LeapRate Exclusive… Things are going from bad to worse at Binary Options brokerage operator EZTD Inc (OTCMKTS:EZTD), which operates the EZTrader (eztrader.com), Global Option (globaloption.com) and EZinvest (ezinvest.com) binary options brands, including its WGM Services Ltd regulated subsidiary in Cyprus.
LeapRate has learned from regulatory filings made with the U.S. Securities and Exchange Commission (SEC) that EZTrader.com’s parent company sustained a $4.9 million loss in Q2, up from a $3.3 million loss in Q1. The company saw Revenues plunge by more than 30% in Q2, to $4.9 million, down from $7.0 million in Q1.
During Q2, EZTD took a $1.5 million non-cash provisional charge relating to a ‘Wells Notice’ that the company received (more on that below), meaning that the cash loss for the quarter was about $3.4 million.
Trading volume during Q2 across the company’s brands was $29.1 million, down 81% from $52.8 million in Q1.
In explaining its worsening results, EZTD stated that the decreases in activity during 2016 are mainly attributable to a significant increase in customer withdrawals as a result of new regulations imposed by the Cypriot regulator, CySEC.
With current assets of just over $5 million and current liabilities exceeding $15 million, EZTD stated that there is a substantial doubt that the Company will continue as a going concern. The company did state that it believes that it has sufficient cash to fund its operations for at least the next 12 months. However basic math would dictate that assumes a massive reduction in losses, which so far in 2016 have just continued to grow.
Despite its negative cash flows, to date EZTD has been able to secure financing to support its operations based on share issuances and loans. The Company plans to seek additional funds from equity issuances in order to continue its operations and to leverage its binary options business.
To that end, EZTD raised outside capital of $6 million in a private placement transaction at the end of Q1, although that capital was mostly eaten up by the company’s losses in Q2.
Early in Q2 EZTD agreed to pay one of its directors, Ron Lubash, a monthly $10,000 consulting fee. Lubash is co-founder and Managing Director of Israeli private equity firm Markstone Capital. The company did not say what the nature of Mr. Lubash’s consulting was to be.
Shimon Citron, EZTrader
Despite the company’s mounting losses, EZTD CEO Shimon Citron took home a $172,000 bonus in the first half of 2016, and total compensation of $355,000. Citron’s bonus is a function (1.25%) of total net client deposits. That might need to change in the future, given Cyprus financial regulator CySEC’s new directives limiting such bonuses.
Adding to EZTD’s mounting financial problems, during Q2 EZTD was ordered to pay more than €545,000 (USD $611,000) to Dutch soccer club Feyenoord Rotterdam in an arbitration ruling relating to EZTD’s early termination of a sponsorship agreement with Feyenoord. EZTD appealed this decision on July 6, 2016.
EZTD also disclosed that it had received a ‘Wells Notice’ from the US Securities and Exchange Commission (SEC) earlier this year, indicating the SEC’s preliminary determination to recommend taking action against EZTD for violations of certain US federal securities laws primarily related to its binary options platform. EZTD subsequently filed a written submission to the SEC setting forth reasons why the proposed enforcement should not be filed. The company is awaiting the SEC’s decision in this matter. During Q2, EZTD took a $1.5 million non-cash provisional charge relating to the Wells Notice.
Some good news from the company though early in Q3. EZTD has apparently hired Mark Kreimerman as CTO, and Yossi Gafni to replace the recently terminated Tal Golan as VP Sales of EZTrader. Both Kreimerman and Gafni are former senior executives from EZTrader rival anyoption.
