engage:BDR Limited
ABN 621 160 585
Annual Report - 31 December 2018
engage:BDR Limited
Contents
31 December 2018
Corporate directory
Directors' report
Auditor's independence declaration
Notes to the financial statements
Independent auditor's report to the members of engage:BDR Limited
Shareholder information
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3
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engage:BDR Limited
Corporate directory
31 December 2018
Directors
Mr Ted Dhanik
Mr Kurtis Rintala
Mr Tom Anderson
Mr Darian Pizem
Mr Robert Antulov
Company secretary
Mr Justin Mouchacca
Registered office
Principal place of business
Share register
Auditor
Scottish House
Level 4
90 William Street
Melbourne Victoria 3000
Australia
Suite 100
9220 Sunset Boulevard
West Hollywood
California 90069
USA
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford, VIC 3067
Telephone: +61 3 9415 5000
Fax: +61 3 9473 2500
BDO East Coast Partnership
Collins Square, Tower Four
Level 18, 727 Collins Street
Melbourne VIC 3000
Australia
Stock exchange listing
engage:BDR Limited securities are listed on the Australian Securities Exchange (ASX code:
EN1 and EN1O).
Website
engagebdr.com
Corporate Governance Statement
The Company's 2018 Corporate Governance Statement has been released to ASX on 29
March 2019 and is available on the Company's website.
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engage:BDR Limited
Directors' report
31 December 2018
The Directors present their report, together with the financial report of engage:BDR Limited comprising engage:BDR Limited (referred
to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 31 December
2018 (referred to hereafter as ‘engage:BDR’ or the ‘Group’).
Directors
The following persons were directors of engage:BDR Limited during the whole of the financial year and up to the date of this report,
unless otherwise stated:
Mr Ted Dhanik (Co-Founder and Executive Chairman)
Mr Kurtis Rintala (Co-Founder and Executive Director)
Mr Tom Anderson (Non-Executive Director)
Mr Bruce McMenamin (Non-Executive Director) (resigned on 30 October 2018)
Mr Ron Phillips (Non-Executive Director) (resigned on 23 November 2018)
Mr Darian Pizem (Non-Executive Director) (appointed on 30 October 2018)
Mr Robert Antulov (Non-Executive Director) (appointed on 23 November 2018)
Principal activities
engage:BDR is an internet-based marketplace platform and associated technology solution provider. engage:BDR’s proprietary
technology is used to optimise the sale of advertising inventory from digital publishers (websites and apps) to advertisers and their
agents (brands, agencies and advertising platforms). The ability to optimise the inventory from digital publishers to advertisers and
their agents allows engage:BDR to play an active role in managing the ad exchange platform.
engage:BDR allows digital publishers to monetise their available advertising space by making the inventory available to multiple
advertisers, as well as providing various related technologies designed to help publishers create additional incremental revenue
streams. engage:BDR’s ad exchange platform also allows publishers to sell space for video advertising on webpages that do not have
video content.
Dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
Review of operations
The loss for the consolidated entity after providing for income tax amounted to $10,840,198 (31 December 2017: loss of $10,566,001).
engage:BDR generates revenue from five principal activities (which are under two revenue streams – programmatic and non-
programmatic):
Non-programmatic display advertising sales
The Group’s Non-programmatic display advertising sales business is tag-based, traditionally sold and managed banner advertising
campaigns run for direct advertisers. This was the Group’s first product, initially launched in 2009 and remained a significant revenue
contributor in 2018. The Group anticipates that this part of the Group’s business will continue to decline as advertising buyers continue
to migrate their business to more efficient and cost effective programmatic buying. engage:BDR is expecting to be able to deliver
significantly increased trading margins as a consequence of moving to a near totally automated operation during 2019.
Programmatic display advertising sales
The Group’s Programmatic display advertising sales business includes selling banner advertising inventory through the Group’s digital
auctioning technology to platforms and marketplaces. The Group developed this product to replace the traditional Non-Programmatic
display advertising channel. Many of the Group’s Non-programmatic buyers are still bidding on the Group’s inventory through server-
to-server connections. The adoption of programmatic display advertising sales has proved extremely successful in 2018 and opened
additional revenue opportunities from the same clients, largely because programmatic buying and selling of advertising is much more
efficient and significantly more cost effective to operate, thus increasing the Group’s overall operating and gross profit margins.
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engage:BDR Limited
Directors' report
31 December 2018
Non-programmatic video advertising sales
The Group’s Non-Programmatic video advertising sales business includes selling video inventory through tag-based technology to direct
advertisers, platforms and marketplaces. The Group has spent the last three years developing its own proprietary video ad serving
technologies and further expanding this part of the business by enabling both buying and selling of video in addition to its display
business. The Group has significantly increased revenue per customer by integrating the video channel with the display buyers and
sellers and opening business on the display ad side to customers that were originally integrating into the video business. The Company
anticipates that the programmatic video business will eclipse this and all other ad formats over the next three to five years and
accordingly dedicated significant financial resources to this part of the business in 2018 to encourage this shift.
Programmatic video advertising sales
The Group’s Programmatic video advertising sales business grew significantly during the year as the Group continued to progress the
development and launch of its programmatic and video advertising platforms. Significant achievements in the reporting period included
considerable expansion of programmatic display and video partnerships and integrations and the launch of its true programmatic, real-
time bidding buy-side and sell-side marketplace for video.
The Group’s recently developed proprietary programmatic technology significantly increases the Group’s operating margins by reducing
payroll and associated sales commissions. With the rapid adoption of programmatic buying, brands, agencies and digital media buyers
have moved their budgets to auction-based buying, in contrast to buying from sales people, individual RFP (request for proposal) and
insertion orders. This behavioural change has made the marketplace much more efficient, significantly reducing the staff overhead
required to sell advertising in the traditional way.
Advertising buyers, through the Group’s programmatic platform, are essentially bidding for advertising inventory in real time in dynamic
auctions, which occur in milliseconds while the relevant web page is loading. This new engage:BDR format has created significant
barriers to entry for new companies looking to enter the digital advertising arena. Companies must realistically own and develop their
own proprietary technology to be able to participate in the rapidly developing programmatic advertising ecosystem as licensing third
party technologies is cost-prohibitive. engage:BDR has developed its own real-time auctioning and bidding technologies which provide
it with a significant competitive advantage. engage:BDR has established thousands of direct publisher relationships which is a key
differentiator and competitive advantage for the Group in an ecosystem which is experiencing inventory quality issues, brokers and
middlemen.
Non-Programmatic Influencer Marketing
The Group launched its social influencer marketing platform in 2017. It dedicated engineering and account management resources to
further develop and refine its technology and client base in 2018. The Group brought in incremental revenue through this platform and
further diversification of the Group’s product and service offering. With Instagram influencers becoming extremely popular, new
marketing channels for advertisers and platform efficiencies are required to scale this new form of media. IconicReach, engageBDR’s
Instagram influencer self-serve platform, is focused on being the largest marketplace focused on advertiser-supplied creative, creating
a scalable and efficient revenue stream for micro and macro influencers with large audiences. The Group anticipates that several
thousand influencers and at least 25 brands will join the IconicReach platform in 2019.
Significant changes in the state of affairs
On 27 February 2018, the Company issued 2,745,721 fully paid ordinary shares on conversion of the Convertible Notes at $0.20 (20
cents) per share.
On 3 May 2018, the Company announced that it signed a binding Term Sheet to acquire 100% of the shares in USA based digital media
and advertising company AdCel Inc. ("AdCel") for USD $4.5 million, payable in fully paid shares in engage:BDR Limied to be issued to
the vendors at the equivalent of $0.22 (22 cents) per share, and USD $1 million in cash.
On 10 May 2018, the Company issued 12,500,000 fully paid ordinary shares to a range of institutional and sophisticated investors at a
price of $0.16 (16 cents) per share, raising a total of $2,000,000 before costs of issue.
On 10 May 2018, the Company issued 2,250,000 fully paid ordinary shares at a price of $0.16 (16 cents) per share as payment for
consulting services provided to the Company.
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engage:BDR Limited
Directors' report
31 December 2018
On 15 June 2018, the Company issued 1,290,625 fully paid ordinary shares under a Share Purchase Plan at a price of $0.16 (16 cents)
per share, raising a total of $206,500 before costs of issue.
On 15 June 2018, the Company issued 484,539 fully paid ordinary shares on conversion of the Convertible Notes at a deemed issue
price of $0.16 (16 cents) per share.
On 30 July 2018, the Company announced that the Adcel acquisition had been completed with revised consideration of USD $3.515
million in fully paid ordinary shares in engage:BDR Limited to be issued at the equivalent of AUD $0.22 (22 cents) per share.
On 31 August 2018, the Company issued 3,750 fully paid ordinary shares under the Share Purchase Plan at a price of $0.16 (16 cents)
per share, raising a total of $600 before costs of issue.
On 31 August 2018, the Company issued 11,071,951 fully paid ordinary shares at a price of $0.22 (22 cents) per share as consideration
for the Adcel acquisition. Of these 6,523,453 were subject to a six month voluntary escrow.
On 12 September 2018, the Company issued 5,458,200 fully paid ordinary shares at a deemed issue price of $0.075 (7.5 cents) per share
to new employees of the Company, in accordance with their employment agreements.
On 19 November 2018, the Company announced that it had obtained funding of up to $US1.5 million (approximately $A2.07 million)
by way of a convertible loan under a convertible securities agreement. 750,000 loan notes were issued initially at $USD0.95 per note
with a face value of $US1.00 per note. Loans made under this facility would be secured by a future issue of shares in the Company.
On 30 November 2018, the Company issued 3,100,000 fully paid ordinary shares at a deemed issue price of $0.047 (4.7 cents) per
share as partial security for the convertible loan announced on 19 November 2018.
There were no other significant changes in the state of affairs of the consolidated entity during the financial year.
Matters subsequent to the end of the financial year
On 21 January 2019 the Company announced that two new recently signed integrations, Third Presence and AcuityAds, had gone live.
On 25 January 2019, the Company issued 25,099,423 fully paid ordinary shares to professional and sophisticated investors at a price of
$0.028 (2.8 cents) per share, raising a total of $702,784 before costs of issue.
On 30 January 2019, the Company issued 13,471,396 fully paid ordinary shares on conversion of 106,188 convertible notes at a
conversion price of $0.011 (1.1 cents) per share.
On 30 January 2019, the Company issued:
●
●
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625,000 unlisted convertible notes issued at USD$0.90 per Note with a face value of USD$1.00 per Note. Notes are secured with
a Maturity date of 19 November 2019. The Notes are convertible at the lesser of AUD0.09 (9 cents) converted into USD, and a
market share price-derived amount. These convertible notes replaced the 625,000 Loan Notes outstanding from the Loan Note
issue made in November 2018.
1,900,000 fully paid ordinary shares at a deemed issue price of $0.06 (6 cents) per share as the remaining security for the
convertible notes.
8,676,093 unlisted options exercisable at $0.052, expiring 29 January 2022.
On 4 February 2019, the Company issued 9,028,597 fully paid ordinary shares on conversion of 85,052 convertible notes at a conversion
price of $0.013 (1.3 cents) per share.
On 18 February 2019, the Company issued 7,498,236 fully paid ordinary shares on conversion of 92,500 convertible notes at a
conversion price of $0.018 (1.8 cents) per share.
On 18 February 2019 the Company announced a new integration, Comcast Freewheel.
On 25 February 2019 the Company announced two new integrations, MobFox and Chalk Digital.
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engage:BDR Limited
Directors' report
31 December 2018
On 28 February 2019, the Company issued the following:
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589,300 fully paid ordinary shares to a consultant in lieu of consulting fees at a deemed issue price of $0.051 (5.1 cents) per share;
2,000,000 fully paid ordinary shares to a consultant in lieu of consulting fees at a deemed issue price of $0.022 (2.2 cents) per
share;
18,607,945 fully paid ordinary shares for settlement of outstanding creditor balances at a deemed issue price of $0.021 (2.1 cents)
per share.
On 8 March 2019, the Company issued the following:
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●
10,657,140 fully paid ordinary shares to satisfy the deferred consideration at 31 December 2018 for the Company’s acquisition of
AdCel LLC as per the Company's announcement on 30 July 2018, at a deemed issued price of $0.22 (22 cents) per share;
4,000,000 listed options as consideration for corporate advisory services, exercisable at $0.25 (25 cents ) per option by 22
December 2020.
On 18 March 2019, the Company issued the following:
●
●
11,347,597 fully paid ordinary shares on conversion of 117,500 unlisted convertible notes at a conversion price of $0.015 (1.5
cents) per share;
12,467,980 fully paid ordinary shares for settlement of outstanding creditor balances at a deemed issue price of $0.031 (3.1 cents)
per share.
On 20 March 2019, the Company issued 17,719,531 fully paid ordinary shares on conversion of 188,760 unlisted convertible notes at a
conversion price of $0.015 (1.5 cents) per share.
No other matter or circumstance has arisen since 31 December 2018 that has significantly affected, or may significantly affect the
consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.
Likely developments and expected results of operations
Growth of video revenue on the proprietary platforms (programmatic and tagbased)
As a consequence of the fact that the Group's platform is now completed and a number of partnerships have been established, the
Group expects to grow video revenues significantly in 2019. This revenue will be less dependent on third party technologies than prior
video advertising revenues were. In addition, the gross margins expected to be achieved by the Group are likely to increase significantly
as the Group is no longer required to rely on third-party platforms which charge a significant (almost 50%) share of the Group’s gross
margin. In addition to the growth of the video business (tag-based), the addition of programmatic video will enable much quicker scale
and greater revenue per client (and shorter ramp-up periods). As the supply and demand partnerships are integrated by the engineering
teams, the revenue is expected to steadily grow throughout the year.
Continued growth of programmatic display revenue
The Group also expects to see continued growth of its programmatic display business. Through monetisation of existing partnerships
and creation of new ones, the Group expects to be able to significantly scale revenue while maintaining its lower cost operations. As
more non-programmatic buyers and sellers migrate to purely programmatic environments, the Group expects revenue per customer
to increase dramatically. This enables optimisation of the Group’s existing relationships and the ability to attract new buyers and sellers.
Growth of influencer marketing revenue
The Group launched its social influencer marketing platform in mid-2017. It brought in additional incremental revenue through this
platform and further diversification of the Group’s product and service offering. With Instagram influencers becoming extremely
popular, new marketing channels for advertisers and platform efficiencies are required to scale this new form of media. IconicReach,
engageBDR’s Instagram influencer self-serve platform, is focused on being the largest marketplace focused on advertiser-supplied
creative, creating a scalable and efficient revenue stream for micro and macro influencers with large audiences. The Group anticipates
that several thousand influencers and at least 25 brands will join the IconicReach platform in 2019.
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engage:BDR Limited
Directors' report
31 December 2018
The Board wants to thank those shareholders who supported the Company in its first year as a publicly traded company and since and
is extremely confident of the Group’s progress as it moves more of its business to the significantly more efficient, scalable and higher
margin programmatic format.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law.
