On the surface, My Size Inc (NASDAQ:MYSZ) has a great story – an Israeli-based early stage startup developing apps that helps to measure one’s clothing size using a smartphone. So valuable that it’s only a matter of time before fashion brands like Under Armor or Ralph Loren adopt it, isn’t it?
Unsurprisingly, individual investors who buy stories rather than facts piled into the company’s stock. These investors were driven by a current of hollow PRs issued by the company (here is the latest example), and fueled by shady twitter accounts that pump it.
MySize offices are located in Israel, which hosts 20+ local and global VCs, and 30+ global corporates innovation hubs. Surprisingly, none of them invested in MySize.
Also, none of the Israeli capital institutional investors invested in it (except MTF and ETFs).
Perhaps you might be wondering why.
Here are 7 red flashing lights surrounding this 4 year-old startup with less than 20 employees, run by a couple that serve as CEO and Chief Product Officer.
Red-Light #1 – The majority owner’s husband was on the Interpol’s list of wanted persons for securities fraud for quite some time.
The company is controlled by Shoshana Zigdon (19%), CEO Ronen Luzon (11%), and Yisrael Levi (9%).
According to Globes and Haaretz, the 2 most important Israeli economic journals, Izhak Zigdon, Mrs. Shoshana Zigdon’s husband (19% owner and co-founder) appeared on the Interpol’s wanted list in 2014 (he is no longer there). He was primarily suspected of committing Securities Fraud.
MySize’s CEO Ronen Luzon admitted in an interview that he has close relationships with the Zigdon family, and even claimed the sizing idea stemmed from Mrs. Shoshana Zigdon.
Mrs. Shoshana Zigdon has no LinkedIn profile and remains in shadow, so questions arise as to whether she is a scarecrow and Mr. Zigdon is actually the living spirit behind the company.
Red-Light #2 – Measuring apps are like flashing apps – pure commodities.
Just go to your App Store and type in your search query “Mysize,” “Measurement app,” “Sizing,” or “Rulers” and witness the flood of applications that does exactly the same.
MySize’s SizeUp app has a rating of just 3.5 stars and it does not even appear in the top 50 “ruler” results on Google Play. Here are the top “Ruler” results in Android (notably, all of them have a significantly higher score than SizeUp’s 3.5 stars):
Some of the competing apps have millions of installations while MySize’s SizeUp app has only 100K-500K downloads.
Above are just 4 examples, all of which have more than 1 million installations. Keep in mind, this more than triples that of SizeUp’s installations.
The pictures above resemble the experience of a search for a flashlight app – pure commodity.
Red-Light #3 – Do MySize’s apps work at all?
Despite operating for 4 years, it only has an iPhone version for its clothing measurement app (TrueSize). There is no Android version of the app after 4 years of being a public traded company (in 2014, they were listed on the Tel Aviv stock exchange via the back door by infamous reverse merger into a security skeleton).
The other app listed by MySize is called SizeUp, and is aimed at measuring objects. The company claims SizeUp is accurate up to 2cm (~1 inch).
Let alone, even 1 inch can make a big difference in measuring objects, especially clothing. Many who downloaded the SizeUp app experienced deviations that are often 6-10cm (3-4 inches), far larger than 2cm/1 inch.
Unlike TrueSize, SizeUp has an Android version (with dozens of competing apps as mentioned above) that was launched only in 2018. Here are testimonials from disappointed consumers that downloaded the SizeUp app:
Bear in mind that SizeUp and TrueSize both use the exact same technology as Mr. Luzon stated on stage. So would one be willing to suffer inconsistent 1-4 inches deviations in the garments ordered online? This deviation could easily be the difference between sizes 34 to 40.
Red-Light #4 – MySize seems to be focused primarily on PR and declarations and less on its product and potential customers.
On Apr 16th, 2014, the company celebrated a formal report to the Israeli Stock change stating they had signed their first contract. The contract was signed with Trucco, a local Spanish women fashion chain.
Despite the fact that MySize had committed to complete the integration within 6 months, according to the formal report, it took them 2.5 years (no wonder giving their priorities – see R&D Red Light below) to complete the integration.
Not to mention that MySize is giving free the license to Trucco, including free support, services, and upgrades.
Since 2014, no other “customer” was announced for TrueSize offering.
In the recent prospectus filed for the Dec 2017 offering, it is stated:
RealSize is a white label measurement application developed based on the Company’s TrueSize technology. The first customer to use the TrueSize technology is In Situ, S.A., the owner of the rights to the fashion brand-name TRUCCO.
