First Global Releases 2017 Year End Audited Financial Statements
TSX Venture Exchange: FGD
Frankfurt Stock Exchange: 1G5
OTCQB: FGBDF
TORONTO, Aug. 16, 2018 /CNW/ - First Global Data Limited ("First Global" or the "Company") would like to announce that it has published its 2017 year-end audited financial statements ("2017 Financial Statements") for the year ended December 31, 2017 ("2017 Financial Year"). The Company would like to highlight key items in the 2017 Financial Statements and certain other operational matters relating to the Company.
ISPL License Program and Revenue Recognition Issues
The Company's strategy includes the sale of technology licenses ("ISPLs"). ISPLs sold result in the creation of multiple websites which offer First Global services and which in turn drive new users, new active users and transactional revenues for the Company. Although the Company was relatively successful selling ISPLs, for the reasons highlighted below, the Company was advised by its auditor that it would not be able to recognize revenues in respect of its 2017 Financial Year and prior year, respectively, for certain ISPL licenses sold during the 2016 and 2017 Financial Years.
In reviewing the Company's standard form ISPL agreement (the "Agreements") and reviewing such against International Accounting Standard 18 (IAS 18) and, in particular, IAS 18.14, the Company's auditor cited the following concerns:
- the Agreements lacked clarity on whether the Company had relinquished control over the license issued thereunder post-sale;
- significant payment had not yet been received as of the reporting period in question; and
- the auditor felt that the costs related to the sale of an ISPL could not be determined reliably.
Consequently, during the process of working with its auditors on the 2017 Financial Statements, the Company found that $2,722,162 in ISPL licensing sales for the year ended December 31, 2016 was incorrectly classified as revenue. Accordingly, certain comparative information for the year ended December 31, 2016 has been restated to reflect same. This restatement of the Company's audited consolidated financial statements for the year ended December 31, 2016 includes adjustments to the consolidated statement of financial position, the consolidated statement of operations and comprehensive income, and consolidated statement of cash flow as is set out in Note 13 of the 2017 Financial Statements.
As a result of the Company's inability to recognize certain ISPL revenues, revenues in 2017 were significantly lower than expected. However, the Company has made significant progress toward the deployment of solutions and revisions to the Agreements and the ISPL licensing program in tandem with its auditor. The Company will determine whether it will be able to recognize revenues for licenses previously sold on a going-forward basis.
How Amendments Address Auditor Concerns
The contemplated amendments to the Agreements would go towards addressing the auditor's concerns and assuring the Company's auditor that the Agreements minimize, if any, deviation in substance (and practice) from form. For example, the Agreements would clarify that the Company would retain no control or management over the license post-sale (other than as may be required to address default or other circumstances outside of the ordinary course) and would not, for example, honour a refund under any circumstances. The amended Agreements would also better emphasize that the direct risks and rewards related to the Agreement post-sale would lay with licensees, while better identifying the nature and character of the product being delivered.
The Company also intends to institute other changes in practice, such as issuing a unique ID to each licensee and systematically collecting at least partial payment within a reasonable and agreed-upon timeframe.
Expenses and Write-Offs
Although the Company was unable to recognize revenues from the sale of ISPLs, all related fees, expenses, taxes and royalties paid related to the ISPL license program were nevertheless booked as expenses in the 2017 Financial Statements. Some of these ISPL related expenses represent a significant portion of expenses categorized under "Selling, General and Administrative".
The Company also decided to write-off, as bad debt, historical receivables associated with the Series G Debentures (defined below), and other receivables, including some associated with the ISPL license program.
During the course of the 2017 Financial Year, the Company issued options to Directors, Officers and Consultants, and the issuance of these options must be expensed. These expenses represent a significant portion of the expenses captured under "Salaries and Related Costs".
Liabilities
Liabilities increased significantly in the 2017 Financial Year as a result of the requirement that ISPL fees received during the 2017 Financial Year be booked as borrowings. As noted, the Company is revising the ISPL licensing program and correcting deficiencies with input from its auditor and legal counsel, and Management shall determine at that point whether it will be able to recognize revenues for previously-sold licenses on a going-forward basis.
Liabilities also increased from the Company's decision to take back responsibility of the Company's Series G debentures (the "Series G Debentures") previously assigned to another company (the "Columbian Transaction"). See "Series G Debentures", below.
