Ezenia files for bankruptcy

Ezenia, a publicly traded software company based in Nashua, filed for Chapter 11 bankruptcy reorganization Sept. 30, shortly after filing with the Securities and Exchange Commission to deregister its common stock, which on Monday plummeted to a penny a share.”It will still be business as usual,” said CEO Larry Snyder. “We are going to have a brighter future. The kind of changes that are being done here today should have been made long ago.”The company, with a history of losses and negative equity, also got a court order on Monday to prevent large stockholders from seizing control of the company. That would cause a change of control that would undermine the company’s largest asset — a possible $25 million tax benefit, thanks to past net operating losses of $72 million, the company told the bankruptcy court.The order was apparently aimed at Khoa Nguyen, a former CEO who has filed a million-dollar lawsuit against the company. Nguyen is the only individual who owns 5 percent of the company’s stock, though there are institutional stockholders with that amount as well.The court also approved several other orders on Monday that were aimed at allowing the company to remain operating, such as requiring utility companies to continue service and to allow the firm to pay liability insurance for company executives.In an interview with NHBR, Snyder painted a bright future for the company, which now employs six people (a quarter of the number employed last year), saying, “We’ve gone through a further reduction of the burn rate and we have revamped the sales effort.”However one bankruptcy filing contended that Ezenia “will essentially have no equity value prior to emerging frombankruptcy”At the end of September, the company will have some $72.6 million in losses — $2.3 million in the last year alone — according to an affidavit filed by John Brogan, from an accounting firm that has advised Ezenia on tax matters. Those net carryover losses could be worth some $25 million, Brogan wrote.The exact size of the company’s debt is unclear from the current filing, which lists assets and debts as somewhere between $1 million and $10 million. But in its last filing, the company listed – at the end of June — a stockholder deficit of $1.1 million and accumulated deficit of $65.5 million. The company’s current assets of $1.4 million includes $650,000 cash.In that statement, the company had lost $1.83 million at mid-year, and its accountant had “substantial doubt about our ability as a going concern,” the company warned.If the bankruptcy filing reporting a $2.3 million loss through the end of September is any indication, the company lost about another $500,000 more in the third quarter. (The company no longer is required to file quarterly filings with the SEC, now that it is traded on the Pink Sheets, and Snyder said the company had not intention of doing so.)In the bankruptcy filing, the company lists about 20 unsecured creditors, the largest being the law firm that is representing it against Nguyen.Nguyen filed suit in July in Virginia. Nguyen, who said that he was effectively frozen out of decision-making when the board fired the former president, Peter Janke, from under him and denied him severance. Although Nguyen resigned, he alleged that it was effectively a “change in control,” and that he was owed a total of $1.15 million under his contract.Janke filed his own suit, arguing that he was unjustly denied severance.Ezenia contends – in SEC and court filings — that there was no change of control as alleged by Nguyen, which, according to Snyder, would be a change in management control as distinguished from ownership control which could affect the company’s tax benefits.Those two suits presumably would be halted by the automatic stay in bankruptcy court. When asked if the suits drove the company into bankruptcy, or were among of the reasons for the filing, Snyder replied, “No comment.”Nguyen could not be reached comment on the bankruptcy filing, but when asked about his suit several months ago, he was upset by what had become to the company that he said he helped to build.”I put 14 years of my life and suffered two heart attacks for this company, and this is the way I’m treated,” he told NHBR. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW