Tough Q1 at – $3.3 million loss, SEC Wells Notice, and $600,000 arbitration order

Binary options brokerage EZTD Inc (OTCMKTS:EZTD), parent company of CySEC regulated WGM Services Ltd which operates binary options brands and, reported its Q1 results showing a growing net loss and decreasing revenues, despite a large ramp-up in marketing spend.

EZTD lost $3.3 million in Q1, a fairly large number given its Revenues in the quarter were $7.0 million, down slightly from $7.1 million in Q1-2015.

To help cover the losses, EZTD raised outside capital of $6 million in a private placement transaction at the end of Q1. EZTD exited Q1 with cash resources of just $2.3 million – less than one quarter’s worth of losses at the current rate. Clearly, either EZTD needs to improve its performance and quickly cut its loss rate, or raise even more capital within the next few months.

Shimon Citron, EZTrader

Shimon Citron, EZTrader

Despite the company’s financial issues, soon after the end of the quarter 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.

EZTD CEO Shimon Citron took home $185,000 from the company in Q1: Salary of $29,000, Management fees of $63,000, and a Bonus of $93,000. Citron’s bonus is a function (1.25%) of total net client deposits.

Adding to EZTD’s mounting financial problems, after the end of the quarter 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 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.

It was not all doom and gloom, however, in EZTD’s Q1 report. The company reported that:

  • Transaction volume for Q1 increased to $52.8 million compared with $24.3 million in the year-ago first quarter, an increase of 117% (although as we noted, its Revenues were down from Q1 last year).
  • The number of transactions in Q1 increased by 125% to 1.17 million transactions, compared with 519,000 transactions in the first quarter 2015.
  • The number of active customers in the first quarter 2016 was 18,425, compared with 17,475 active users at the end of March 2015, an increase of 8.6%, reflecting the company’s increased sales and marketing efforts.

EZTD CEO Shimon Citron had the following to say:

As we implement our strategy to increase the number of customers as well as the value per customer, we continue to make great strides in all of our markets. We recently finished making adjustments to our business in Japan to comply with regulator requests, and will start generating revenue from this subsidiary in the coming weeks as we prepare for what we believe will be a very successful market for our company. In addition, we are focusing on expanding into other Asian countries, the Gulf States and Australia, which are all markets we believe will contribute to our growth.

The company invested significant sums this quarter to accommodate regulator demands and improve regulatory compliance. We believe this work will place us as one of the leading companies in the industry as customers will look to better, highly regulated “by the book” companies as their Binary and Forex investment providers.

To prepare for our anticipated growth and to attract new customers, we invested this quarter in sales and marketing to continue to build our brand equity and were successful in converting site visitors into customers. We are very excited about the launch of our new website,, as we target avid sports fans and work toward converting them into active customers.

We remain enthusiastic about new business opportunities as we continue to pursue potential partners in our targeted markets. We look forward to reporting on what we believe will be another year of growth and market expansion.

EZTD’s Q1 income statement:

EZTrader Q1 results

EZTD’s full Q1 report (10Q filing) can be seen on the SEC’s website here.

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