EW Solutions Limited - Investment Risk Assessment

1. Risk Rating: HIGH

Justification: The company has maintained negative net assets for eight consecutive years (since 2017), with accumulated losses of £334,668 as at 31 January 2025. Cash reserves have deteriorated significantly, falling 85% from £115,363 to £16,684 year-on-year, while trade debtors have increased tenfold. The company is technically insolvent and reliant on director guarantees and creditor forbearance to continue trading.

2. Key Concerns

a) Persistent Insolvency

Net assets have been negative since FY2017, ranging from (£58,447) to (£431,205). The FY2025 position of (£331,404) represents marginal improvement from FY2024's (£401,546), but the company remains fundamentally balance-sheet insolvent. Eight years of negative equity raises serious questions about long-term viability and whether creditors could force winding up.

b) Alarming Debtor Inflation

Trade debtors surged from £78,888 to £811,430 — an increase of approximately £732,542 or 928%. This warrants immediate investigation. Potential explanations include: - Significant revenue growth with timing differences - Deteriorating collection practices - Related-party or intra-group receivables disguised as trade debtors - Revenue recognition concerns

Without a profit & loss account (permitted exemption for small companies), it is impossible to verify whether this debtor movement correlates with legitimate turnover growth.

c) Liquidity Deterioration

Cash has fallen from £115,363 to £16,684 — an 85% decline. Meanwhile, "other creditors" within current liabilities increased from £220,797 to £888,523. The current ratio stands at approximately 1.10:1 (£1,111,937 / £1,014,359), which appears marginal. However, if the trade debtors include amounts that are doubtful or long-dated, the effective liquidity position could be significantly worse than headline figures suggest.

3. Positive Indicators

• Going Concern Assertion: Directors have explicitly assessed going concern based on cashflow forecasts, budgets, and ongoing contracts, providing a 12-month comfort period from the 21 February 2025 signing date.
• Director Commitment: Personal guarantees have been provided by directors on £415,686 of other loans (FY2025), demonstrating personal financial commitment to the business.
• Operational Growth: Employee headcount increased from 18 to 20, suggesting the business is actively trading and potentially expanding.
• Creditor Confidence: Long-term creditors decreased from £507,466 to £439,689, and secured debts reduced from £463,443 to £431,116, indicating some deleveraging. The government-guaranteed bank loan suggests institutional support.
• Net Asset Improvement: While still deeply negative, the net asset position improved by approximately £70,000 year-on-year, suggesting some operational progress.

4. Due Diligence Notes