ID Global Solutions Corporation — FY2015 Form 10-K
Entity and period: The filing is for ID Global Solutions Corporation, not Authid Inc., and covers the fiscal year ended December 31, 2015. It was signed November 1, 2016. The company provides biometric identity-management and electronic payment-processing services.
Business context
In April 2015, the company acquired MultiPay, a Colombian payment gateway business. Its portfolio included identity-management products, payment processing, and transit-ticketing kiosks. Several platforms, including OnePay and IDComplete, remained under development. The later acquisition of FIN Holdings, ID Solutions, and Cards Plus closed in February 2016 and is not included in FY2015 operating results.
Financial performance and position
| Metric | FY2015 / Dec. 31, 2015 | FY2014 / Dec. 31, 2014 |
|---|---|---|
| Revenue | $735,364 | $0 |
| Operating expenses | $9,630,984 | $767,846 |
| Operating loss | $(8,895,620) | $(767,846) |
| Net loss | $(36,679,169) | $(904,687) |
| Net loss per share | $(0.21) | $(0.01) |
| Cash used in operations | $(2,522,928) | $(362,812) |
| Cash at year-end | $349,873 | $159,296 |
FY2015 revenue included $500,000 from consulting services to related-party customer ID Solutions and approximately $235,000 from Colombia operations. The related-party customer represented 68% of revenue and 98% of year-end accounts receivable. Operating expenses rose sharply, including $6.32 million of stock-based compensation. The reported $26.65 million derivative-liability loss was a major, largely noncash contributor to net loss. No income tax expense was recorded.
At year-end, current assets were $1.51 million and current liabilities were $27.55 million, a working-capital deficit of approximately $26.04 million. Current liabilities included a $25.45 million derivative liability. Cash used in investing activities was $187,003; financing activities provided $2,848,947. Notes payable and convertible notes payable were reported at $634,069 and $383,346, respectively, net of discounts. The filing identifies approximately $2.16 million of note maturities in 2016. No off-balance-sheet financing arrangements were reported.
Material changes and unusual items
- Revenue began in 2015 following the MultiPay acquisition; FY2014 had no revenue. The company issued 6.1 million shares for the acquisition and recorded approximately $370,000 of contingent purchase consideration tied to liabilities the sellers were to pay.
- Net loss increased by approximately $35.77 million year over year. The company attributed the increase principally to derivative remeasurement losses, higher stock-based compensation, operating costs, and interest expense.
- The company restated previously reported 2015 quarterly information, citing errors in software capitalization, acquisition-asset and derivative valuations, stock-option valuations, and classification of debt issuance costs. Investors should refer to the restated quarterly figures and the detailed explanations in the filing.
- The February 2016 FIN acquisition was valued at $9 million and paid for with 22.5 million company shares. The filing says the acquired subsidiaries generated average annual revenue of approximately $2 million; those results are not part of FY2015 revenue.
Outlook, risks, and controls
Management said substantial additional capital was needed to fund operations and product development. It estimated borrowing needs of approximately $5.7 million in 2016 and $3.3 million in 2017, and anticipated positive operating cash flow in 2018. Elsewhere, the filing estimated approximately $10 million was needed to implement operations through December 2016. These are management expectations, not assurances; the company had no committed credit facility.
The auditor issued an unqualified opinion on the FY2015 financial statements but included a going-concern paragraph citing substantial doubt about the company’s ability to continue operating. Management also identified material weaknesses in financial-reporting controls, including inadequate segregation of duties, limited oversight of the Colombian subsidiary, reliance on outside consultants and attorneys, and no formal audit committee. Disclosure controls were deemed ineffective.
The filing describes risks involving continued losses and financing needs, dilution from equity-linked debt, uncertain commercialization and market adoption, competition, international operations and regulation, cybersecurity and service interruptions, and thinly traded OTC shares. It reports no material pending legal proceedings. The company disclosed that it had missed deadlines for acquisition-related amended Form 8-K filings and had not filed its March and June 2016 Forms 10-Q; it stated that Rule 144 resale availability was consequently unavailable at that time. The filing also contains inconsistent narrative statements about related-party revenue; the financial statements and Note 11 report $500,000.
Most important facts to verify
- Confirm the registrant’s identity: this document names ID Global Solutions Corporation, not Authid Inc.
- Review the auditor’s going-concern warning, liquidity deficit, debt maturities, and whether subsequent financing adequately addressed funding needs.
- Check the quarterly restatements and the valuation assumptions behind the $25.45 million derivative liability and $26.65 million derivative loss.
- Assess the concentration and collectability of related-party revenue and receivables, and reconcile the filing’s contradictory narrative disclosure.
- Verify the status of delinquent acquisition filings and 2016 quarterly reports, internal-control remediation, and any effects on shareholders’ resale rights.
- Evaluate dilution and repayment terms of secured notes, convertible instruments, warrants, and subsequent financings, including the FIN acquisition’s share issuance.