at least $616,000. North Empire’s counterclaim alleges damages of $10,958,589; its earlier separate action alleging $11.4 million was discontinued. Discovery was ongoing, and a motion to dismiss a third-party complaint against the CEO and former board chairman awaited a court decision. The company said it believed the counterclaims were more likely than not to be denied.
- Other stated risks include the need for capital, uncertain customer adoption and commercialization, competition, reliance on key personnel and strategic relationships, cybersecurity, litigation, and political and security conditions in Israel.
- Disclosure controls and procedures were assessed as effective as of June 30, 2019. Controls for order-to-cash and revenue recognition were implemented in connection with new customer contracts.
Important facts for investors to verify
- Whether new licenses and pilots convert into material, recurring revenue and customer adoption.
- Actual cash burn and whether financing is needed before management’s estimated runway ends; review potential dilution and financing terms.
- The outcome of the Nasdaq hearing, any compliance plan or reverse split, and the company’s continued listing status.
- Developments and potential financial exposure in the North Empire litigation.
- The composition and valuation assumptions underlying warrant, derivative and stock-based compensation liabilities and their effect on reported earnings.