Information on directors
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Interests in shares:
Interests in options:
Interests in rights:
Mr Ted Dhanik
Co-Founder, Executive Chairman and Chief Executive Officer (appointed 14 December 2017)
Ted Dhanik is one of the co-founders of engage:BDR LLC. He serves as Chief Executive Officer
overseeing corporate development, strategic marketing, sales and business development,
and product strategy.
From 2003 to 2008, Ted worked with MySpace.com developing strategic marketing
initiatives. He worked very closely with founders Chris DeWolfe and Tom Anderson and was
responsible for launching the brand in its early days through a combination of on and offline
campaigns. Ted also worked in business development at LowerMyBills.com until its
acquisition by Experian. Ted was also an integral part of the development and launch of the
consumer lending program at NexTag Corporation.
He has worked for, or been a partner at, several other companies in business development,
sales, and managerial positions, including Xoriant Corporation, Atesto Technologies, Brigade
Solutions, Beyond.com/Cybersource Corporation and Merrill Corporation.
Ted also advises a number of technology startups including Fighter, LottoGopher and Schizo
Pictures and is an active mentor at Los Angeles-based startup accelerator Start Engine. He is
passionate about being a thought leader in the industry and he is regularly published in
leading publications.
He regularly contributes to discussions about industry standards and achieving positive
change, sitting on IAB committees including the Anti-fraud Workgroup, Anti-malware
Workgroup, Traffic of Good intent Task Force, Programmatic Counsel, Digital Video
Committee, Mobile Advertising Committee and Performance Marketing Committee.
Nil
Nil
57,681,498 fully paid ordinary shares (27,974,935 escrowed for 24 months to 14 December
2019)
Nil
Nil
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engage:BDR Limited
Directors' report
31 December 2018
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Interests in shares:
Interests in options:
Interests in rights:
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Interests in shares:
Interests in options:
Interests in rights:
Mr Kurtis Rintala
Co-Founder, Executive Director and Chief Operating Officer (appointed on 14 December 2017)
Kurtis Rintala was one of the co-founders of engage:BDR LLC. and serves as the Chief
Operating Officer for the Group overseeing day-to-day operations and leading the execution
of the strategic direction of the Group.
Kurtis is responsible for establishing policies that promote the Group culture and vision. He
sets comprehensive goals for performance and growth and encourages optimum
performance and dedication. He evaluates performance by analysing and interpreting data
and metrics.
Kurtis began his career in the technology industry in 2003 as an early member of the
successful internet startup, LowerMyBills.com.
Nil
Nil
36,717,391 fully paid ordinary shares (17,608,695 escrowed for 24 months to 14 December
2019)
Nil
Nil
Mr Tom Anderson
Non-Executive Director (appointed 14 December 2017)
Tom Anderson was appointed to the Board of the Group as a Non Executive Director to
provide the Group with the benefit of his wide ranging expertise in social media and
innovative product design and to assist to steer the Group’s future growth strategy.
Prior to joining the engage:BDR, Tom founded and served as President of MySpace,
simultaneously inventing "social media" while revolutionizing the music industry. After its
launch in 2003, MySpace became the #1 most visited site on the web quickly, surpassing
companies such as Google, Yahoo and Amazon. At its peak, Nielsen Net Ratings reported that
MySpace captured more than 10% of all minutes spent online.
By the time Anderson left the company in 2009, he had amassed more than 350 million
friends on MySpace, making him the first and still ultimately the biggest "influencer" of all
time. His MySpace profile photo, which he never changed and still uses to this day is
estimated to have been viewed more times than any single photograph in history.
Before retiring in 2009, TIME Magazine included Tom among its list of the 100 most
influential people in the world, and Barbara Walters named him one of her 10 Most
Fascinating People.
Since retiring, Tom has become an internationally recognised photographer, traveling to
more than 40 countries in pursuit of his passion. Tom's photos have appeared in countless
magazines, newspapers, and websites. He now also has a keen interest in architecture and
has designed a number of homes. He splits his time between his homes in Las Vegas, Hawaii
and Los Angeles.
Prior to his entrepreneurial and creative pursuits, Tom graduated with the Departmental
Citation in English and Rhetoric at the University of California at Berkeley and later
completed a Masters in Film & Critical Studies at UCLA.
Nil
Nil
1,500,000 fully paid ordinary shares (750,000 escrowed for 24 months to 14 December 2019)
Nil
Nil
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engage:BDR Limited
Directors' report
31 December 2018
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Interests in shares:
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Interests in shares:
Interests in options:
Mr Darian Pizem
Non-Executive Director (appointed 30 October 2018)
Darian Pizem is the Co-Founder and current CEO of Blockbuster Ventures based in Sydney.
Blockbuster is a blockchain development company that assists companies in the
development of blockchain technology, real-time deployment, commercialisation, and other
cost-saving measures.
In addition, Mr. Pizem is the founder of Australian based company, Lunnna Ventures. Lunnna
Ventures assists in the launching of start-up businesses in a variety of industries, ranging
from healthcare to finance. Lunnna assists Company’s through all stages of the businesses
development, cycle from the initial idea phase through to branding, partnerships and
funding.
Prior to founding his two businesses, Mr. Pizem worked as a Channel Partner for Australia’s
DX Solutions, an ICT solutions and delivery service provider. DX specialties in automation,
performancer equirements, security and penetration testing, DevOps and Cloud solutions, BI
and Analysis and Network E2E and B2B capabilities.
Mr. Pizem has over 15 years of experience in the tech industry, working to promote company
growth, innovation, and driving new ideas and concepts. He has a strong background in
software ventures, with a focus on marketing, operations and management.
Nil
Nil
Nil
Mr Robert Antulov
Non-Executive Director (appointed 23 November 2018)
Robert (Rob) Antulov is a Partner at boutique Australian corporate advisory firm Jacanda
Capital, where he provides advice to clients in the technology and media sectors on trade
sales, acquisitions and equity growth capital raisings.
Based in Sydney, Rob is a highly accomplished Director with experience in public, private and
not for profit enterprises, primarily in the tech and media sectors. He has extensive digital
media expertise with strong capabilities in the implementation of technology-oriented
growth strategies, most recently in digital media, programmatic advertising and online
marketplaces. Rob also brings to engage:BDR specific M&A skills, having participated in over
forty corporate transactions as either principal or advisor.
Previous corporate experience has included senior executive roles with Fairfax, Coca-Cola
and Booz & Co (now PwC Strategy&). His entrepreneurial activity includes co-founding a
sports digital media business, co-founding a number of ecommerce and SaaS businesses and
providing mentoring and Advisory Board guidance to numerous entrepreneurs and their
ventures.
Rob has a Bachelor of Engineering Degree (Elect) from the University of Western Australia, an
MBA from the Australian Graduate School of Management at UNSW and has completed
additional postgraduate studies in the USA at the Kellogg School of Management, North
Western University.
Nil
Director, Snakk Limited (NXT: SNK) - January 2016 to October 2018
665,500 fully paid ordinary shares
Nil
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engage:BDR Limited
Directors' report
31 December 2018
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Interests in shares:
Interests in options:
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Interests in shares:
Mr Bruce McMenamin (resigned in October 2018)
Non-Executive Director and Company Secretary
Bruce McMenamin was appointed to the Board of the Group as a Non-Executive Director, in
addition to his role as Company Secretary in August 2017. Bruce is a member of the Institute
of Chartered Accountants ANZ. He has over 35 years' experience as a practicing accountant
and professional advisor. He specialises in all levels of business strategy, corporate finance,
mergers and acquisitions.
As an adviser to some of Australia’s largest privately owned companies and high net worth
families he has been involved in many significant corporate transactions and resultant
operations. He has been a member of numerous audit and finance committees and has a
strong focus on governance and compliance.
Nil
Nil
103,125 fully paid ordinary shares on the date of resignation
12,500 listed options on the date of resignation, exercisable at $0.25 (25 cents), expiring 2
October 2020,
Mr Ron Philips (resigned in November 2018)
Non-Executive Director
Ron Phillips’s career has spanned five decades of experience in advertising, marketing, media
and communications across full service advertising agencies and specialist media
communication networks. His client experience includes responsibility for some of the largest
master media contracts in retail, leisure and entertainment and Government.
As a Company Director and Media Director Ron has managed significant global brands. Over
the last decade with the Dentsu Aegis Network. Ron has worked closely with businesses
specialising in performance media, automation, analytics and insight, digital, creative,
influence, social media, content and lifestyle.
Ron has made a significant contribution to industry education with RMIT University and in
2009 was awarded an Honorary Life Fellowship of the Advertising Institute of Australia (AIA)
in recognition of a lifetime of encouragement and support for advertising education. Ron has
also contributed in the “not for profit” sector and has done significant pro bono work.
Nil
Nil
77,500 fully paid ordinary share on the date of resignation
'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types
of entities, unless otherwise stated.
'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes
directorships of all other types of entities, unless otherwise stated.
Company secretary
Mr. Justin Mouchacca CA (appointed on 30 October 2018)
Mr Mouchacca holds a Bachelor of Business majoring in Accounting. Justin became a Chartered Accountant in 2011 and since July 2013
has been a principal of chartered accounting firm, Leydin Freyer Corp Pty Ltd, specialising in outsourced company secretarial and
financial duties. Justin has over 11 years’ experience in the accounting profession including 5 years in the Corporate Secretarial
professions and is a company secretary and finance officer for a number of entities listed on the Australian Securities Exchange.
Mr. Bruce McMenamin (resigned on 30 October 2018)
Mr. McMenamin was appointed to the Board of the Group as a Non-Executive Director, in addition to his role as Company Secretary in
August 2017. Bruce is a member of the Institute of Chartered Accountants ANZ. He has over 35 years' experience as a practicing
accountant and professional advisor. He specialises in all levels of business strategy, corporate finance, mergers and acquisitions.
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engage:BDR Limited
Directors' report
31 December 2018
Meetings of directors
The number of meetings of the company's Board of Directors ('the Board') held during the year ended 31 December 2018, and the
number of meetings attended by each director were:
Ted Dhanik
Kurtis Rintala
Tom Anderson
Darian Pizem*
Robert Antulov**
Bruce McMenamin***
Ron Phillips****
Held: represents the number of meetings held during the time the director held office.
Full Board
Attended
Held
4
4
2
1
1
3
3
4
4
4
1
1
3
3
*
Mr Pizem was appointed on 30 October 2018.
Mr Antulov was appointed on 23 November 2018.
**
*** Mr McMenamin resigned on 30 October 2018.
**** Mr Phillips resigned on 23 November 2018.
Remuneration report (audited)
The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the
requirements of the Corporations Act 2001 and its Regulations.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities
of the entity, directly or indirectly, including all directors.
The remuneration report is set out under the following main headings:
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●
●
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
Additional information
Additional disclosures relating to key management personnel
Principles used to determine the nature and amount of remuneration
The objective of the Group's executive reward framework is to ensure reward for performance is competitive and appropriate for the
results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for
shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board')
ensures that executive reward satisfies the following key criteria for good reward governance practices:
●
●
●
●
competitiveness and reasonableness
acceptability to shareholders
performance linkage / alignment of executive compensation
transparency
The Board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance
of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high
performance and high quality personnel.
The Board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy
of the Group.
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engage:BDR Limited
Directors' report
31 December 2018
The reward framework is designed to align executive reward to shareholders' interests. The Board has considered that it should seek
to enhance shareholders' interests by:
●
●
having net profit as a core component of plan design
focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or
increasing return on assets as well as focusing the executive on key non-financial drivers of value
attracting and retaining high calibre executives
●
Additionally, the reward framework should seek to enhance executives' interests by:
●
●
●
rewarding capability and experience
reflecting competitive reward for contribution to growth in shareholder wealth
providing a clear structure for earning rewards
In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is
separate.
Non-executive directors remuneration
Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and
payments are reviewed annually by the Board. The Board may, from time to time, receive advice from independent remuneration
consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are
determined independently to the fees of other non-executive directors based on comparative roles in the external market. The
chairman is not present at any discussions relating to the determination of his own remuneration.
Executive remuneration
The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both
fixed and variable components.
The executive remuneration and reward framework has four components:
●
●
●
●
base pay and non-monetary benefits
short-term performance incentives
share-based payments
other remuneration such as superannuation and long service leave
The combination of these comprises the executive's total remuneration.
Fixed remuneration, consisting of base salary and non-monetary benefits, is reviewed annually by the Board based on individual and
business unit performance, the overall performance of the Group and comparable market remunerations.
Executives may receive their fixed remuneration in the form of cash or other fringe benefits where it does not create any additional
costs to the consolidated entity and provides additional value to the executive.
The short-term incentives ('STI') program is designed to align the targets of the business units with the performance hurdles of
executives. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being
achieved. KPI's include profit contribution, customer satisfaction, leadership contribution and product management.
In prior year, share based payments (in Engage BDR LLC) had been issued to executives and a non-executive director, which were prior
to the IPO. These were issued in respect of services performed for the Group. Refer to Note 30 of the financial report contained within
this Annual Report for further details. All Directors and key management personnel did not receive any share based payments in 2018
financial year.
12
engage:BDR Limited
Directors' report
31 December 2018
Details of remuneration
The key management personnel of the Group consisted of the following directors and key management personnel:
●
●
●
●
●
●
●
●
Ted Dhanik (Executive Chairman and Chief Executive Officer)
Kurtis Rintala (Executive Director and Chief Operating Officer)
Tom Anderson (Non-Executive Director)
Darian Pizem (Non-Executive Director) (appointed on 30 October 2018)
Robert Antulov (Non-Executive Director) (appointed on 23 November 2018)
Bruce McMenamin (Non-Executive Director) (resigned on 30 October 2018)
Ron Phillips (Non-Executive Director) (resigned on 23 November 2018)
Andy Dhanik (Vice President of Demand)
Amounts of remuneration
Details of the remuneration of key management personnel of the Group are set out in the following tables.
Cash salary
and fees
$
Short-term benefits
Commission
/bonus
$
Non-
monetary
$
Post-
employment
benefits
401(k)
$
Loan
forgiveness
$
Share-based
payments
Equity-
settled
$
2018
Non-Executive Directors:
Bruce McMenamin (a)
Ron Phillips (b)
Robert Antulov (c)
Darian Pizem (d)
Executive Directors:
Ted Dhanik (f)
Kurtis Rintala (f)
Other Key Management
Personnel:
Andy Dhanik (e)
36,828
40,326
1,973
4,822
-
-
-
-
-
-
-
-
-
-
-
-
288,155
294,850
361,251
318,678
6,163
7,233
1,810
-
234,322
901,276
251,059
930,988
6,223
19,619
-
1,810
-
-
-
-
-
-
-
-
Total
$
36,828
40,326
1,973
4,822
657,379
620,761
-
-
-
-
-
-
-
-
491,604
1,853,693
Mr McMenamin resigned on 30 October 2018.
(a)
(b) Mr Phillips resigned on 23 November 2018.
(c)
(d) Mr Pizem was appointed on 30 October 2018.
