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Screenshot of a breaking news alert e-mail from Q2 2017
LeapRate Exclusive… LeapRate has learned from regulatory filings that binary options brokerage group EZTD Inc (OTCMKTS:EZTD) has raised the third tranche of funds from an $11 million investment commitment made to the company by alternative investment firm Yorkville Advisors Global, LLC at the end of last year.
And unlike the previous two tranches, which came in the form on an equity investment, the latest funds were invested as a two-part loan made to EZTD.
EZTD operates binary options brands EZTrader (at website eztrader.com), Global Option (globaloption.com) and EZinvest (ezinvest.com).
Of the $3.5 million loan (more details follow), EZTrader turned around and paid back $1 million to Yorkville, to retire a $1 million out-of-the-money convertible bond which was outstanding and payable to a third party, which Yorkville had acquired. So, EZTrader ended up receiving just $2.5 million in new funds from this latest transaction.
This brings the total amount of money invested so far into EZTrader by Yorkville to $6.5 million. The first tranche of $800,000 was injected just before year-end, and $2.2 million more was received in early February. As per above, both of those were made as equity investments into EZTrader.
As far as the loan terms go, the loan is short term, due on July 9, 2017, and as such will likely need to be refinanced in some form come July. Interest is at 3% on an annual basis.
Before receiving the loan, EZTrader agreed to amend its company bylaws to require the approval of Yorkville before the company spends more than $25,000 in consulting agreements. As we had previosuly reported, the company had not long ago agreed to pay independent director Ron Lubash a $120,000 annual ‘consulting fee’ ($10,000 monthly) for undisclosed services. Company CEO had also structured part of his compensation in the form of a consulting agreement.
The company also indicated in its filings that its Board of Directors approved a Rights Offering, whereby the Company may seek to offer up to $4 million of common stock at a purchase price of $1.00 per share.
Rights Offerings are essentially forced equity offerings. Existing shareholders are offered the right to buy more common shares at a price below the current price – in that way, all shareholders are heavily incentivized to put more money into the company. A shareholder who doesn’t buy in loses the chance to buy these ‘cheap shares’.
However, EZTrader shares (which are highly illiquid, trading only a few thousand shares daily) are right now at $1.01. So, a $1.00 right isn’t exactly heavy incentive to buy, and it is very possible that many if not most outside shareholders would pass on putting more money into the company.
EZTrader sustained large losses totaling more than $11 million in the first nine months of 2016, leading the company to continually need to raise more money to remain in business. In its latest financial report for Q3-2016, the company included a going concern doubt due to the company’s continued losses.
The company then turned to Mountainside, NJ based Yorkville Advisors, a hedge fund manager run by Mark Angelo, specializing in PIPES, or ‘private investment in public equity’. The once high-flying Yorkville Advisors was charged with fraud in 2012 by the SEC. According to the SEC, Yorkville exaggerated the reported returns of hedge funds it managed in order to hide losses and increase the fees collected from investors.
EZTrader itself has had problems with the SEC, recently paying a $1.7 million fine for misleading investors about binary options profitability.