Are EZTrader Trading Insolvently?
EZTD’s Accounts for Year-Ends 2014 and 2015 were both qualified. The first six months of the current year saw them generate a pre-tax loss of $8.3m. Are they bust?
Are EZTrader trading insolvently as at 31st March 2016 EZTD’s cash & cash equivalents stood at $2.275m yet for the three months ending June 30th 2016 the company made a loss of $4.935m.
During the first six months of the year EZTD issued shares and warrants raising $5.85m plus a further $1.436m from convertible loans. They also received a further $52k from the prepayment on account of shares.
Against this was the repayment of short-term and convertible loans totalling $1.33m. leading to $6.008m being raised in the first six months of the year. According to the EZTD half year accounts Cash and Cash Equivalents at the beginning of the period AND at the end of the period, i.e. Jan 1st 2016 and Jun 30th 2016, were both zero.
For these cash and cash equivalent numbers to be both zero suggests that the financial backers have been feeding EZTD cash retrospectively, and feeding the company cash just sufficient for the company to be solvent. On the 24th Mar 2016 Zif Haft, EZTD’s Israeli auditors wrote:
“……the Company [EZTD] has suffered losses from operations and has negative cash flows from operations that raise substantial doubt about the Company’s ability to continue as a going concern.”
This statement was made prior to the second quarter loss of $4.935m.
Last year EZTD carried out a reverse stock split that created a share price well in excess of the $3 that Nasdaq required for a listing. At this time one backer paid $6 for 1,000,000 shares and is now nursing a considerable loss as the current price is $2.50 bid, offered at $2.70. The question is can the company yet again persuade the backers to pump yet more money into a business that has increasing losses?
From the three months from 1st Apr to 30th Jun EZTD were racked up a pre-tax loss of $4.935m, which works out at $1.645m per month. July and August have now passed with no announcement of a new cash injection. EZTD could therefore be insolvent to the tune of in excess of $3.3m already.
On top of the operating losses there is still a Wells Notice from SEC staff overhanging the business. In the year end accounts one finds:
“The SEC may also seek remedies that include an injunction and/or cease and desist order, disgorgement, pre-judgment interest, and civil money penalties.”
Bearing in mind the $11m hit that Banc de Binary took when confronted by the SEC and CFTC, disgorgement making up a good amount of that $11m, it would be a very brave investor who throws even more cash at this business.
CySEC should be all over EZTD like a rash if, as seems possible, they are using client funds to operate the business.
A Further Risk Factor
The year end accounts identify another pertinent risk factor.
“It could be difficult to enforce a U.S. judgment against our officers, our directors and us.
All of our executive officers and directors are non-residents of the United States, and virtually all of our assets and the assets of these persons are located outside the United States. Therefore, it could be difficult to enforce a judgment obtained in the United States against us or any of these persons.”
Israel does not have an extradition treaty with other countries. Although trading insolvently is usually a criminal offence, do the EZTD executive officers really care?