(e)
Mr Antulov was appointed on 23 November 2018.
Commissions are earned by Mr Andy Dhanik based on performance to goal. Generally, these performance goals are driven by
sales targets and gross profit maximization. Sales and gross margin targets are based on forecasts. Actual performance to goal is
compared to arrive at an “Achieved” percentage which is used to determine which Tier of payout they will receive. < 50% is given
a 0% payout tier, 51-69% is given a 50% payout tier, 70-79% is given a 70% payout tier, 80-89% is given a 80% payout tier, 90-99%
is given a 90% payout tier, and 100% is given a 100% payout tier. The payout tier is then multiplied by the result of dividing the
maximum payout amount by the target to arrive at a “Payout Percentage”. The payout percentage is then multiplied by the actual
achieved result to arrive at the dollar amount of the payout.
Bonus awards of $361,251 to Mr Ted Dhanik, $318,678 to Mr Kurtis Rintala were agreed to be made on 20 December 2018 in
recognition of past additional or special exertions on behalf of the Company since their respective commencements as Directors.
These bonuses were off set against part of loan accounts. As a result no cash payments were made by the Company.
(f)
13
engage:BDR Limited
Directors' report
31 December 2018
2017
Non-Executive Directors:
Tom Anderson*
Bruce McMenamin*
Ron Phillips*
Executive Directors:
Ted Dhanik**
Kurtis Rintala**
Other Key Management
Personnel:
Kevin Kwok***
Youqi Li
Ryan Davidson****
Sarah Wetzel
Andy Dhanik
Mona Jalali
Cash salary
and fees
$
Short-term benefits
Commission
/bonus (1)
$
Non-
monetary
$
Post-
employment
benefits
401(k)
$
Loan
forgiveness
$
Share-based
payments
Equity-
settled
$
Total
$
2,447
1,667
1,667
469,770
469,770
-
-
-
-
-
-
179,377
48,934
163,115
130,492
195,738
1,662,977
-
1,794
-
18,024
320,682
61,548
402,048
-
-
-
-
-
-
-
-
-
-
-
-
-
158
158
1,924
-
-
-
415
-
-
-
2,655
-
-
-
-
-
130,492
-
-
132,939
1,825
1,825
-
-
471,694
469,770
-
-
108,419
-
-
-
108,419
561,115
130,492
104,393
97,869
260,984
130,492
1,415,837
561,115
311,663
262,161
279,008
712,158
387,778
3,591,936
*
**
Mr Tom Anderson, Mr Bruce McMenamin and Mr Ron Phillips were appointed as non-executive directors with effect from the
date of the incorporation on 17 August 2017.
Amounts stated above for Mr Ted Dhanik and Mr Kurtis Rintala are higher than disclosed in the Supplementary Prospectus dated
15 September 2017 as prior to the successful listing of the Company on the ASX on 14 December 2017 their salaries and fees were
calculated under a different employment agreement.
*** Mr Kevin Kwok was appointed as CFO with effect January 2017 and resigned with effect January 2018.
**** Mr Ryan Davidson resigned with effect March 2017. His salary includes an amount of $108,419 in relation to loan forgiveness, as
upon termination the Group agreed to forgive his outstanding loan balance.
(1) Commissions are earned by calendar quarter based on performance to goal. Generally, these performance goals are driven by sales
targets and gross profit maximization. Sales and gross margin targets are based on forecasts. Actual performance to goal is compared
to arrive at an “Achieved” percentage which is used to determine which Tier of payout they will receive. < 50% is given a 0% payout
tier, 51-69% is given a 50% payout tier, 70-79% is given a 70% payout tier, 80-89% is given a 80% payout tier, 90-99% is given a 90%
payout tier, and 100% is given a 100% payout tier. The payout tier is then multiplied by the result of dividing the maximum payout
amount by the target to arrive at a “Payout Percentage”. The payout percentage is then multiplied by the actual achieved result to
arrive at the dollar amount of the payout.
14
engage:BDR Limited
Directors' report
31 December 2018
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Name
Non-Executive Directors:
Tom Anderson
Bruce McMenamin
Ron Phillips
Robert Antulov
Darian Pizem
Executive Directors:
Ted Dhanik
Kurtis Rintala
Other Key Management Personnel:
Youqi Li*
Ryan Davidson*
Sarah Wetzel*
Andy Dhanik
Mona Jalali*
Fixed remuneration
2017
2018
STI - sales commission
2017
2018
Share based payments
2017
2018
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
48%
-
2%
100%
100%
-
-
100%
100%
-
58%
32%
58%
18%
50%
-
-
-
-
-
-
-
-
-
-
-
52%
-
-
-
-
-
-
-
-
-
-
-
6%
45%
16%
-
-
-
-
-
-
-
-
-
-
-
-
-
98%
-
-
-
-
-
-
100%
42%
68%
36%
37%
34%
*
These employees are no longer considered as key management personnel in accordance with AASB 124.
Service agreements
Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these
agreements are as follows:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Ted Dhanik
Executive Chairman and Chief Executive Officer
14 December 2017
3 years subject to re-election at any relevant Company Annual General Meeting.
The fee payable to Director is to be USD$235,000 plus statutory superannuation entitlements
per annum from the commencement date. Such fees to be reviewed on each anniversary of
the agreement or whenever determined by the Board.
Where for any reason the fees owing to the Director for the services of the Director are not
paid for any period of the engagement, or where there are any fees or monies outstanding to
Director, the Company will accrue those fees and Director may at its sole option agree for
those fees to be paid in the form of fully paid ordinary shares in the Company, subject at all
times to the Company obtaining all necessary regulatory and shareholder approvals.
The Director may resign at any time by given written notice to the Company.
15
engage:BDR Limited
Directors' report
31 December 2018
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Kurtis Rintala
Executive Director and Chief Operating Officer
14 December 2017
3 years subject to re-election at any relevant Company Annual General Meeting.
The fee payable to Director is to be USD$235,000 plus statutory superannuation entitlements
per annum from the commencement date. Such fees to be reviewed on each anniversary of
the agreement or whenever determined by the Board.
Where for any reason the fees owing to the Director for the services of the Director are not
paid for any period of the engagement, or where there are any fees or monies outstanding to
Director, the Company will accrue those fees and Director may at its sole option agree for
those fees to be paid in the form of fully paid ordinary shares in the Company, subject at all
times to the Company obtaining all necessary regulatory and shareholder approvals.
The Director may resign at any time by given written notice to the Company.
Darian Pizem
Non-Executive Director
30 October 2018
3 years subject to re-election at any relevant Company Annual General Meeting.
The fee payable to Director is to be AUD$40,000 plus statutory superannuation entitlements
per annum from the commencement date. Such fees to be reviewed on each anniversary of
the agreement or whenever determined by the Board.
Where for any reason the fees owing to the Director for the services of the Director are not
paid for any period of the engagement, or where there are any fees or monies outstanding to
Director, the Company will accrue those fees and Director may at its sole option agree for
those fees to be paid in the form of fully paid ordinary shares in the Company, subject at all
times to the Company obtaining all necessary regulatory and shareholder approvals.
The Director may resign at any time by given written notice to the Company.
Robert Antulov
Non-Executive Director
23 November 2018
3 years subject to re-election at any relevant Company Annual General Meeting.
The fee payable to Director is to be AUD$40,000 plus statutory superannuation entitlements
per annum from the commencement date. Such fees to be reviewed on each anniversary of
the agreement or whenever determined by the Board.
Where for any reason the fees owing to the Director for the services of the Director are not
paid for any period of the engagement, or where there are any fees or monies outstanding to
Director, the Company will accrue those fees and Director may at its sole option agree for
those fees to be paid in the form of fully paid ordinary shares in the Company, subject at all
times to the Company obtaining all necessary regulatory and shareholder approvals.
The Director may resign at any time by given written notice to the Company.
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
16
engage:BDR Limited
Directors' report
31 December 2018
Additional information
The earnings of the consolidated entity for the five years to 31 December 2018 are summarised below:
Sales revenue
EBITDA
EBIT
Profit/(loss) after income tax
2018
$
2017
$
2016*
$
2015*
$
2014*
$
11,443,935
(7,860,955)
(10,476,446)
(10,840,198)
13,135,970
(7,098,066)
(9,583,419)
(10,566,001)
21,845,216
(1,455,961)
(2,927,728)
(3,671,811)
36,919,027
(2,491,012)
(3,302,832)
(3,664,495)
28,537,625
547,016
178,181
182,776
*
The financial result represents engage:BDR LLC’s operating result for the year.
Additional disclosures relating to key management personnel
Shareholding
The number of shares in the company held during the financial year by each director and other members of key management personnel
of the consolidated entity, including their personally related parties, is set out below:
Ordinary shares
Ted Dhanik
Kurtis Rintala
Tom Anderson
Robert Antulov
Bruce McMenamin
Ron Phillips
Kevin Kwok
Youqi Li
Sarah Wetzel
Andy Dhanik
Mona Jalali
Balance at
the start of
the year
Received
as part of
remuneration
Additions
Other*
55,949,870
35,217,391
1,500,000
-
25,000
40,000
6,450,000
1,500,000
1,125,000
3,000,000
1,500,000
106,307,261
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
665,500
78,125
37,500
-
-
-
-
-
781,125
-
-
-
-
(103,125)
(77,500)
(6,450,000)
(1,500,000)
(1,125,000)
-
(1,500,000)
(10,755,625)
Balance at
the end of
the year
55,949,870
35,217,391
1,500,000
665,500
-
-
-
-
-
3,000,000
-
96,332,761
*
Movements represent person's holding when they ceased to be a member of key management personnel
Option holding
The number of options over ordinary shares in the Group held during the financial year by each director and other members of key
management personnel of the Group, including their closely related entities, is set out below:
Options over ordinary shares
Bruce McMenamin
Balance at
the start of
the year
Free
attaching
options
Expired/
forfeited/
other*
Balance at
the end of
the year
Exercised
12,500
12,500
-
-
-
-
(12,500)
(12,500)
-
-
*
Movements represent person's holding when they ceased to be a member of key management personnel
Loans to key management personnel and their related parties
As at 31 December 2018 the Group recognised a loan receivable for funds payable by Mr Ted Dhanik (USD$1,313,754; AUD$1,864,598)
(2017: USD1,299,577; AUD$1,663,109), Kurtis Rintala (USD$0.00; AUD$0.00) (2017: USD$196,625; AUD$251,627) and Andy Dhanik
(USD$71,060; AUD$100,855) (2017: USD$79,743; AUD$102,050).
17
engage:BDR Limited
Directors' report
31 December 2018
Loans to directors and key management personnel are charged interest at a simple interest rate of 2.78% per annum, calculated
monthly. This interest rate is below what would be charged should these loans be on an arms-length basis. The loans made to both
directors and key management personnel are repayable within two years, with all loans as at 31 December 2018 having a maturity date
of 30 June 2019. These have been disclosed as current receivables. The loan amounts outstanding are secured and will be settled in
cash. No guarantees have been given or received. All loans were approved by the Board of Directors of the Group.
This concludes the remuneration report, which has been audited.
Shares under option
Unissued ordinary shares of the Company under option at the date of this report are as follows:
Grant date
14 December 2017
30 January 2019
Expiry date
14 December 2020
29 January 2022
Exercise
price
Number
under option
$0.250
$0.052
33,999,993
8,676,093
42,676,086
No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company
or of any other body corporate.
Shares issued on the exercise of options
There were no ordinary shares of engage:BDR Limited issued on the exercise of options during the year ended 31 December 2018 and
up to the date of this report.
Indemnity and insurance of officers
During the financial year, the Group maintained an insurance policy which indemnifies the directors and officers of the Group in respect
of any liability incurred in connection with the performance of their duties as directors or officers of the Group to the extent permitted
by the Corporations Act 2001. The Group’s insurers have prohibited disclosure of the amount of the premium payable and the level of
indemnification under the insurance contract.
The Group has not paid any insurance premiums in respect of any past or present directors or auditors, other than as required by law.
Indemnity and insurance of auditor
The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or
any related entity against a liability incurred by the auditor.
During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any
related entity.
Proceedings on behalf of the Group
As at the date of this report, there are no leave applications or proceedings brought on behalf of the Group under section 237 of the
Corporations Act 2001.
Non-audit services
The Group’s previous auditors Ernst & Young (“EY”) provided non-audit services in relation to tax compliance and other accounting
services to the Group for which $248,000 was paid or payable by the Group. The Directors are satisfied that the provision of the non-
audit services was compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The
nature and scope of the non-audit services provided was not such that auditor independence was compromised. The Group’s current
auditors, BDO, did not provide any non-audit services in relation to tax compliance and other accounting services.
Officers of the Company who are former partners of BDO East Coast Partnership
There are no officers of the Company who are former partners of BDO East Coast Partnership.
Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately
after this Directors' report.
18
engage:BDR Limited
Directors' report
31 December 2018
Rounding
All values in the Directors' report have been rounded off the dollar ($) in accordance with Corporations Instrument 2016/191, issued
by the Australian Securities and Investments Commission.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the Directors
___________________________
Ted Dhanik
Co-Founder and Executive Chairman
29 March 2019
19
Tel: +61 3 9603 1700
Fax: +61 3 9602 3870
www.bdo.com.au
Collins Square, Tower Four
Level 18, 727 Collins Street
Melbourne VIC 3008
GPO Box 5099 Melbourne VIC 3001
Australia
DECLARATION OF INDEPENDENCE BY JAMES MOONEY TO THE DIRECTORS OF ENGAGE:BDR LIMITED
As lead auditor of engage:BDR Limited for the year ended 31 December 2018, I declare that, to the
best of my knowledge and belief, there have been:
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2. No contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of engage:BDR Limited and the entities it controlled during the period.
