My Size, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial amounts are in U.S. dollars, generally thousands, unless noted. My Size develops AI-driven sizing and digital experience products and operates an e-commerce platform. Its three reported segments are fashion and equipment e-commerce, SaaS Solutions, and Naiz SaaS Solutions.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $720 | $104 in the financial statements; $404 in MD&A |
| Cost of revenue | $1,147 | $251 |
| Gross profit (loss) | $(427) | $38 in the financial statements; $153 in MD&A |
| Operating loss | $(2,492) | $(2,105) |
| Net loss | $(2,654) | $(2,188) |
| Net cash used in operating activities | $(2,313) | $(2,579) |
- Q1 2023 gross margin was approximately negative 59% using reported revenue and gross loss. The $643 inventory write-down related to the warehouse fire was included in cost of revenue.
- Revenue increased year over year, attributed by management to Orgad being consolidated for a longer period, Naiz revenue, and growth in My Size. However, the filing gives conflicting Q1 2022 revenue and gross-profit comparatives; see verification items below.
- Operating loss widened by $387, or 18.3%, according to MD&A. Lower R&D and sales and marketing expenses were offset by the fire-related inventory charge, higher G&A, and increased financial expenses. Net financial expense was $146 versus $83; equity-method loss was $34.
- Cash, cash equivalents and restricted cash totaled $2,676 at March 31, 2023, including $2,415 cash and cash equivalents and $261 restricted cash. Cash and restricted cash rose from $2,363 at year-end, principally reflecting the January financing.
- Current assets were $4,953 and current liabilities $2,851. Total liabilities were $3,806; these included $158 of bank overdraft and short-term loans and $342 of long-term loans, as well as lease liabilities.
- Net cash from financing was $2,634 in the cash flow statement, principally from the January offering; the company reported approximately $3.0 million gross offering proceeds and $2,659 net share-issuance proceeds. Financing also included $25 of loan repayments. Investing activities used no net cash in Q1 2023.
Changes, outlook and risks
- On January 2, a fire at Orgad’s Israeli warehouse affected approximately $640 of inventory, which was uninsured. The company recorded a $643 write-down and paid the lessor $50 under a settlement. Operations moved to headquarters; management said it did not expect the event to affect Orgad’s 2023 sales.
- The January equity and warrant financing increased issued and outstanding shares from 1,464,117 at December 31, 2022 to 2,446,780 at March 31, 2023. The offering also included substantial warrant issuance, creating potential future dilution.
- Management expects continued losses and negative operating cash flows and says existing cash is insufficient to fund operations for 12 months. The filing states there is substantial doubt about the company’s ability to continue as a going concern. Further financing may not be available on acceptable terms or at all; failure to obtain it could require the company to curtail operations or cease operating. No specific revenue or earnings guidance is provided.
- After quarter-end, in May 2023, the company began transferring support, development and customer-success operations to Naiz in Spain and reduced Israeli headcount by 13, including its Chief Commercial Officer, with the stated aim of improving efficiency and reducing costs.
- The company expected to scale back and close its Russian subsidiary operations in the near future, citing the invasion of Ukraine and ongoing sanctions. Other stated risks include product adoption, unproven measurement markets, acquisition integration, competition, cybersecurity, litigation, capital availability, and Israel’s political and security situation.
- North Empire litigation remains unresolved. The appellate court affirmed denial of both parties’ summary-judgment motions and remanded the case; the matter was referred to mediation, with no date set. North Empire’s counterclaim alleges damages of approximately $10.96 million. The company says it believes the counterclaims are more likely than not to be denied and intends to defend them.
- Management concluded disclosure controls were effective as of March 31, 2023; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Reconcile Q1 2022 revenue: the financial statements report $104, while MD&A reports $404. The corresponding gross-profit figures also differ: $38 in the statements versus $153 in MD&A.
- Confirm the cash-flow presentation: the statement reports $2,634 net financing cash flow, while MD&A describes $2,676 as financing cash flow; $2,676 is also the reported period-end cash, cash equivalents and restricted cash balance.
- Assess the company’s near-term financing needs and the potential effects of further equity issuance and outstanding warrants, given the going-concern warning and stated runway of less than 12 months.
- Monitor the North Empire mediation and potential financial exposure, along with the operational and financial effects of the warehouse fire and post-quarter workforce changes.