Cymax Cuts Staff After Deloitte Voices Financial Concernsby
Canadian online furniture seller raised $25 million last year
Business Development Bank of Canada plans further funding
Cymax Stores Inc., a Canadian online furniture seller, has cut some jobs after auditors warned mounting losses were in danger of dragging the company under.
An audit of the company’s 2015 accounts by Deloitte warned that its financial statements “indicate the existence of a material uncertainty that may cast doubt about Cymax Stores’ ability to continue as a going concern.”
Deloitte suggested the company rein in costs and boost margins and sales in order to remain viable. The audit, which was previously undisclosed, was presented to the company in May.
Cymax, based in the Vancouver area, is one of Canada’s better-known startups. It raised $25 million last year from prominent investors including Markus Frind, the founder of dating website Plenty of Fish, and the venture capital arm of the Business Development Bank of Canada, a government-owned entity. Chief Executive Officer Arash Fasihi started the firm in 2004 with the vision of building an Amazon-like online furniture retailer.
Fasihi declined to comment to Bloomberg. Cymax issued a statement saying the company expects to hit operational profitability some time in 2017 and that it’s nearing the close of a new round of financing. Cymax said it has support from its board and investors on its outlook and progress toward stated goals.
The audit shows Cymax had losses of C$17.4 million ($13.2 million) over the two-year period ended December 2015, an accumulated deficit of C$31.2 million and a working capital deficiency of C$7.1 million.
The company has existed over the past 10 years by using free cash flow from sales financed by “generous terms” from vendors and some debt financing, according to the audit. In the past year, Cymax replaced debt with equity financing from several investors, including “sophisticated e-business investors” who are on the company’s board.
Cymax’s ability to continue to operate depends on the company improving gross margins on sales, boosting sales volume and cash flow from operations, as well as reducing general and administrative expenses, and its ability to continue to secure financing to fund ongoing operations, according to the audit.
“We’re not concerned over Deloitte’s report,” said Robert Simon, a senior managing partner at BDC who oversees the IT Venture Fund, which invested in Cymax. “We’re very happy with the progress that Cymax is making.”
Simon declined to give current revenue numbers or specific growth rates but said revenue growth was “pretty strong for the year.”
“BDC and the existing investors are so attracted and enthusiastic about their support we’re choosing to put in additional funds,” he said. Frind, who sold Plenty of Fish for $575 million to IAC/InterActiveCorp. last year, has joined the company in an operational capacity as well, Simon said.
Frind said in an e-mail he was aware of Cymax’s financial position when he made his investment and wasn’t worried about the company’s prospects.
Cymax began eliminating jobs over the summer and continued through at least September, according to employees who left the company during that period who asked not to be identified. Former employees said there were sizable reductions in staff. Marketing and customer support teams were hit especially hard, they said.
The steady pace of cuts throughout the summer led to an atmosphere of confusion at the company, with some employees looking for new jobs and management regularly holding town halls to try and keep morale from sinking, one of the people said.
Cymax didn’t cut any jobs because of Deloitte’s report, and has only made “adjustments” to its workforce over the past year, according to the company’s statement. The firm is still hiring, it said.
Cymax waited more than a decade before taking on venture capital funding, which was meant to help accelerate growth and launch a new e-commerce software product for traditional furniture retailers to help them sell online, Fasihi said at the time of the fund raising last October.
The goal was was to get to C$180 million in revenue by the end of 2015, Fasihi said in an interview with Bloomberg at the time. Revenue in 2015 ended up being C$156 million, according to the audited financial statements.