My Size, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017. Financial statement amounts are in U.S. dollars thousands unless stated otherwise. My Size develops measurement technology for applications including apparel e-commerce and smartphone apps. The company reported no operating revenue, had no commercial products, and described its development efforts as early stage.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $213 | $172 | $624 | $500 |
| Marketing, general and administrative expense | $611 | $434 | $2,667 | $1,359 |
| Total operating expense / operating loss | $824 / $(824) | $606 / $(606) | $3,291 / $(3,291) | $1,859 / $(1,859) |
| Financial income (expense), net | $17 | $(118) | $(228) | $(2,261) |
| Net loss from continuing operations | $(807) | $(724) | $(3,519) | $(4,120) |
| Basic and diluted loss per share | $(0.04) | $(0.04) | $(0.19) | $(0.26) |
| Net cash used in operating activities | Not clearly stated as a standalone quarterly figure | Not clearly stated as a standalone quarterly figure | $(2,472) | $(1,748) |
Margins are not meaningful because the company had no revenue. The nine-month net loss improved year over year, principally because financial expense was substantially lower; operating expenses increased. Q3 net loss widened despite a swing to financial income, as operating expenses rose.
At September 30, 2017, cash and cash equivalents were $14, compared with $34 at December 31, 2016. Current assets were $387, including restricted cash of $69; marketable securities were $246. Current liabilities were $1,192, producing a working capital deficit of approximately $805. Total assets were $700, and stockholders’ equity was negative $492. The filing does not present a conventional long-term debt balance on the balance sheet excerpt.
Nine-month investing cash use was $8; financing provided $2,496, mainly from share-related financing and realization of guarantees. The company raised $2,506 from issuance of shares, warrants and convertible loans, before a $10 loan repayment. Shares outstanding were 18,078,218 at quarter-end and 18,394,817 as of November 12, 2017.
Material changes and management commentary
- Nine-month R&D expense rose 25% to $624, attributed to subcontractors and additional employees. Nine-month marketing, general and administrative expense nearly doubled to $2,667, mainly due to share-based payments, public and investor relations, and hiring.
- Nine-month net loss narrowed from $4,120 to $3,519, mainly because of lower finance expense related to options, derivatives and marketable securities. Q3 net loss increased from $724 to $807.
- Management stated that cash and projected resources were insufficient to fund operations for at least 12 months from approval of the financial statements without further fundraising. The filing identifies substantial doubt about the company’s ability to continue as a going concern; the statements include no adjustments that might be required if it cannot continue.
- Management plans to commercialize products and seek additional equity or debt financing and strategic-partner capital, but gave no quantified operating or revenue guidance and cautioned that financing may not be available on acceptable terms.
- After quarter-end, the company completed an offering of nonconvertible notes with $1.33 million principal and 888,888 five-year warrants, receiving approximately $1.2 million gross proceeds before expenses. The notes mature at the earlier of four months after issuance or completion of another equity offering; warrants are exercisable at $0.75 per share.
- NASDAQ notified the company of deficiencies in both minimum market value of listed securities, with a December 4, 2017 compliance deadline, and minimum $1.00 bid price, with a March 26, 2018 deadline. A reverse split was among the possible bid-price remedies discussed; continued noncompliance could lead to delisting.
Contingencies, risks and other notable items
- A shareholder settlement required a NIS 325,000 payment, issuance of 80,358 shares, and potential cash or share payments if specified share-sale proceeds fell below NIS 1.6 million. The company recorded a $176 derivative liability at September 30, 2017.
- In a separate shareholder case, an Israeli court found the company had breached listing-related undertakings and ordered costs of NIS 70,000. The company appealed; the Supreme Court stayed execution pending appeal subject to a NIS 1.7 million bank guarantee. The company reported counsel’s view that the appeal was more likely to be denied than accepted, while stating the judgment otherwise imposed no direct financial liability.
- A proposed class action concerning an April 19, 2017 company report alleges damages of NIS 18.8 million. Management believed denial of the motion was more likely than approval; the case could proceed as a class action if approved.
- The company reported remaining guaranteed notes of $1,177 and checks of $455; it said the checks had not been honored and no shares would be issued against those funds until fully paid. It also disclosed that a guarantee note was due to expire November 14, 2017 and an extension had not yet been approved. Subsequent to quarter-end, $236 of guarantee notes was redeemed in cash.
- Management concluded disclosure controls were effective at providing reasonable assurance; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether the company secured sufficient additional funding to meet its operating needs and address the disclosed going-concern doubt.
- Collection, validity and timing of the outstanding guaranteed notes and unhonored checks, and the status of the guarantee extension.
- Progress toward commercialization, revenue generation and product-development milestones, given the absence of revenue and commercial products.
- NASDAQ compliance status, any reverse split or other remedial action, and the resulting listing and dilution implications.
- Developments in the shareholder litigation, the NIS 1.7 million guarantee requirement, the proposed class action, and potential settlement-related payments.
- Terms, maturity and repayment or refinancing plan for the post-quarter-end notes, along with dilution from the associated warrants and other equity issuances.