James Mooney
Partner
BDO East Coast Partnership
Melbourne, 29 March 2019
BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd
ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd,
a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved
under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
engage:BDR Limited
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2018
Revenue from contracts with customers
Cost of sales
Gross profit
Other income
Gain on de-recognition of investment in associate
Impairment loss on available for sale investment
Employee and contractor costs
Operations and administration expense
Advertising and marketing expense
Finance costs
Other expenses
Share based payment expense
Depreciation and amortisation
Impairment loss
(Loss) before income tax
Income tax (expense)
(Loss) after tax from continuing operations
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Loss on the revaluation of equity instruments at fair value through other
comprehensive income, net of tax
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Notes
4
6
7
8
9
12
10
11
13
2018
AUD $
11,443,935
(7,117,937)
4,325,998
1,599,149
-
-
(5,896,957)
(5,491,262)
(269,667)
(362,681)
(553,490)
(284,281)
(2,615,491)
(1,290,445)
(10,839,127)
(1,071)
(10,840,198)
2017
AUD $
13,135,970
(6,965,841)
6,170,129
258,678
2,475,318
(1,851,599)
(4,989,741)
(5,369,642)
(214,831)
(981,538)
(139,308)
(3,437,070)
(2,485,353)
-
(10,564,957)
(1,044)
(10,566,001)
(511,767)
-
(313,039)
688,310
Total Comprehensive (loss) for the period attributable to the owners
(11,665,004)
(9,877,691)
Loss per share for loss attributable to ordinary equity holders of the Group from:
Continuing operations:
Basic earnings (loss) per share
Diluted earnings (loss) per share
2018
AUD $
(0.04)
(0.04)
2017
AUD $
(0.07)
(0.07)
29
29
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
21
engage:BDR Limited
Consolidated Statement of Financial Position
As at 31 December 2018
Notes
2018
AUD $
2017
AUD $
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Related party receivables
Investments in equity instruments
Non-current assets
Fixed assets
Intangible assets
Goodwill
Investments in equity instruments
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Employee liabilities
Lease liability
Borrowings
Non-current liabilities
Trade and other payables
Lease liability
Total liabilities
Net Assets
EQUITY
Share capital
Share based payment reserve
Equity investment reserve
Foreign currency translation reserve
Accumulated losses
Total equity
14
18
23
24
15
16
26
24
21
22
20
20
19
320,276
2,026,138
281,831
2,229,032
114,314
4,971,591
299,497
2,519,265
1,455,522
50,640
4,324,924
9,296,515
7,274,894
2,878,438
558,789
2,277,582
366,838
13,356,541
735,405
3,973,760
-
300,140
5,009,305
18,365,846
12,856,467
52,410
292,285
2,598,440
15,799,602
14,157,323
85,409
391,231
2,753,107
17,387,070
-
105,760
105,760
15,905,362
2,892
279,789
282,681
17,669,751
(6,608,847)
696,095
20,025,656
3,533,918
(2,363,366)
(98,761)
(27,706,294)
(6,608,847)
15,665,594
3,533,918
-
214,278
(18,717,695)
696,095
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
22
engage:BDR Limited
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Balance at 01 January 2017
Loss after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive loss for the year
Share Capital
AUD $
1,178
-
-
-
Transactions with owners in their capacity as
owners:
Contributions of equity, net of transaction
costs (note 19)
15,664,416
-
-
-
-
-
Share based payment reserves
-
3,533,918
Balance at 31 December 2017
15,665,594
3,533,918
Share
based
payment
reserve
AUD $
Equity
investment
reserve
AUD $
Foreign
Currency
Translation
Reserve
AUD $
Accumulated
Losses
AUD $
Total
AUD $
-
-
-
-
-
-
-
(474,032)
(8,151,694)
(8,624,548)
-
(10,566,001)
(10,566,001)
688,310
-
688,310
688,310
(10,566,001)
(9,877,691)
-
-
-
-
15,664,416
3,533,918
214,278
(18,717,695)
696,095
Adjustment for change in accounting policy
(note 2.1)
-
-
(1,851,599)
-
1,851,599
-
Balance at 01 January 2018 – restated
15,665,594
3,533,918
(1,851,599)
214,278
(16,866,096)
696,095
Loss after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive loss for the year
-
-
-
Transactions with owners in their capacity as
owners:
Contributions of equity, net of transaction
costs (note 19)
4,360,062
-
-
-
-
-
-
(10,840,198)
(10,840,198)
(511,767)
(313,039)
-
(824,806)
(511,767)
(313,039)
(10,840,198)
(11,665,004)
-
-
-
4,360,062
Balance at 31 December 2018
20,025,656
3,533,918
(2,363,366)
(98,761)
(27,706,294)
(6,608,847)
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
23
engage:BDR Limited
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
Cash flows from operating activities
(Loss) after tax from continuing operations
- Finance costs
Adjustments for non-cash income and expenses:
- Depreciation
- Amortisation
- Gain on de-recognition of investment in associate
- Impairment loss for available for sale investment
- Impairment expense
- Share based compensation
- Re-measurement of payables
- Interest income not received
- Release of deferred income
- Executive bonuses used to offset shareholder loans
Changes in operating assets and liabilities:
- (Increase) / Decrease in trade and other receivables
- Decrease / (Increase) in prepayments
- Increase / (Decrease) in trade and other payables
- Increase / (Decrease) in factoring liability
Cash (used in) operations
Interest paid
Net cash from / (used in) operating activities
Cash flows from investing activities
Purchases of fixed assets
Capitalised software development
Loans to related parties (shareholders)
Shareholder loan repayments received
Acquisition of subsidiary – cash acquired
Net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from capital raises
Cost of capital raise
Proceeds from loans
Repayment of loans
Repayment of finance leases
Net cash from / (used in) financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of currency translation
Cash and cash equivalents at end of year
Notes
2018
AUD $
2017
AUD $
(10,840,198)
362,681
(10,566,001)
981,538
527,385
2,088,106
-
-
1,290,445
712,205
(1,089,706)
(63,025)
(619,033)
679,929
852,300
276,958
(2,526,628)
115,609
(8,232,972)
(245,723)
(8,478,695)
(42,910)
(405,829)
(329,432)
-
115,120
(663,051)
2,211,700
(120,000)
1,035,374
(87,138)
(693,846)
2,346,090
(6,795,656)
7,274,894
(158,962)
320,276
523,508
1,961,847
(2,475,318)
1,851,599
3,437,070
-
(68,642)
(105,405)
-
3,818,666
(115,845)
2,397,260
(2,465,490)
(825,213)
(673,158)
(1,498,371)
(872)
(909,664)
(419,584)
654,552
-
(675,568)
10,000,000
(652,000)
-
-
(814,974)
8,533,026
6,359,087
986,603
(70,796)
7,274,894
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
24
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
1. Corporate information
The financial report is a general purpose financial report which covers engage:BDR Limited, (the ‘parent’ or the ‘Company’) and its 100%
owned subsidiaries, engage:BDR LLC, Tiveo LLC (‘Tiveo’; a wholly-owned subsidiary of engage:BDR LLC), Mobile Media, and AdCel LLC
collectively referred to as ‘the Group’ or ‘engage:BDR’. engage:BDR Limited is incorporated in Australia and publicly traded on the
Australian Securities Exchange (‘ASX’) under stock ticker EN1 and EN1O. The financial report is for the year ended 31 December 2018 and
is presented in Australian Dollars (‘AUD’). All values in the financial report have been rounded off to the nearest dollar ($) in accordance
with Legislative Instrument 2016/191, issued by the Australian Securities and Investments Commission.
engage:BDR LLC, Tiveo LLC, and AdCel LLC are entities incorporated in the United States of America.
engage:BDR Limited is incorporated in Australia. Its registered office is:
engage:BDR Limited
Scottish House
Level 4
90 William Street
Melbourne Victoria 3000
Australia
The nature of operations and principal activities of engage:BDR are as an internet-based, for-profit marketplace platform and associated
technology solution provider. engage:BDR’s proprietary technology is used to optimize the sale of advertising inventory from digital
publishers (websites and apps) to advertisers and their agents (brands, agencies, and advertising platforms).
The financial report of engage:BDR Limited and its controlled entities for the year ended 31 December 2018 was authorized for issue in
accordance with a resolution of the Directors on 29 March 2019.
(a) Business reorganisation
engage:BDR Limited was incorporated on 17 August 2017. On 14 December 2017, engage:BDR Limited completed the acquisition of
engage:BDR LLC through a share sale and purchase agreement, which resulted in engage:BDR Limited becoming the ultimate parent of
engage:BDR LLC. engage:BDR Limited was incorporated for the sole purpose of acquiring all of the shares of engage:BDR LLC. engage:BDR
Limited has not conducted any business other than to be the holding company of engage:BDR LLC, with the legal acquisition of engage:BDR
LLC being treated as a business re-organisation with the establishment of the new parent entity, engage:BDR Limited. Therefore, the
principles of business combination accounting and reverse acquisition accounting have not been applied. Instead, the Group is considered
to be a continuation of engage:BDR LLC and has been accounted for as such in this financial report.
engage:BDR Limited’s consolidated financial statements for the year ended 31 December 2018 and 31 December 2017 are presented as
the continuation of engage:BDR LLC operations and business.
(b) Comparatives
Where necessary, comparatives have been reclassified for consistency with the current period disclosures
(i) Revision to Appendix 4E Preliminary Final Report for the year ended 31 December 2018
A portion of the de-recognition of remeasured payables previously included as Other income in the Statement of Profit or Loss did not
meet the derecognition criteria. This resulted in a decrease to Other income of $1,152,813 and increase to Trade and other payables in
the Statement of Financial Position of $1,152,813; an additional $136,066 was removed from Other income because it did not meet
recognition criteria as a remeasured payable. Other significant changes to Trade and other payables were elimination of Trade and other
payables owed to AdCel that brought the balance down $209,276; a liability was recognized for the value of shares owed for the AdCel
25
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
acquisition that were not issued during the period a total of $1,055,057; and $70,000 was accrued for BDO’s audit services (which affected
the Profit or Loss). The remaining $69,143 is related to exchange differences from the removal of the remeasured payables.
Additional amortisation of capitalised software assets was recognised due to reassessment of some capitalised items to a lesser useful
life. This resulted in an increase to Depreciation and amortisation on the Statement of Profit or Loss of $268,166 with a corresponding
decrease to Intangible assets in the Statement of Financial Position. Two capitalised software projects did not meet recognition criteria
and were expensed through the Profit or loss increasing Employee and contractor costs by $179,448
The adoption of AASB 9 was revised and the loss on revaluation of equity instruments at fair value through profit or loss of $511,767 was
reclassified into Other comprehensive income on the Statement of Profit or Loss resulting in the creation of a reserve on the Statement
of Financial Position.
In addition to the amortisation mentioned previously, AdCel intangible assets related to Advertising relationships and Trade
names/trademarks were removed from the fair value calculation of the business combination. The result was a decrease to Intangible
assets of $1,063,360. This, in part, also required an increase to Goodwill of $597,861. Other adjustments to Goodwill were the revaluation
of the AdCel acquisition to align with the fair value of shares at acquisition date ($0.099). A payable for the shares not issued during the
AdCel acquisition was not previously recognised which required the recognition of a Deferred payable (as part of Trade and other
payables) of $1,055,057.
2. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-
profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board ('IASB').
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of
financial assets and liabilities at fair value through profit or loss and financial assets at fair value through other comprehensive income.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.
(b) Basis of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of engage:BDR Limited as at 31 December
2018 and the results of all subsidiaries for the year then ended.
Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the consolidated entity is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to
direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated
entity. They are de-consolidated from the date that control ceases.
26
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the
loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value
of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other
comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by
the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance.
Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling
interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises
the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss.
(c) Going concern
The financial report has been prepared on a going concern basis, which takes into account the net current liabilities of $10,828,011,
negative operating cash flows of $8,478,695, net liabilities of $6,608,847 and an ending cash position of $320,276 as at 31 December
2018.
During the year ended 31 December 2018, the Group successfully raised a further $3,239,724, before costs, from a share placement to
sophisticated investors and share purchase plan to existing eligible shareholders and a loan note. The funds received are being used to
continue the platform integrations in the Group’s programmatic business, the further development of the Iconic Reach influencer
marketing business and for working capital.
The delay in the listing of the Group in 2017 placed significant constraints on the business in particularly for Q4 FY17, which flowed through
into 2018 in terms of cash outflow particularly in Q1 2018 and which adversely impacted on both operating performance and cash flow.
These conditions give rise to a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern.
Notwithstanding the above the Directors consider the going concern basis to be appropriate giving consideration to:
•
•
•
Confidence in raising capital as needed.
Confidence in achieving the group’s forecast revenues and positive operating cash flow in 2019 through continued completion
of planned integrations onto the group’s programmatic advertising platform and growth of the Iconic Reach business;
The ability of the Group to obtain additional debt, equity or hybrid capital raisings in the near term (for which the company has
a proven track record having completed three equity raisings in the past 12 months);
The Group’s ability, if required, to seek the support from its founders and major shareholders for the further injection of capital;
Its ability to exercise control over discretionary operational cash outflows;
•
•
• Repayment of some or all of secured related party loan receivables; and
•
The expected realisation of Investments in equity instruments to be realised on expiry of escrow restrictions (currently valued at
$164,954).
Accordingly, the accounts have been prepared on a going concern basis.
Should the Group be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than
in ordinary course of business, and at amounts that differ from those stated in the Financial Statements. The financial statements do not
include any adjustments related to the recoverability and classification of recorded assets amounts or to the amounts and classification
of liabilities that might be necessarily incurred should the consolidated entity not continue as a going concern.
27
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(d) Segment reporting
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision makers, who
provide the strategic direction and management oversight of the Group in terms of monitoring results and approving strategic planning
for the business.
The Group has assessed its operations to comprise of two reportable segments – being programmatic and non-programmatic trading.
However, due to the similar nature and characteristics of these operations, and the fact that they are reported together to the chief
operating decision maker (with the only distinction made upon reporting being the split in revenue by programmatic and non-
programmatic) they have been combined and shown together. Refer Note 5 for the segmental analysis.
(e) Foreign currencies
(i) Functional and presentation currency
The functional currency of each of the entities in the Group is the currency of the primary economic environment in which each of the
entities operate, which is US Dollars (‘USD’) for engage:BDR LLC, Tiveo, Mobile Media and AdCel LLC. The financial report is presented in
Australian Dollars (‘AUD’) which is the functional currency of the Parent, engage:BDR Limited and presentation currency of the Group.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the
date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the
reporting date.
Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items
that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in OCI until the net
investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to
exchange differences on those monetary items are also recorded in OCI.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the
dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates
at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is
treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose
fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
(iii) Translation
The assets and liabilities of subsidiaries with a functional currency other than AUD (being the presentation currency of the Group) are
translated into AUD at the exchange rate at the reporting date and the statement of comprehensive income is translated at the average
exchange rate for the period. On consolidation, exchange differences arising from the translation of these subsidiaries are recognised in
other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of a foreign operation, the
component of other comprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss.
28
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(f) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of any allowances,
duties and taxes paid.
Revenue is recognised for the major business activities as follows:
(i) Rendering of services
The Group is an internet-based marketplace platform and associated technology solution provider. The Group’s proprietary technology is
used to facilitate the sale of advertising inventory from digital publishers (websites and apps) to advertisers and their agents (brands,
agencies and advertising platforms). The Group allows digital publishers to monetise their available advertising space by making the
inventory available to multiple advertisers, as well as providing various technologies designed to help publishers create incremental
streams of revenue. An example of this technology would be the Group’s OutStream advertising unit, which allows publishers to sell space
for video advertising on webpages that do not have video content.
Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for
transferring goods or services to a customer. For each contract with a customer, the Group:
Identifies the contract with a customer
Identifies the performance obligations in the contract
•
•
• Determines the transaction price
• Allocates the transaction price to the separate performance obligations
• Recognises revenue when the performance obligation is satisfied in a manner that depicts the transfer to the customer of the
services provided.
