My Size, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statement amounts below are in U.S. dollars thousands, except per-share data and share counts. The company develops mobile measurement technology and, following its February 2022 acquisition of Orgad, also operates an omnichannel e-commerce business.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $726 | $31 | $1,931 | $88 |
| Gross profit (loss) | $(151) | $31 | $324 | $88 |
| Gross margin | (20.8%) | 100.0% | 16.8% | 100.0% |
| Operating expenses | $1,824 | $2,057 | $6,056 | $7,943 |
| Operating loss | $(1,975) | $(2,026) | $(5,732) | $(7,855) |
| Net loss | $(2,026) | $(2,008) | $(5,930) | $(7,805) |
| Basic and diluted loss per share | $(0.08) | $(0.13) | $(0.23) | $(0.62) |
- Orgad contributed $1,797 of revenue from its acquisition through September 30, including $685 in Q3. The SaaS measurement-solutions segment contributed $134 for the nine months and $41 in Q3.
- Cost of revenue was $1,607 for the nine months and $877 in Q3, primarily reflecting Orgad product costs. Q3 cost of revenue exceeded revenue.
- Nine-month operating expenses declined principally because 2021 included $2,618 of share-based compensation tied to shares issued to a shareholder. Sales and marketing expenses rose to $2,526 for the nine months, largely due to hiring and Orgad activity.
- Q3 net loss was slightly higher than the prior-year quarter; nine-month net loss improved. Financial results included net financial expense of $198 for the nine months, versus $50 of income in 2021.
Cash, liquidity and capital
- At September 30, cash and cash equivalents were $4,360; restricted cash was $262. Combined cash, cash equivalents and restricted cash were $4,622, down from $10,943 at December 31, 2021.
- Operating activities used $5,858 cash in the first nine months, compared with $3,984 in the prior-year period. Investing activities used $327; financing activities used $39. The filing attributes the cash decline mainly to operations, the Orgad acquisition and resources deployed to grow Orgad.
- Total assets were $8,191 and stockholders’ equity was $5,534 at September 30. Current assets of $6,718 exceeded current liabilities of $2,135.
- Reported bank overdraft and short-term loans were $195, with $86 in long-term loans. Lease liabilities totaled $545, including current and long-term portions.
- Management states that available cash is expected to fund operations for less than 12 months and identifies substantial doubt about the company’s ability to continue as a going concern. It expects continuing losses and negative operating cash flows and plans to seek capital through equity, debt or strategic partnerships; financing may not be available on acceptable terms or at all.
Material changes, outlook and risks
- Orgad acquisition: The February 7 acquisition added an e-commerce segment and the bulk of reported revenue. Preliminary acquisition accounting recorded $268 goodwill and a $378 selling-platform intangible. Further cash, share and profit-based payments are contingent on specified terms, including revenue targets and continued involvement of the sellers.
- Naiz acquisition after quarter-end: The company completed its acquisition of Naiz on October 11, 2022. Consideration includes 6,000,000 common shares and up to $2,050 cash, with additional contingent cash consideration, including a stated $459 shortfall payment subject to revenue targets. The filing says purchase accounting was not complete. The company reported 36,126,284 shares outstanding on November 8, versus 25,726,284 on September 30.
- Other developments: Amazon temporarily deactivated Orgad’s U.S. store in July over manufacturer-listing complaints; it was reinstated in September, and Orgad continued sales through other channels. A 51%-owned Brazil joint venture was being established as of quarter-end.
- Commercial outlook: Management describes lengthy integration, piloting and rollout periods for measurement-technology customers and does not expect meaningful revenue from that business in upcoming quarters. No quantified financial guidance is provided.
- Legal contingency: In ongoing litigation, North Empire asserts counterclaims of approximately $10,959; the company says it believes the counterclaims are more likely than not to be denied. The company is also pursuing damages of at least $616. The court denied the company’s motion to reargue, and an appeal was in progress.
- Other stated risks include the need for additional capital, customer adoption and commercialization, competition, cybersecurity, reliance on key personnel, litigation, COVID-19 uncertainty and the effect of political and security conditions in Israel. Management reported disclosure controls effective as of September 30 and no material change in internal control over financial reporting during the quarter.
Key facts investors should verify
- Cash runway assumptions, near-term funding requirements and the feasibility and dilution implications of planned financing.
- Orgad’s sustainable gross margins and performance following the temporary Amazon store suspension.
- Naiz’s final purchase accounting, actual cash obligations and share issuance; reconcile the reported November 8 share count with acquisition consideration and equity awards.
- Progress toward commercialization and customer adoption of the measurement solutions, given management’s expectation of limited near-term revenue.
- Developments in the North Empire litigation and any resulting financial exposure.