Series G Debentures
The Company would also like to advise that the security offered to Series G Debenture holders pledged by a Colombian company in connection with the Columbian Transaction is being reviewed by a special committee of the Board of Directors. The Company feels it has basis for investigating the current status of assets previously pledged and is thus working with counsel representing various parties related to the Colombian Transaction towards either validating the assets pledged or arriving at an agreement on alternative assets that would be pledged as a replacement. Given that the Series G Debentures represent a significant liability on the books of the Company, Management and the Board of Company are currently reviewing various scenarios that they had been actively pursuing prior to the Failure-to-File Cease Trade Order ("CTO") issued by the Ontario Securities Commission ("OSC") on May 4, 2018. As soon as the CTO is lifted, as detailed further below, Management and the Board of the Company plan to commence working actively and aggressively with the Series G Debenture holders toward an alternative solution such as a conversion of debt.
Cease Trade Order
Regarding the CTO currently in effect, the Company is currently in the process of filing its Q1-2018 financial statements. Once this is done, the Company plans to bring an application to the OSC for a revocation of the CTO and a concurrent application to the TSX Venture Exchange Inc. (TSXV) for reinstatement. The Company expects said Q1-2018 financial statements to be published on or prior to August 23, 2018. While the Company does not expect protracted timelines, there can be no assurance as to the time when the CTO is lifted or when the TSXV reinstatement will occur.
Next Steps
The situation with revenue recognition and associated matters was challenging for the Company to understand, given that it had launched the ISPL licensing program with review and advice from various advisors including previous legal counsel who were working directly and interactively with the auditor. As a result, the Company has taken the extra time necessary to better understand the situation, to make informed decisions, and to ensure that not only do its financial statements accurately reflect the adjustments required, but also that the same mistakes are not repeated. Although the Company is not able to recognize ISPL revenues on its 2017 Financial Statements, as services related to said licensing program are deployed and necessary modifications to such program are made, the Company shall determine if it will be possible to recognize these revenues in the financial year ending December 31, 2018.
The Company would also like to announce that Nayeem Alli, its interim CFO is no longer with the Company. Subsequent financial statements shall be prepared and reviewed by existing personnel and Management. The Company is actively pursuing a permanent replacement for the CFO position and will take the time necessary to retain a qualified candidate.
About First Global: (www.firstglobaldata.com)
First Global is an international financial services technology ("FINTECH") company. The Company's two main lines of business are mobile payments and cross border payments. First Global's proprietary leading edge technology enables the convergence of compliant domestic and cross border payments, shopping, Peer to Peer ("P2P"), Business to Consumer ("B2C"), and Business to Business ("B2B") payments. First Global enables its strategic partners and clients around the world with our leading edge financial services technology platform.
Caution:
Neither TSX Venture Exchange Inc. ("TSXV") nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.
The securities of First Global have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This news release shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of the securities offered in any jurisdiction in which such offer, solicitation or sale would be unlawful.
Forward-Looking Information:
This news release contains "forward-looking information" within the meaning of applicable securities laws. In particular, this news release contains forward-looking statements with respect to the Company's ability to finalize its 2017 audit, to make an application to the OSC for a revocation of the CTO, to have trading resume on the approval of the TSXV, the Company's ability to recognize revenue in the future with respect to its Agreements, to properly revise existing Agreements to permit the Company to recognize revenue with respect to existing Agreements and the resolution of security with respect to the Series G Debentures. As such, there can be no assurance with respect to a favourable outcome with respect to any of the foregoing matters. Such forward-looking information is based on the beliefs of Management as well as assumptions made by and information currently available to Management. Investors are advised that absent a favourable outcome with all of the foregoing matters, the business and market value of the Company, including the value of its common shares, if and when trading resumes, may be adversely and materially affected. All forward-looking information inherently involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Although the Company believes, in light of the experience of its Officers and Directors, current conditions, expected future developments and other factors that have been considered appropriate, that the expectations reflected in this forward-looking information are reasonable, undue reliance should not be placed on them because the Company can give no assurance that they will prove to be correct. Readers are cautioned to not place undue reliance on forward-looking information, all of which is qualified in its entirety by this cautionary statement. The statements in this news release are made as of the date of this release. The Company undertakes no obligation to comment on analyses, expectations or statements made by third-parties in respect of the Company, its securities, or financial or operating results (as applicable). The Company disclaims any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
SOURCE First Global Data Limited
Andre Itwaru, Chairman and CEO, email: [email protected], phone: 416 504-3813
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