All contracts with customers are standardised and satisfy the criteria of transaction approval, identification of each party’s rights, payment
terms, commercial substance, and probable collection based on the customer’s ability and intention to pay. There are no material
contracts with customers where there are multiple goods or services promised in which they are distinct and separable in both context
and considering other readily available resources. The Group does not offer variable pricing, no significant financing portion, no non-cash
consideration, no return rights, and no material lag between collection of monies and delivery of service. The Group does not offer
bundled pricing on services provided separately where delivery and settlement is not consistent. The Group does not offer customized
goods, receive refundable upfront fees, nor have arrangements where performance obligations are settled over an extended period of
time rather than a point in time.
In recording revenue, the Group evaluates whether they are the principal (i.e., report revenues on a gross basis) or agent (i.e., report
revenues on a net basis). The Group provides advertisers and their agents to purchase and place advertising inventory on publishers’
sites. The Group’s performance obligation is facilitating the sale of advertising space and ensuring its placement on the website. The
proprietary technology developed and used by the Group counts all bid attempts, tracks the winning bids, and ensures the delivery of the
advertisement. All of these data points are used to ensure proper satisfaction of performance obligations. The Group reports the sales of
advertising revenues for advertising inventory on a gross basis, that is, the amounts they expect to be entitled to. Amounts paid to
suppliers are recorded as cost of sales. Where we are the principal, the Group controls the advertising inventory before it is transferred
to its customers. Control is evidenced by the Group’s sole ability to monetise the advertising inventory before it is transferred to its
customers, and is further supported by the Group being primarily responsible to its customers and having a level of discretion in
establishing pricing.
The Group recognises contract liabilities for consideration received in advance of services provided. Where a customer prepays any
portion of a contract, the Group records such prepayments as trade and other payables in the statement of financial position.
Prepayments are paid for approximately one month of contract cost in advance, with specific insertion orders allocated to a prepaid
amount. These sums will not be recognised as revenue until all obligations pursuant to that insertion order contract have been fulfilled
by the Group and approved by the counterparty. The amounts received upfront are not refundable. Revenue for prepayments is
recognised only after all performance obligations related to the contract with customers is satisfied.
29
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(ii) Interest revenue
Interest revenue is measured using the effective interest method (“EIR”). The EIR is the rate that exactly discounts the estimated future
cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the
financial asset.
(g) Income tax
The tax expense recognised in the statement of comprehensive income relates to current income tax expense plus deferred tax expense
(being the movement in deferred tax assets and deferred tax liabilities and unused tax losses during the year).
Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for the year and is measured at
the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period. Management periodically evaluates positions taken in the tax returns with
respect to situations in which applicable tax regulations are subject to interpretation, and it establishes provisions where appropriate.
Deferred tax is provided using the liability method on temporary differences which are determined by comparing the carrying amounts
of tax bases of assets and liabilities to the carrying amounts in the financial statements. Deferred tax assets and deferred tax liabilities are
measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not
business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
•
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint
arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax
losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the
carry forward of unused tax credits and unused tax losses can be utilised, except:
• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; or
•
In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint
arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse
in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Current tax assets and current tax liabilities are offset where there is a legally enforceable right to set off the recognized amounts and
there is an intention either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Deferred tax assets and deferred tax liabilities are offset where there is or would be a legal right to set off current tax assets against
current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a
30
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
net basis, or to realise the assets and settle the liabilities simultaneously in each future period in which significant amounts of deferred
tax liabilities or assets are expected to be settled or recovered.
Current and deferred tax is recognised as income or an expense and included in profit or loss for the period except where the tax arises
from a transaction which is recognised in other comprehensive income or equity, in which case the tax is recognised in other
comprehensive income or equity respectively.
(h) Fixed assets
Fixed assets are stated at cost less accumulated depreciation and any impairment in value. The carrying values of property, plant and
equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
Depreciation
Depreciation is calculated on a straight line basis for all plant and equipment. The estimated useful lives, residual values and depreciation
method are reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis.
Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is
shorter.
The gain or loss arising on disposal or retirement of an item of fixed assets is determined as the difference between the sales proceeds and
the carrying amount of asset and is recognised in profit or loss.
The following depreciation rates are used for each class of depreciable asset:
Class of Fixed Assets
Leasehold Improvements & Computer equipment
Furniture and fittings
(i) Intangible assets
Useful life
2-3 years
2-6 years
Capitalised development costs
Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised
only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale,
its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of
resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its
development.
Capitalised development costs are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 3-
10 years.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more
frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment
losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.
(j) Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.
31
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of
the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which
the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.
(k) Financial assets
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial
measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised
cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets
are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided.
Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity
has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of
a financial asset, it's carrying value is written off.
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to
hold for the foreseeable future and has irrevocably elected to classify as such upon initial recognition.
Impairment of financial assets
The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised
cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's
assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial
recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss
allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that
is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has
increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss
recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument
discounted at the original effective interest rate.
As at 31 December 2018, the Group had an investment in equity instruments which was Lottogopher Holdings Inc. See note 24 for
accounting treatment during the period.
(l) Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash includes cash on hand and deposits at call which are readily convertible to cash
and are not subject to significant risk of changes in value, net of bank overdrafts.
(m) Financial liabilities
(i) Classification
Financial liabilities within the scope of AASB 9 are classified as financial liabilities at FVTPL or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.
(ii) Initial recognition and measurement
All financial liabilities are recognised initially at fair value net of transaction costs.
32
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(iii) Subsequent measurement
The measurement of financial liabilities depends on their classification as follow:
Derivative financial instruments
Derivatives are initially recognised at fair value and are subsequently measured to their fair value at each Statement of Financial Position
date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. A derivative
with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial
liability. Further details of derivative financial instruments are disclosed in note 28.
Embedded derivatives
Derivatives embedded in financial instruments are treated as separate financial instruments when their risks and characteristics are not
closely related to those of the host contracts and the host contracts are not measured at fair value through profit or loss. Management
has made an assessment of the convertible note contracts and separated out the portion that related to the notes liability and the portion
that relates to the embedded derivative and valued and disclosed these separately.
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative,
their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL.
Interest bearing loans and borrowings
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method.
Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in profit or loss respectively
in finance revenue and finance cost. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the
actual draw-down of the facility, are recognised as transaction costs of the loan to the extent that it is probable that some or all the facility
will be drawn down.
De-recognition of financial liabilities
A liability is generally derecognized when the contract that gives rise to it is settled, sold, cancelled or expires. Where an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability,
such that the differences in the respective carrying amounts together with any costs or fees incurred are recognised in profit or loss.
(n) Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based
on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal
market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in
their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation
techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used,
maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined
based on a reassessment of the lowest level of input that is significant to the fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or
when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is
33
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification
of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data.
An analysis of fair values of financial instruments and further details as to how they are measured are provided in note 17.
(o) Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other
assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities
incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each
business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the
acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or
accounting policies and other pertinent conditions in existence at the acquisition-date.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair
value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as
equity is not remeasured and its subsequent settlement is accounted for within equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the
acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised
as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired,
being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the
acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts
recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about
the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from
the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.
(p) Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method,
less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days.
The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To
measure the expected credit losses, trade receivables have been grouped based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
(q) Trade and other payables
Trade accounts payable and other creditors represent liabilities for goods and services provided to the Group prior to the end of the
financial year and which are unpaid. The amounts are unsecured and are measured subsequently at amortised cost using the EIR method.
Payment terms vary by creditor but are typically 60 days.
34
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(r) Employee benefits
Wages and salaries, sick leave and short-term employee benefits are current liabilities included in employee benefits, measured at the
undiscounted amount that the Group expects to pay as a result of the unused entitlement.
(i) Wages, salaries, annual and long service leave
Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting
period. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when
the liability is settled.
Changes in the measurement of the liability are recognised in profit or loss in the Statement of Comprehensive Income.
Employee benefits are presented as current liabilities in the Statement of Financial Position if the Group does not have an unconditional
right to defer settlement of the liability for at least 12 months after the reporting date.
(ii) Defined contribution schemes
The Group has a defined contribution savings plan as defined in subsection 401(k) of the United States Internal Revenue Code. This plan
covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their
annual compensation. Group contributions to the plan may be made at the discretion of the Board of Directors.
(s) Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of
the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
(i) Finance leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the
leased asset to the Group. All other leases are classified as operating leases.
Rights to assets held under finance leases are recognised as assets of the Group at the fair value of the leased property (or, if lower, the
present value of minimum lease payments) at the inception of the lease. The corresponding liability to the lessor is included in the
statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of
the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are deducted in
measuring profit or loss. Assets held under finance leases are included in property, plant and equipment, and depreciated and assessed
for impairment losses in the same way as owned assets.
(ii) Rentals and operating leases
Rentals payable under operating leases are charged to the profit or loss in the Statement of Comprehensive Income on a straight-line
basis over the term of the lease.
(t) Provisions
Provisions are recognized when the Group has an obligation as a result of a past event and it is probable that the Group will be required
to settle the obligation and that a reliable estimate of the amount of the obligation can be made. Where the effect of discounting is
material, provisions are discounted. The discount rate used is a pre-tax rate that reflects current market assessment of the time value of
money and the risks specific to the liability. Present obligations arising under onerous contracts are recognised and measured as
provisions.
35
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(u) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as
a hedging instrument, and if so, the nature of the item being hedged.
(v) Share-Based Payments
The Group provides benefits to employees in the form of share-based payment transactions, whereby employees render services in
exchange for shares or rights over shares. The Group has issued shares to directors and employees for the year ended 31 December 2018
as compensation and has issued shares to a third parties in lieu of services provided to support the Group’s Initial Public Offer. These
shares were issued in engage:BDR LLC and converted to shares in engage:BDR Limited upon listing on the ASX.
The cost of share-based payments is measured by reference to the fair value of options at the date at which they are granted. The fair
value of options granted is determined by using the Monte Carlo simulation or the binomial option valuation model. The assumptions and
models used for estimating fair value for share-based payment transactions are disclosed in Note 30.
For employee related share based payments, the fair value of options is recognised as an employee benefit expense with a corresponding
increase in equity. The fair value is measured at grant date and recognised over the period during which the employee becomes
conditionally entitled to the option.
For third party share based payments, the fair value of options is recognised as being a deduction from the initial public offering proceeds
raised, with a corresponding increase in equity.
(w) Earnings Per Share (EPS)
Basic EPS
Basic earnings per share is calculated by dividing the profit attributable to the owners of engage:BDR Limited, excluding any costs of
servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year,
adjusted for bonus elements in ordinary shares issued during the financial year.
Diluted EPS
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income
tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of
shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
As the Group incurred a loss for the period under review and in the prior year, potential ordinary shares, being options and performance
rights to acquire ordinary shares, are considered non-dilutive and therefore not included in the diluted earnings per share calculation.
36
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
2.1 New standards, interpretations and amendments adopted by the Group
(a) AASB 15 Revenue from Contracts with customers
The Group has adopted AASB 15 from 1 January 2018. The standard provides a single comprehensive model for revenue recognition. The
core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers
at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of
the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather
than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability,
a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer
acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract
period.
(b) AASB 9 Financial Instruments
The consolidated entity has adopted AASB 9 from 1 January 2018. The standard introduced new classification and measurement models
for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold
assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment
shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold
assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the
asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity
makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or
contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a
financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an
accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change
in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New
simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities
of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured
using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which
case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime
expected loss allowance is available.
(c) Impact of adoption
AASB 9 and ASSB 15 were adopted using the modified retrospective approach and as such, comparatives have not been restated. The
consolidated entity has applied the simplified approach to measuring expected credit losses under AASB 9, resulting in no additional
expense for the year ended 31 December 2018. The application of applying AASB 15 has not resulted in any material changes in the
current reporting period.
The impact of the new Accounting Standards compared with the previous Accounting Standards on the current reporting period is as
follows:
EXTRACT
Loss on revaluation available for sale investment to fair value
Loss on the revaluation of equity instruments at fair value through
other comprehensive income
Previous
Adjustment
(511,767)
511,767
New
-
-
(511,767)
(511,767)
37
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
2.2 New standards and interpretations not yet mandatory or early adopted
(a) AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 ‘Leases’
and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a ‘right-of-use’ asset will be
capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made
over the least term. The exceptions relate to shore-term leases of 12 months or less and leases of low-value assets (such as personal
computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease
payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for
lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or
dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset
(included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of
the lease, the expenses associated with the lease under AASB 16 will be higher when compared to leases expenses under AASB 117.
However EBITDA (Earnings before Interest, Tax, Depreciation, and Amortisation) results will be improved as the operating expense is
replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the
lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities)
component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The consolidated entity
will adopt this standard from 1 January 2019 but the impact of its adoption is yet to be assessed by the consolidated entity.
3. Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the
reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets,
liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical
experience and on other various factors, including expectations of future events, management believes to be reasonable under the
circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates
and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the
respective notes) within the next financial year are discussed below.
(i) Development costs – capitalisation, valuation and impairment
Distinguishing the research and development phases of software projects and determining whether the recognition requirements for
the capitalisation of development costs are met, requires judgement. Expenditure during the research phase of a project is recognised
as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is
expected to deliver future economic benefits and these benefits can be measured reliably. Determining the feasibility of the project and
the likelihood of the project delivering future economic benefits, which can be measured reliably, is a significant management estimate
and judgement.
Capitalised development costs have a finite useful life and are amortised on a systematic basis based on the future economic benefits
over the useful life of the project, typically between 3 and 10 years, and are considered for impairment, based on the presence of
indicators, at each reporting date.
After capitalisation, the Group assesses, on an annual basis, whether there is an indication that capitalised costs may be impaired. If any
indication exists, the Group estimates the asset’s recoverable amount, which is the higher of the asset’s or cash generating unit
(‘CGU’)’s fair value less cost of disposal and its value in use. The Group assesses that each capitalised intangible asset, representing each
software project, does not generate cash inflows that are largely independent of those from other assets so has determined the
recoverable amount at CGU level. The CGU to which the intangible assets are allocated has been identified as the Group as a whole.
The recoverable amount of the capitalized costs have been determined based on its value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. Future cash flows are estimated based on detailed budgets and forecast
38
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
calculations. These budgets and forecast calculations generally cover a period of 3 years and a long-term growth rate is calculated and
applied to project future cash flows after the 3rd year.
When performing this assessment for the year ended 31 December 2017 the Group has used the value in use calculation prepared in
connection with the share based payments transaction (as of August 2017) and applied updated assumptions around revenue, growth
and cost projections which reflect the forecast business results now that the Group has successfully listed on the ASX. In relation to the
acquired Tiveo intangibles, the Group has also considered the value in use calculation prepared at the time of the acquisition (August
2016) which supported the cost value of the acquired assets. Since this date, investment in these assets has been delayed and not yet
commenced (due to the delay in successfully listing on the ASX) and as such the Group has considered the value in use calculation
prepared at this date to still provide evidence supporting the carrying value of these intangibles, which have been amortised since the
date of acquisition.
