My Size, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Unaudited consolidated figures are in U.S. dollars; financial statement amounts below are in thousands unless otherwise noted.
Business context
My Size develops measurement technology for apparel e-commerce, courier services and do-it-yourself smartphone and tablet applications. The company reported that it had no commercial products and had generated no operating revenue since inception. Its development efforts remained at an early stage.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $231 | $204 | $496 | $411 |
| Marketing, general and administrative expense | $720 | $1,177 | $2,332 | $2,056 |
| Total operating expenses / operating loss | $951 | $1,381 | $2,828 | $2,467 |
| Financial income (expenses), net | $2,542 | $63 | $(1,004) | $(245) |
| Net income (loss) | $1,591 | $(1,318) | $(3,832) | $(2,712) |
| Basic earnings (loss) per share | $0.05 | $(0.07) | $(0.13) | $(0.15) |
No revenue-based margins are meaningful because the company reported no operating revenue. Q2 net income reflected financial income, including fair-value changes in warrants, derivatives, stock-based compensation liabilities and marketable securities; it did not indicate operating profitability.
Cash, liquidity and capital
- Cash and cash equivalents were $8.724 million at June 30, 2018, with $66,000 of restricted cash; combined cash, cash equivalents and restricted cash were $8.790 million, up from $1.872 million at December 31, 2017.
- Operating cash use was $1.749 million for the first half, compared with $1.945 million in the first half of 2017. Investing cash use was $9,000; financing provided $9.233 million.
- The company reported no short-term loan outstanding at June 30, 2018, versus $558,000 at year-end; it said the remaining loan balance was repaid in February. Current liabilities were $2.476 million. Stockholders’ equity was $6.938 million, compared with a $1.152 million deficit at year-end.
- February’s public offering raised $6.0 million gross and approximately $5.464 million net. Warrant and option exercises also provided proceeds. Issued and outstanding shares increased from 22.24 million at year-end to 29.68 million at June 30; 29.71 million were outstanding on August 13, 2018.
Changes and management commentary
For the first half, operating expenses rose about 15% year over year, and net loss increased to $3.832 million from $2.712 million. Management attributed expense growth mainly to share-based compensation, professional services and marketing, as well as higher subcontractor costs in R&D. In Q2, operating expenses fell about 31% year over year, primarily as marketing, general and administrative expense declined; the quarter’s $1.591 million net income compared with a year-earlier loss, mainly because of favorable financial revaluations.
Management stated that cash on hand was expected to be sufficient to meet obligations for more than 12 months. It also cautioned that the company expected further losses to fund R&D and could not estimate the time or cost to complete product development. No numerical revenue, earnings or operating outlook was provided.
Risks, contingencies and unusual items
- The company had an accumulated deficit of $20.880 million and negative operating cash flow, and depended primarily on investor fundraising to finance operations.
- Warrants, derivatives and stock-based compensation liabilities totaled $1.933 million at June 30. Fair-value movements materially affected reported financial results. The February offering included warrants with a price-protection provision.
- In a New York dispute involving North Empire LLC, the company filed an action seeking at least $616,000; North Empire alleged damages of $11.4 million. The filing said it was too early to estimate the likelihood of an adverse award.
- A separate Israeli shareholder settlement was endorsed by the Supreme Court on July 5, 2018. The company also reported that it paid a further $62,000 under another settlement in March 2018. A shareholder class motion described in the filing was suspended pending Israeli Supreme Court decisions on related legal issues.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2018; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash burn and actual cash runway relative to management’s estimate of more than 12 months.
- Progress toward commercial products and revenue, given the company’s early-stage development and lack of operating revenue.
- Potential dilution and warrant terms, including price protection, alongside the increase in shares outstanding.
- Developments and potential financial exposure in the North Empire litigation and other pending legal matters.
- How much future reported income or loss may depend on non-operating fair-value changes rather than business operations.