There is no mention of any other customers for TrueSize besides Trucco.
It even seems that MySize is willing to sacrifice its potential business with clients for the sake of pumping the stock. For example:
On Apr 19, 2017, MySize issued a PR and asserted:
MySize Inc. Engaged by Israeli Postal Service to Provide New Measuring Solutions
But a day after on Apr 20th, it turns out they just had initial meetings with reps from the Postal Office and issued a PR without asking for the Postal Office consent.
The Postal Office furiously demanded them to publish an embarrassing counter PR and terminated all discussions with MySize.
On May 17th a class action was filed against the company in an Israeli court following the above Postal Office PR.
Red-Light #5 – Startup with SG&A budget that is 2.5x bigger than R&D
One would expect that an early stage startup that doesn’t have an Android app for its flagship product (TrueSize), and only released an Android version for SizeUP in the middle 2017 will devote more of its resources to R&D. Yet, 2016 reports revealed that MySize invested 2.5x more in SG&A rather than R&D.
Source: MySize 2016 financial report, thousands USDs
It is instructive to note that the salaries and compensation cost (w/o equity) of the CEO and his spouse that serves as Chief Product Officer reached an unbelievable $196K in 2016, almost double the salaries benchmarks of CEO and CPO in other Israeli startups with a similar number of employees.
Red-Light #6 – Company is running out of cash rapidly, issued shares multiple times, each at a lesser value. The recent offering at $0.65 will suffice only for 6 months
In the first 9 months of 2017, MySize burned $2.47M of cash, meaning the burning rate is ~$275K per month.
Here are Q3/17 reports (USD, thousands)
It exited Q3 with a cash position of only $14K and $700K in assets.
MySize has a Going Concern note from its accountants, here from Q3 2017 report:
In the last 2 years, the company has issued several private offerings, each at a lesser value than the preceding one.
So how much time is left for MySize before the next stock offering or bankruptcy?
In the last offering in Dec 2017, the company issued stocks at $0.65 per share and warrants at $0.85. Net proceeds from the issues were $2.4M after fees.
Out of the $2.4M, it was already forced to pay $800K to the debt holders that funded it in the last 3 months (remember, MySize exited Q3/17 with only $14K cash):
Based on my calculations, My Size should have about $1.6m of cash right now.
At the current $274K monthly burning rate, it has less than 6 months before another private placement or bankruptcy.
Red-Light #7 – Several meaningful lawsuits have been filed against MySize by investors. The company already agreed to pay 90% in one; the other, settled by the company’s commitment to pay $460K, equals 2/3 of its assets
- In 2015, a 70K$ (NIS 258K) lawsuit was filed against MYSZ by a former investor who alleged that the company didn’t register the shares he got. The company agreed to settle and pay 95% (NIS 250K) of the amount in June 2016.
Below is from the company’s 10-K:
“On February 18, 2015, the Company received a claim in a summary judgment for the investor’s demand for payment of the loan amount of NIS 200,000 plus interest of 10% annually as from May 20, 2012 until full payment of the debt, which as of the date of filing the claim was NIS 258,000.”
“On June 13, 2016, a settlement agreement was entered into between the parties wherein for and in consideration for the final and conclusive annulment of all claims and/or demands raised by the plaintiff against the Company in the framework of the lawsuit, the Company would pay the plaintiff the sum of NIS 250,000.”
- On December 27, 2015, the Company received another legal complaint, from other party who claims 3M NIS (~K820$), raising similar allegation about MYSZ not registering his stocks to trade. On June 20, 2017, it settled for 1.6M NIS (~$460K), or 66% of its assets:
Summary: Will Nasdaq de-listing happen by Jan 25th?
With less than 6 months of cash, inferior apps that compete in a pure commodity market, and question marks surroundings key owners, it’s no wonder that MYSZ fell below 1$ last year.
On June 5, 2017, MYSZ received a written notice from Nasdaq indicating that it is not in compliance with Listing Rule, as it did not maintain a minimum market value of listed securities of $35 million and a minimum bid of $1 for the preceding 30 consecutive business days.
In December 2017, the company received a second written notice from NASDAQ indicating that it intends to de-list MYSZ stock by Dec 14th. MySize’s appeal to NASDAQ is expected on Jan 25th.
MySize needs to maintain a closing price above $1 and minimum market cap of $35M for 30 consecutive business days to survive. Even if the latest desperate torrent of bombastic PRs delays the decree, de-listing and bankruptcy may seem inevitable
Disclosure: Lucidity has a short position in MYSZ stock.