When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to
its recoverable amount as impairment loss. The carrying amount of intangible assets at the reporting date was $2,496,784 (2017:
$3,973,760) and there was impairment losses of $1,290,445 (2017: nil) recognised during the current financial year.
(ii) Recoverability of debtors
The determination of the recoverability of trade debtors requires the Directors to exercise their judgement. In reviewing trade debtors,
the Group considers any recent history of payments and the status of the projects to which the debt relates. No payment terms have
been renegotiated. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the
Directors believe that there is no further provision required in excess of the allowance for impairment. Refer to note 17 for additional
detail.
(iii) Goodwill
The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill have
suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units
have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated
discount rates based on the current cost of capital and growth rates of the estimated future cash flows.
(iv) Impairment of non-financial assets other than goodwill and other indefinite life intangible assets
The Group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting
date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger
exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations,
which incorporate a number of key estimates and assumptions.
(v) Business combinations
As discussed in note 2, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired,
liabilities and contingent liabilities assumed are initially estimated by the consolidated entity taking into consideration all available
information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective,
where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and
amortisation reported.
39
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
4. Revenue
Revenue from contracts with customers – Rendering of services
Revenue from continuing operations
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
Programmatic
Non-programmatic
Geographical regions
Australia
United States of America
Other
Timing of revenue recognition
Services rendered at a point in time
5. Segmental Analysis
Product Information
Year ended 31 December 2018
Revenue from external customers
Product Information
Year ended 31 December 2017
Revenue from external customers
Geographic Information
Australia
United States of America
Other [1]
2018
AUD $
2017
AUD $
11,443,935
11,443,935
13,135,970
13,135,970
2018
AUD $
9,899,458
1,544,477
11,443,935
2018
AUD $
365
10,640,639
802,931
11,443,935
2017
AUD $
8,930,576
4,205,394
13,135,970
2017
AUD $
6,196
11,773,654
1,356,120
13,135,970
2018
AUD $
11,443,935
2017
AUD $
13,135,970
Programmatic Non-programmatic
Consolidated
AUD $
9,899,458
AUD $
AUD $
1,544,477
11,443,935
Programmatic Non-programmatic
Consolidated
AUD $
8,930,576
AUD $
AUD $
4,205,394
13,135,970
2018
AUD $
365
2017
AUD $
6,196
10,640,639
11,773,654
802,931
1,356,120
11,443,935
13,135,970
[1] No other single country represents greater than 10% of the Group’s total revenue.
40
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
Major Customers
Below is a summary of revenues from major customers where the transactions with each individual customer exceed 10% or more of
the Group’s total revenue.
Customer and segment
Customer A – Programmatic
Customer B – Programmatic & Non-Programmatic
6. Cost of sales
Online media costs
Platform service fees[1]
Merchant banking fees
Total cost of sales
2018
AUD $
8,959,984
-
2018
AUD $
7,115,049
-
2,888
7,117,937
2017
AUD $
5,752,219
1,372,799
2017
AUD $
6,916,723
46,785
2,333
6,965,841
[1]Platform service fees are charged by third-party platforms used for programmatic purchase, sale, and delivery of digital media. Typically,
the purchase and sale of media is charged as a percentage of the gross volume; the delivery of media is charged at a fixed rate.
7. Gain on de-recognition of investment in associate and other income
Gain on de-recognition of investment in associate
Impairment loss for equity investment in associate
Net fair value gain from equity investment in associate[1]
Finance income
Re-measurement of payables [2]
Release of deferred income on forfeiture [3]
Embedded derivative fair value movement
Other income
Total other income
2018
AUD $
-
-
-
66,605
866,351
619,033
-
47,160
1,599,149
2017
AUD $
2,475,318
(1,851,599)
623,719
68,667
-
-
140,808
49,203
258,678
[1] During the half-year ended 30 June 2017, the group recognised a gain of $2,475,318 as other income related to the de-recognition of
its previous investment in an associate upon the recognition of equity instruments held in Lottogopher Holdings Inc., an entity which
was publicly listed in May 2017 on the Canadian Stock Exchange. The Group previously held an equity investment in the trading
operations of an associated entity of Lottogopher Holdings Inc., which was accounted for using the equity method due to having
significant influence over the entity. On completion of the Initial Public Offering in May 2017, the investment held was converted into
equity shares of Lottogopher on the Canadian Stock Exchange, with the gain of $2,475,318 representing the fair value re-measurement
of the previous equity accounted investment on receipt of equity by the Group. Galaxy ceased to be an associate, as the Group’s
shareholding reduced from 23% to 6% as a result of the above described transaction, and instead treaded as an AFS investment.
Effective from 1 January 2018, the Group elected for the gain/loss on the revaluation of equity instruments at fair value to go through
other comprehensive income.
[2] Per Group policy, payables are remeasured on a regular basis to adjust for invalid traffic.
41
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
[3] In accordance with the Advertiser Service Agreement, balances that satisfy the following criteria are considered forfeited and eligible
for recognition as other income: Balances older than 6 months; Likelihood of near-future business (6 months) Bankruptcies, mergers,
closures, and assessment of those less than a year old.
8. Employee and contractor costs
Salary costs
Defined contribution plan (401(k))
Insurance costs (medical and worker’s compensation)
Total employee and contractor costs
9. Operations and administration expense
Technology infrastructure and software costs
Legal and accounting expense
Technical and corporate development expense
Bad debt expense
Travel expenses
Office and other rental expenditure
Human resource expenses
Municipal and other taxes
Insurance expense
Other operations and administration expenses
Total operations and administration
10. Depreciation and amortisation
Depreciation of property, plant, and equipment
Amortisation of capitalised software development costs
Total depreciation and amortisation
11. Impairment expense
Impairment of MyDiveo Developed Technology and Non-Compete Clause [1]
Total Impairment Loss
2018
AUD $
5,609,135
39,054
248,768
5,896,957
2018
AUD $
1,049,672
1,105,685
656,921
461,063
648,799
565,261
100,082
150,337
479,807
273,635
5,491,262
2018
AUD $
527,385
2,088,106
2,615,491
2018
AUD $
1,290,445
1,290,445
2017
AUD $
4,701,903
46,195
241,643
4,989,741
2017
AUD $
1,701,570
1,130,147
206,211
698,741
277,925
802,733
88,393
21,098
139,425
303,399
5,369,642
2017
AUD $
523,506
1,961,847
2,485,353
2017
AUD $
-
-
[1] At the half year, the Group completed a full review of its business and its operating model in the context of actual results not
reflecting the previous market guidance issued. As part of this process, it was determined that based upon the performance of the
MyDiveo software asset in the period that an indicator of impairment was recognised and an impairment loss of $1,290,784 was
recorded against the carrying value of the relevant development costs and non-compete clause bringing the asset value to $nil.
42
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
12. Finance costs
Interest on financing arrangements [1]
Interest on finance leases
Interest on credit line [2]
Interest on loan from related party
Interest on corporate credit cards
Total finance costs
2018
AUD $
65,393
89,416
179,976
2,526
25,370
362,681
2017
AUD $
278,544
242,956
383,036
-
77,002
981,538
[1] The Group issued a promissory note to a supplier with a simple interest rate of 7% per annum and maturity date in January 2018,
currently outstanding and being paid down per the terms of the promissory note. Also included is interest payable to investors that were
issued convertible notes.
[2] The Group uses an Asset-based lending (ABL) credit line. The ABL involves the transfer of receivables without derecognition. See
note 18a for further detail on the transfer of receivables.
13. Income tax expense
Current income tax
Current income tax
Adjustments in respect of current income tax of previous year
Deferred income tax
Relating to origination and reversal of temporary differences
2018
AUD $
2017
AUD $
1,071
1,044
-
-
-
-
Total income tax expense / (benefit) in the statement of comprehensive income
1,071
1,044
A reconciliation between income tax expense and the product of accounting profit multiplied by
the U.S. domestic statutory tax rate for the years ended 31 December 2018 and 2017 is as
follows:
Accounting loss before income tax
Taxes computed at statutory rate of 0% [1]
Increase/(decrease) in income taxes resulting from:
State and local taxes [1]
Provision/(benefit) for income taxes
Deferred tax relates to the following temporary differences:
Deferred tax assets:
Accrued expenses and reserves
Losses available for offsetting against future taxable income
Research and development credits
43
2018
(10,839,127)
2017
(10,564,957)
-
-
1,071
1,071
-
-
1,044
1,044
2018 [2]
2017
-
-
-
-
1,856
247,886
302,970
552,712
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
Items that give rise to a deferred tax liability related to the following temporary differences:
Deferred tax liabilities
Accelerated depreciation and amortisation for tax purposes
Reconciliation of recognised deferred tax
Deferred tax asset
Deferred tax assets not recognised
Deferred tax liability
Net deferred tax
-
-
-
-
-
-
-
(57,079)
(44,598)
552,712
(495,633)
57,079
(57,079)
-
[1] Conversion to LLC corporate structure, the Subsidiary maintains the ability to elect taxation as an S-type corporation and accordingly
it is not subject to federal tax. The rate applicable to the Subsidiary is a 1.5% tax on net income which is payable to the state of
California, however if the Group has made a loss (which in this reporting period it did), it is only subject to an USD $800 minimum tax.
[2] As a foreign owned LLC, engage:BDR LLC is no longer eligible for deferred tax assets. 2018 was the first full period in which
engage:BDR LLC is considered foreign owned.
14. Cash and cash equivalents
Cash at bank and in hand
2018
AUD $
320,276
2017
AUD $
7,274,894
Cash at banks earns interest at floating rates based on daily bank deposit rates. Cash and Cash Equivalents are denominated in:
Australian dollars
US dollars
2018
861
225,053
2017
282,768
5,463,669
44
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
15. Fixed assets
Cost
At 01 January 2018
Additions
Exchange difference
At 31 December 2018
Accumulated depreciation
At 01 January 2018
Depreciation for the year
Exchange difference
At 31 December 2018
Cost
At 01 January 2017
Additions
Exchange difference
At 31 December 2017
Accumulated depreciation
At 01 January 2017
Depreciation for the year
Exchange difference
At 31 December 2017
Carrying Amount
At 31 December 2018
At 31 December 2017
Leasehold Improvement
& Computer Equipment Furniture & Fittings
2018
AUD $
202,644
-
22,099
224,743
2018
AUD $
2,658,488
42,910
289,917
2,991,315
1,975,536
502,545
245,580
2,723,661
2017
AUD $
2,883,722
872
(226,106)
2,658,488
1,618,392
493,555
(136,411)
1,975,536
150,191
24,840
17,869
192,900
2017
AUD $
219,883
-
(17,239)
202,644
131,096
29,951
(10,856)
150,191
Total
2018
AUD $
2,861,132
42,910
312,016
3,216,058
2,125,727
527,385
263,449
2,916,561
2017
AUD $
3,103,605
872
(243,345)
2,861,132
1,749,488
523,506
(147,267)
2,125,727
267,654
682,952
31,843
52,453
299,497
735,405
The carrying amount of the Group’s fixed assets includes an amount of $197,521 (2017: $636,399) in respect of assets held under finance
leases.
45
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
16. Intangible assets
Cost
At 01 January
Additions
Additions from business combination
De-recognition of ineligible projects
Impairment loss
Exchange difference
At period end
Accumulated amortization
At 01 January
Amortisation for the year
Additions from business combination
De-recognition of ineligible projects
Accumulated amortisation related to impaired asset
Exchange difference
At period end
Carrying amount
Cost
At 01 January
Additions
Exchange difference
At period end
Accumulated amortization
At 01 January
Amortisation for the year
Exchange difference
At period end
Carrying amount
Software
development
costs
2018
AUD $
Non-compete
clause
2018
AUD $
6,521,346
585,277
1,191,694
(179,448)
(2,647,751)
687,126
6,158,244
2,977,363
1,926,068
49,654
(25,978)
(1,648,722)
360,594
3,638,979
793,433
-
-
-
(793,433)
-
-
363,656
138,360
-
-
(502,016)
-
-
Total
2018
AUD $
7,314,779
585,277
1,191,694
(179,448)
(3,441,184)
687,126
6,158,244
3,341,019
2,064,428
49,654
(25,978)
(2,150,738)
360,594
3,638,979
2,519,265
-
2,519,265
2017
AUD $
6,108,131
909,663
(496,448)
6,521,346
1,429,973
1,692,164
(144,774)
2,977,363
2017
AUD $
860,932
-
(67,499)
793,433
107,616
269,683
(13,643)
363,656
2017
AUD $
6,969,063
909,663
(563,947)
7,314,779
1,537,589
1,961,847
(158,417)
3,341,019
3,543,983
429,777
3,973,760
Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic
benefit and these benefits can be measured reliably. The development costs have finite useful lives typically between 3 - 10 years, with
a weighted average of 4 years (2017: 3 years). Impairment of capitalized software costs is considered at each reporting period.
At the year end, the Group completed a full review of its business and its operating model in the context of actual results not reflecting
the previous market guidance issued. As part of this process, it was determined that based upon the performance of the myDiveo
46
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
software asset in the period that an indicator of impairment was recognised and an impairment loss provision of $1,290,445 was
recorded against the carrying value of the relevant development costs and non-compete clause, bringing the asset value to $nil. The
review of the business did not identify any impairment of any remaining intangible assets following consideration of indicators of
impairment under AASB 136. As at the year ended 31 December 2018, the remaining intangible assets were determined to be deriving
positive cash flows related to the identifiable intangible assets and will continue to be amortised in accordance with the group
accounting policy.
17. Financial risk management
This note explains the Group’s financial risk management and how the exposure to these risks affects the Group’s future financial
performance.
The Group’s risk management is carried out by the senior management through delegation from the Board of Directors. Risk management
programmes and practices are employed to mitigate the potential adverse effects of these exposures on the results of the Group.
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
Trade and other receivables
Related party receivables
Investments in equity instruments
Total
Financial liabilities
Trade and other payables – current
Credit card liabilities
Current portion of lease liability
Trade and other payables – non-current
Non-current portion of lease liability
Borrowings – due to factor – current
Borrowings – current
Deferred payable [1]
Total
2018
AUD $
320,276
2,026,441
2,637,326
114,314
5,098,357
10,305,181
441,173
292,285
-
105,760
1,048,731
1,549,708
1,055,057
14,797,895
2017
AUD $
7,274,894
2,878,438
2,277,582
666,978
13,097,892
13,155,767
1,001,556
391,231
2,892
279,789
1,164,340
1,588,767
-
17,584,342
[1] Deferred payable represents shares owed on acquisition of AdCel (11,071,951 shares were issued with 10,657,140 shares outstanding
at year end recorded at $0.099 per share). The 10,657,140 shares were issued on 08 March 2019 at $0.019 per share.
(a) Credit risk
Credit risk is a risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group.
The Group faces primary credit risk from potential default on receivables by payment from customers. The credit risk on financial assets
of the Group which have been recognised in the Statement of Financial Position is the carrying amount net of any provision for doubtful
debts.
The Group’s exposure to credit risk is managed through its credit policy under which each new customer is analysed individually for
creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes
external ratings, if they are available, bank references, and as well as reviewing third party business references of the applicant.
47
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period is equivalent to the carrying
amount as presented in the Statement of Financial Position.
The credit risk from related parties is the same as external parties.
Generally, trade receivables are written off where there is no reasonable expectation of recovery. Indicators of this include the failure
of a debtor to engage in a repayment plan, failure to communicate with the Group, and no meaningful negotiations as a result of legal
action.
(b) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and ensuring that all term deposits can be converted to funds in
accordance with forecast cash usage. Due to the dynamic nature of the underlying business, flexibility in funding is maintained by ensuring
ready access to the cash reserves of the business.
The ongoing maintenance of the Group’s policy is characterized by ongoing cash flow forecast analysis and detailed budgeting processes
which, is directed at providing a sound financial positioning for the Group’s operations and financial management activities. In addition,
the Group monitors both the debt and equity markets for additional funding opportunities.
(i) Financial arrangements
The Group had the following borrowing facilities at the end of the reporting period.
Drawn
2018
AUD $
2017
AUD $
Undrawn
2018
AUD $
880,938[4]
-
-
-
1,045,716 [1]
543,051 [2]
1,064,468
-
4,798,991[3]
4,798,991 [2] [3]
880,938
1,588,767
5,863,459
4,798,991
6,744,397
6,387,758
2017
AUD $
-
-
Total
2018
AUD $
2017
AUD $
1,945,406
-
4,798,991[3]
-
1,045,716 [1]
5,342,042 [2]
Fixed rate
Loan notes
Promissory notes
Convertible notes
Total
[1] Promissory note borrowings were issued between October and December 2016 with a maturity of 18 to 24 months. Interest is
calculated at a simple interest rate of 7% and 12% (depending on the note terms).
[2] Convertible note borrowings were drawn down between June and August 2016 with a maturity of 18 to 24 months. Interest is
calculated at a simple interest rate of 7% per annum payable at maturity date. Face value of drawn portion is US$385,000
(AU$492,696). Face value of drawn funds and accumulated interest payable was converted and issued shares on 27 February 2018.
[3] Undrawn portion of these convertible notes are funded at the approval of the lender. Total undrawn amount is US$3,750,000
(AU$4,798,991). The convertible note expires 18 November 2019.
[4] Loan notes were issued on 20 November 2018. On 29 January 2019, a resolution was passed during a shareholder general meeting to
issue convertible securities in replacement of the Loan notes. The loaned amounts are repayable each month over a 12 month period.
48
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(ii) Maturities of financial liabilities
The following table summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.
Less than 6
months
Between 6 to
12 months
Between 1
and 2 years
Between 2
and 3 years
Total contractual
cash flows
2018
Trade and other payables
Credit card liabilities
Borrowings – Due to factor
Borrowings (principal) – Promissory notes [1]
Loan notes [3]
Deferred payable [4]
Total financial liabilities
AUD $
11,357,346
441,173
1,048,731
668,770
880,938
1,055,057
15,452,015
AUD $
2,892
-
-
-
-
-
2,892
AUD $
AUD $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Less than 6
months
Between 6 to
12 months
Between 1
and 2 years
Between 2
and 3 years
AUD $
11,360,238
441,173
1,048,731
668,770
880,938
1,055,057
15,454,907
Total
contractual
cash flows
2017
AUD $
AUD $
Trade and other payables
Credit card liability
Borrowings – Due to factor
Borrowings (principal) – Promissory notes [1]
Borrowings (principal) – Convertible notes [2]
Total financial liabilities
13,155,767
1,001,556
1,164,340
88,771
543,051
-
-
-
956,945
-
15,953,485
956,945
2,892
AUD $
2,892
-
-
-
-
AUD $
AUD $
-
-
-
-
-
-
13,158,659
1,001,556
1,164,340
1,045,716
543,051
16,913,322
[1] Promissory notes to suppliers total $516,617 (2017: $1,045,716) all with a simple interest rate of 7% per annum paid monthly.
[2] Convertible note borrowings start between June and August 2016 with a maturity of 18 to 24 months. Interest is calculated at a
simple interest rate of 7.0% per annum payable at maturity date. Amounts shown in the table above for 2017 represents the convertible
note borrowing.
[3] Loan notes were issued on 20 November 2018. On 29 January 2019, a resolution was passed during a shareholder general meeting to
issue convertible securities in replacement of the Loan notes. The loaned amounts are repayable each month over a 12 month period.
[4] Deferred payable represents shares owed on acquisition of AdCel (11,071,951 shares were issued with 10,657,140 shares outstanding
at year end). The 10,657,140 shares were issued on 08 March 2019 at $0.019 per share.
49
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(iii) Fair values
The carrying values of the Group’s financial assets and financial liabilities approximately equate their fair values due to the short term
nature of the financial assets and liabilities as well as time to maturity from balance sheet date.
The only items where the carrying value differs from the fair value relates to the promissory and convertible notes and lease liabilities –
which are different due to the interest rate applied to the financial instruments being different to that of a deemed market interest rate.
This difference is shown in the table below:
Financial liabilities
Promissory notes
Convertible Notes
Loan notes
Lease liability
Total
2018
Carrying
amount
AUD $
668,770
-
880,938
398,046
1,947,754
Fair value
AUD $
668,770
-
880,938
379,377
1,929,085
2017
Carrying
amount
AUD $
1,045,716
543,051
-
717,558
2,306,325
Fair value
AUD $
992,049
451,011
-
671,020
2,204,080
(c) Capital management strategy
The Group’s policy is to maintain a capital structure for the business which ensures sufficient liquidity, provides support for business
operations, maintains shareholder confidence and positions the business for future growth. The Group manages its capital structure and
makes adjustments in light of changes in economic conditions.
The ongoing maintenance of the Group’s policy is characterised by ongoing cash flow forecast analysis and detailed budgeting processes
which, combined with continual development of banking relationships, is directed at providing a sound financial positioning for the
Group’s operations and financial management activities.
The Group is not subject to externally imposed capital requirements.
(d) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Management has deemed that interest rate risk is not significant for the Group due to the majority of the Group’s financial
assets and liabilities being fixed rate.
(e) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange
rates. The Group’s exposure to changes in foreign exchange rates is due to the functional currency of the Group being USD and the
presentation currency being AUD. The following table demonstrates the sensitivity to a reasonably possible change in USD exchange rates,
with all other variables held constant. The impact on the Group’s net liabilities and net loss after tax upon translation into AUD is shown
below.
Foreign currency sensitivity
2018
2017
Change in USD
Rate
Effect on net
loss after tax
AUD $
Effect on net
assets/liabilities
AUD $
+5%
-5%
+5%
-5%
445,250
(445,252)
507,430
(507,430)
445,250
(445,252)
407,006
(407,006)
50
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
18. Trade and other receivables
Trade debtors [1]
2018
AUD $
2,026,138
2017
AUD $
2,878,438
[1] During the period, the group entered into an arrangement with a third party to provide an asset backed credit line against trade
receivables which are up to 180 days old. Under this arrangement, advances are recorded against certain receivables balances which are
factored under the facility. All amounts invoiced are in US Dollars. In accordance with AASB 9 Financial Instruments: Recognition and
Measurement, an evaluation is performed to establish whether, substantially, all the risks and rewards have been transferred to the
factoring provider. Where the Group concludes this is not the case, the portion of the financial assets corresponding to the Group’s
continuous involvement continues to be recognised. When all the risk and rewards are not considered to be transferred, the amount is
kept on the balance sheet. Based upon management’s assessment, the Group believes that it has retained risk and rewards, and
therefore has not derecognized any financial assets.
(a) Transfer of trade receivables
The Group has retained the credit risk associated with the trade receivables, due to the obligation to repurchase from the factoring
company any receivables that are deemed uncollectible, and therefore the risks and rewards of the asset reside with the Group. The
total carrying amount (which is approximate to fair value) of the trade receivables transferred subject to factoring arrangement is
$1,048,731 (December 2017: $1,164,340). This arrangement has no expiration date with an interest rate of 8.25%.
Carrying amount of trade receivables transferred
(b) Current receivables
Current:
Trade debtors
Less: Allowance for expected credit losses
Net trade debtors
Other receivables
Total current receivables
(c) Ageing of past due but not impaired
2018
AUD $
2017
AUD $
1,048,731
1,164,340
2018
AUD $
2,387,919
(489,173)
1,898,746
127,392
2,026,138
2017
AUD $
3,151,117
(340,655)
2,810,462
67,976
2,878,438
Not overdue
0 – 30 days
31 – 60 days
61 – 90 days
Over 91 days
Expected credit loss rate
Carrying amount
Allowance for expected credit loss
2018
%
1%
5%
15%
40%
65%
2017
%
1%
5%
11%
30%
50%
2018
AUD $
1,532,827
82,235
41,950
49,365
681,542
2,387,919
2017
AUD $
2,028,912
319,122
236,108
27,401
539,574
3,151,117
2018
AUD $
15,329
4,112
6,494
19,943
443,295
489,173
2017
AUD $
20,289
16,387
25,972
8,220
269,787
340,655
The average age of the Group’s trade receivables is 173 days (2017: 134 days).
In determining the recoverability of a trade receivable, the Group considers any recent history of payments and the status of the
projects to which the debt relates. No payment terms have been renegotiated. The concentration of credit risk is limited due to the
51
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
customer based being large and unrelated. Accordingly, the Directors believe that there is no further provision required in excess of the
provision for doubtful debts.
(d) Movement in the allowance for expected credit losses
Balance at beginning of year
Impairment recognized during the year
Amounts written off as uncollectible
Exchange difference
Balance at the end of the year
2018
AUD $
(340,655)
(461,063)
355,996
(43,451)
2017
AUD $
(225,752)
(387,061)
251,849
20,309
(489,173)
(340,655)
(e) Fair value of receivables
Fair value of receivables at period end is considered to be the same as receivables net of the allowance for impairment.
19. Share capital and reserves
At 01 January
Shares issued during the year
At period end
Issued shares
Balance at 01 January
Acquisition
Shares issued to employees in engage:BDR LLC
Shares issued on completion of the IPO in engage:BDR Limited
Share conversion on acquisition of engage:BDR LLC
Shares issued to convertible note holders – principal and interest [1]
Shares issued to convertible note holders – additional [1]
Shares issued during capital raise, net of fees [2]
Shares issued for consulting fees
Shares issued during Share Purchase Plan [3]
Shares issued in relation to AdCel acquisition [4]
Shares issued to AdCel executives [5]
Share issued as collateral for Loan note [6]
At period end
2018
# shares
249,699,958
-
-
-
-
2,745,721
484,539
12,500,000
2,250,000
1,294,375
11,071,951
5,458,200
3,100,000
288,604,744
2017
# shares
108,550,000
100
24,583,239
50,000,000
66,566,619
-
-
-
-
-
-
-
-
249,699,958
2018
AUD $
15,665,594
4,360,062
20,025,656
2018
AUD $
15,665,594
-
-
-
-
431,612
124,882
1,880,000
360,000
204,350
1,007,013
352,205
-
20,025,656
2017
AUD $
1,178
15,664,416
15,665,594
2017
AUD $
1,178
-
-
8,725,841
6,938,575
-
-
-
-
-
-
-
-
15,665,594
[1] Convertible note holders were issued 2,745,721 shares on 27 February 2018 on conversion of the notes. An additional 484,539 shares
were issued to those convertible note holders on 15 June 2018.
[2] A capital raise of $2,000,000 was completed on 11 May 2018 with 12,500,000 shares issued. Transaction costs of $120,000 were
incurred in relation to the transaction.
52
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
[3] A Share Purchase Plan to existing shareholders was closed on 6 June 2018 raising $204,350 with the issuance of 1,290,625 shares.
[4] Total consideration for the acquisition of AdCel was 21,729,091 shares of the Group. The remaining 10,657,140 shares were issued
on 08 March 2019. See Note 25 and Note 30 for further details.
[5] As part of continuing consulting agreement with AdCel’s executives, shares were issued as consideration.
[6] Per the terms of the Loan note, shares were issued as collateral; See Note 27 for further details.
Nature and purposes of reserves
Share Based Payments Reserve: This reserve represents the fair value of shares issued to employees in engage:BDR LLC and options issued
to the broker in connection with the IPO.
Foreign Currency Translation Reserve: This reserve represents the foreign exchange translation differences arising from translation non-
AUD functional currency entities into the AUD presentation currency of the Group for consolidated reporting purposes.
Equity investment Reserve: The reserve is used to recognise increments and decrements in the fair value of financial assets at fair value
through other comprehensive income.
20. Commitments for expenditure
(a) Finance lease commitments
The Group has finance leases and hire purchase contracts for various items of equipment and machinery. Finance lease commitments
are contracted in US Dollars. The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets. Future
minimum lease payments under finance leases and hire purchase contracts, together with the present value of the net minimum lease
payments are, as follows:
Gross finance lease liabilities – minimum lease payments:
Within 1 year
Later than 1 year and no later than 5 years
Total minimum lease payments
Less amounts representing finance charges
Exchange difference
Present value of minimum lease payments
Current
Non-current
Total lease liability
(b) Operating lease commitments
Within one year
Later than one year but not later than five years
2018
AUD $
292,285
152,436
444,721
(44,035)
(2,641)
398,045
292,285
105,760
398,045
2018
AUD $
156,008
8,645
164,653
2017
AUD $
438,608
278,950
717,558
(47,454)
916
671,020
391,231
279,789
671,020
2017
AUD $
584,965
153,422
738,387
The Group leases offices under non-cancellable operating leases for periods ranging within one to five years, with rent payable monthly
in advance. The leases have varying terms, escalation clauses and renewal rights. Rental provisions within the lease agreement provide
for increase in the minimum lease payments as contracted. Operating lease commitments are contracted in US Dollars.
53
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
21. Trade and other payables
(a) Current
Trade payables [1]
Credit card liabilities [2]
Accrued expenses [1]
Deferred income
Accrued payroll liabilities [3]
Bonus and commissions payable [3]
Accrued municipal tax
Deferred service costs [4]
Deferred payable [5]
Exchange difference
2018
AUD $
9,115,785
441,173
1,244,209
409,074
237,757
238,696
115,350
-
1,055,057
(634)
12,856,467
2017
AUD $
9,404,319
1,001,556
1,625,293
876,389
74,755
980,076
40,545
154,390
-
-
14,157,323
Trade creditors and accruals principally comprise of amounts outstanding for trade purchases and ongoing costs.
The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. No interest
has been charged by any suppliers as a result of late payment of invoices during the year.
The carrying amount of trade and other payables approximates their fair value.
[1] Trade payables and accrued expenses are non-interest bearing and are normally settled on 60-day terms.
[2] This amount related to credit card liabilities which are interest bearing.
[3] Accrued payroll liabilities is comprised of salary wages, commissions, and benefits (mainly accrued paid-time off, pension, and
insurance related liabilities).
[4] Deferred service costs relate to contractor fees that were paid upfront by an external provider for which the Group has negotiated a
contractually agreed repayment term. Deferred service costs are contracted in US Dollars.
[5] Total consideration for the acquisition of AdCel was 21,729,091 shares of the Group. As at 31 December 2018, there was 10,657,140
shares not yet issued and outstanding. They were issued on 08 March 2019. See Note 25 and Note 30 for further details.
(b) Non-current
Deferred service costs
2018
AUD $
-
2017
AUD $
2,892
Deferred service costs related to contractor fees that were paid upfront by an external provider for which the Group has negotiated a
contractually agreed repayment term. Deferred service costs are contracted in US Dollars.
54
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
22. Employee benefit liabilities
(a) Current employee benefit liabilities
Annual leave
2018
AUD $
52,410
2017
AUD $
85,409
(b) Non-current employee benefit liability
There are no non-current employee benefit liabilities as at 31 December 2018 (2017: $Nil).
23. Related party disclosures
The Group’s related parties include its key management personnel and employees.
The Group has secured ($1,789,070) and unsecured ($439,962) loans due from key management personnel and employees.
As at 31 December 2018, the loan receivable of $2,229,032 is classified as a current receivable. The original repayment date was 30
June 2018 and a revised repayment date of 30 June 2019 was approved by a Board resolution on 23 August 2018. Additionally, on 20
December 2018, the borrowers granted security for these receivable amounts to be secured against personal holdings of the Group’s
shares. For unsecured portions of the loans, management has not found any indicators of impairment due to continued employment of
loan holders and due date of 2019.
(a) Loans to/from related parties
(i) Loans to key management personnel and employees
Beginning of the year
Loans advanced
Loan repayments received
Loan offset [2]
Loans forgiven [3]
Interest charged
Loan reclass to expense
Interest receivable forgiven
Exchange difference
End of year
2018
AUD $
2,277,582
329,432
-
(633,338)
-
63,025
(39,244)
-
231,575
2,229,032
2017
AUD $
2,774,629
419,585
(652,459)
-
(108,419)
68,642
(11,946)
(415)
(212,035)
2,277,582
[1] Per a Board special resolution on 20 December 2018, a total of $633,338 of the loan balance was deemed to be offset as payment in
recognition of significantly reduced payroll for 2011 and 2013 with the same amount recognised as remuneration.
[2] As part of the departure package of an employee in early 2017, their loan balance of US$83,085 (AU$108,419) was forgiven as part of
their termination agreement.
55
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(ii) Loans from key management personnel
Beginning of the year
Loans advanced
Loan repayments made
Interest charged
Interest paid
Exchange difference
End of year
(iii) Loans to an associate
2018
AUD $
-
-
-
-
-
-
-
As detailed in note 7 Galaxy Group LA LLC ceased to be an associate on the effective listing of Lottogopher Holdings Inc.
Beginning of the year
Loans advanced
Conversion to shares upon IPO of associate
Exchange difference
End of year
2018
AUD $
-
-
-
-
-
2017
AUD $
-
65,246
(65,246)
-
-
-
-
2017
AUD $
37,705
-
(37,705)
-
-
Aggregate total of loans to related parties [1]
2,229,032
2,277,582
[1] Representing sum of loans to key management personnel and loans to associates
(b) Compensation of the key management personnel of the Group
Short-term employee benefits
Share-based payments
Loan forgiveness
401(k) withholdings
Total short-term employee benefits
(c) Terms and conditions
2018
AUD $
1,851,883
-
-
1,810
1,853,693
2017
AUD $
2,065,024
1,415,836
108,419
2,655
3,591,934
Loans to key management personnel are charged interest at a simple interest rate of 2.78% per annum (2017: 2.78%), calculated
monthly. Further loans were advanced during the period. The loans when advanced were all unsecured and repayable by 30 June 2019.
$1,789,070 of the loans outstanding were subsequently secured against each individuals’ shareholding. All loans were approved by the
Board of Directors of the Group.
(c) Liabilities assumed by directors and other key management personnel of the Group
In connection with the acquisition of Tiveo LLC and under the transaction documents dated 12 August 2016, Ted Dhanik, Ken Kwan and
Kurtis Rintala (or their successors) undertook to issue additional shares of their Trading Stock in Engage:BDR, LLC on a pro-rata basis to
the former Majority Members of Tiveo (being Abdulaziz Alrajhi, BODO LLC, Neston Property Ltd. and David Cure) in the event that after
Engage:BDR Units were listed for trading on the ASX the value of Engage:BDR Units held by the former Majority Members is below an
amount of US$6,693,120. This is not an obligation of the Group but rather of the aforementioned individuals.
56
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
24. Investments in equity instruments
The Group previously held an equity investment of 23.3% in Galaxy Group LA LLC (‘Galaxy’) which was accounted for using the equity
method due to the Group having significant influence over that entity.
On 23 May 2017, Lottogopher Holdings Inc., (‘Lottogopher’) a related entity of Galaxy, successfully completed an Initial Public Offering
on the Canadian Stock Exchange. Lottogopher subsequently completed a reverse acquisition of Galaxy with the Group also holding a
promissory note in Galaxy which was also converted into equity upon the successful listing of Lottogopher as at 23 May 2017, which
resulted in a fair value gain of $2,475,318 being recognised in the profit or loss in the year ended 31 December 2017 upon
remeasurement of the investment to fair value. The Group continues to hold 6% of the shareholding of Lottogopher Inc post IPO as at
31 December 2017 and 31 December 2018.
Prior to the adoption of AASB 9 on 1 January 2018, the equity shares held in Lottogopher Holdings Inc. were considered to be an
available for sale financial instrument that was recognised at fair value through the Profit or loss. Upon adoption of AASB 9, from the
initial application date of 1 January 2018, this investment was designated as an equity investment at fair value through OCI. The fair
value of these equity instruments is determined based on market observable values at each reporting date with fair value gains or
losses being recognised in OCI. Accordingly, the fair value has been classified as a Level 1 input under the fair value hierarchy of AASB
13 Fair Value Measurement at these equity instruments are quoted on an active market.
As at 31 December 2018, the fair value of the investment of equity instruments was $164,954.
Due to an existing contractual obligation, 15% of the shares held in Lottogopher Holdings Inc. from the date of its listing have been
released from escrow or will be released from escrow within 12 months from the year end date and remaining 85% released at intervals
which are greater than twelve months from the period end date. Accordingly, $114,314 of the shares are recognised as a current
investment in equity instruments asset and $50,640 as a non-current investment in equity instruments asset.
25. Contingencies
The company has been invoiced an amount of $294,000 for the review of its half year financial report. This amount is in addition to the
contracted sum. The company disputes this amount and the directors are confident that no payment will be required and have not made
a provision for this amount in the financial statements.
The Group is a target for fraudulent claims from suppliers claiming for non-refundable services. At balance date, claims of $1,379,435
exists which the directors are confident will be fully defended.
26. Business combinations
Acquisition of AdCel LLC
The Group completed the acquisition of AdCel LLC on 30 July 2018 in which the Group provided consideration of 21,729,091 fully paid
ordinary shares in Engage:BDR Limited at AUD $0.099 cents per share.
Per the terms of the sale and purchase agreement, the arrangement includes future consideration payable in $USD cash to the vendors
of AdCel based on the AdCel achieving specific financial performance hurdles. The first contingent cash consideration amount payable of
$1 million USD exists under terms if AdCel achieve revenue of $1.75 million USD in the 12 month period to December 2018, with two
further contingent cash consideration amounts payable of $750,000 USD based on achieving revenue and gross margin of 30% in each of
the 12 month periods to 31 December 2019 and 31 December 2020 respectively. An analysis of actual results January 2018 to July 2018
and forecast results August 2018 to December 2018 indicate AdCel will be short of this target for the period to 31 December 2018. Since
acquisition date, AdCel has generated $336,832 in revenue and $101,050 in gross profit. Under the terms of the revised agreement, AdCel
will no longer receive the $1 million USD in cash consideration as foreshadowed in the original ASX Announcement about the proposed
acquisition at the date of acquisition, with the initial consideration being settled in equity.
57
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
On 31 August 2018, the Group issued 4,548,498 ordinary fully paid shares and 6,523,453 ordinary fully paid shares escrowed for 6 months
part of the consideration owed for the acquisition of AdCel LLC. The remaining 10,657,140 fully paid ordinary shares voluntarily escrowed
until 31 August 2019 were issued on 08 March 2019.
Assets acquired and liabilities assumed
The fair value assessment of the acquired assets and liabilities has been reviewed in accordance with the provisions of AASB 3 Business
Combinations.
The fair values of identifiable assets and liabilities as at the date of acquisition were:
Amount settled in cash
Fair value ordinary shares issued
Fair value ordinary shares to be issued
Fair value of consideration transferred
Recognised amounts of identifiable net assets:
Cash and cash equivalents
Intangible assets
Other assets
Other liabilities
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
AUD $
-
1,096,123
1,055,057
2,151,180
115,120
1,263,168
235,918
(918,548)
695,658
1,455,522
2,151,180
This fair value was derived using the income approach, a risk weighted discounted cash flow (DCF) method. AdCel is an unlisted company
and as such no market information was available. The fair value estimates were based on:
(a) assumed pre-tax discount rate of 28.0%
(b) assumed long-term growth rate of 3.0%
27. Convertible loan notes
Between 6 June 2016 and 30 August 2016, the Group entered into convertible note agreements in the aggregate principal amount of
US$385,000 (AU$534,611). Each note has a maturity of between 18 to 24 months, bears simple interest at the rate of 7.0% per annum,
is unsecured and ranks pari passu with other unsecured debt obligations of the Group.
If, prior to maturity, the Group completes a financing or related financing of equity securities with aggregate gross proceeds of at least
USD$1,000,000 - a “Qualified Financing” (‘QF’) - not including through the conversion of these notes or similar convertible promissory
notes, then, effective automatically upon the QF Closing Date, the entire unpaid portion of the Outstanding Amount as of the QF Closing
Date shall be mandatorily converted into that number of shares of capital stock issued by the Group in the Qualified Financing (the
“Qualified Financing Stock”). Following completion of the Initial Public Offering on 14 December 2017, the Qualified Financing condition
was achieved.
As at 31 December 2017, the conversion of the notes and issuing of securities to note holders remained outstanding. Due to the
existence of the additional feature within the note agreements the outstanding value of the notes remained classified as a liability and
were not converted into equity (despite the mandatory conversion clause), with a current liability inclusive of face value and accrued
interest of $543,051 recognised as at 31 December 2017.
58
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
On 27 February 2018, the Group completed the issuance of new shares to the convertible note holders, resulting in 2,745,721 new
shares being issued. The shares converted at a notional value of $0.20 which is an increase from the initial contractual arrangement
price of $0.16 with note holders. This change in price was agreed with the note holders in return for modifying the terms of the
additional review feature contained in the note agreements which has been valued separately below, with the arrangement resulting in
additional equity to be issued to reflect the change in the conversion price. Upon issuance of the new shares on 27 February 2018 the
convertible notes liability converted into equity.
On 15 June 2018, the six month review period of the additional review feature ended which resulted in the issuance of an additional
484,539 shares at the daily average share price of $0.167.
On 20 November 2018, the company entered into a loan note agreement that provided $750,000 USD in funding by issuing 750,000
unlisted loan notes (and, per the terms of the agreement, 3,100,000 collateral shares) that, per the terms of the agreement, were to be
replaced by 750,000 unlisted convertible securities. The issuance of the replacement convertible securities was ratified on 29 January
2019 during a general shareholder meeting. This funding arrangement also is able to provide another $750,000 USD of funding on 20
May 2019. As at the date the Company received shareholder approval, a total of $125,000 USD of loan notes were repaid in cash.
28. Embedded derivative liability
The embedded derivative element of the convertible bond has been valued as a forward.
Initial value of embedded derivatives
Change in fair value
Total embedded derivative liability
2018
AUD $
-
-
-
2017
AUD $
140,808
(140,808)
-
The fair value of this derivative has been classified as a Level 3 valuation. The change in fair value of the derivative element of the
US$385,000 (AU$564,611) convertible notes from $140,808 to $nil is the result of change in assumptions used to value the embedded
derivative as with the successful listing on the ASX the convertible notes now mandatorily convert:
29. Loss per share
Basic earnings (loss) per share is calculated by dividing the net profit or loss attributable to ordinary equity holders by the weighted-
average number of shares outstanding during the year.
Continuing operations
Loss per share
(a) Earnings used in calculating earnings loss per share
Loss used in calculating basic earnings loss per share:
Continuing operations
Consolidated
Basic
2018
(0.04)
(0.04)
2017
(0.07)
(0.07)
Diluted
2018
(0.04)
(0.04)
2018
AUD $
2017
(0.07)
(0.07)
2017
AUD $
(10,840,198)
(10,840,198)
(10,566,001)
(10,566,001)
59
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
(b) Weighted average number of shares used as denominator
Weighted average number of shares (Basic)
Weighted average number of ordinary and potential ordinary shares (Diluted)
30. Share based payments
2018
Number
269,188,212
272,188,105
2017
Number
146,333,445
150,813,161
(a) Equity settled employee shares
24,583,239 shares at AUD $0.13 were issued to employees on 26 August 2017 (AUD to USD exchange rate of 0.7943 at 26 August 2017)
in engage:BDR LLC. This transaction was non-cash based, with the expense being recognised in profit or loss in the Statement of
Comprehensive Income for the year ended 31 December 2018 being $nil (2017: $3,437,070).
Whilst the Directors considered that the economic loss of issuing these shares was not suffered by the Group, but rather by the individual
shareholders (immediately post issuing the shares), AASB 2 Share Based Payments requires that the cost of issuing these new shares be
recognised by the Group. The Group obtained an external valuation to assist in determining the fair value of the issued shares.
There were no performance obligations or service criteria attached to the shares which were considered to vest immediately on issue.
These shares were later converted into shares of Engage BDR Limited on completion of the IPO.
Nature and description of share options
During the 2017 financial year, the group issued the following share options:
Equity settled investor options
The Group issued 2-for-1 options to all investors who purchased shares in engage:BDR Limited as part of the IPO, which took place on 14
December 2017. There were no performance obligations or service criteria attached to the options which have been considered to vest
immediately on issue and which have an exercise price of $0.25. The Group has considered the fixed for fixed criteria contained in AASB
132 Financial instruments: Presentation and have deemed that as these options can be settled in a fixed number of the Group’s shares,
that no separate fair value measurement is required for these options. Accordingly, they have been assessed as being contained within
the fair value of the shares issued upon IPO, refer to Statement of Changes in Equity.
Broker options
The Group issued 5,000,000 share options to the listing broker on completion of the IPO as at 14 December 2017. The share options are
exercisable over 3 years at an exercise price of $0.25 (25 cents), with no performance condition attached and have been considered to
vest immediately on issue. The options expire 14 December 2020.
The Group recognised in the Statement of Changes in Equity for the year ended 31 December 2017 an amount of $311,584 being the
option expense deducted from equity related to transaction costs paid to a third party (through the issuance of shares) on completion of
the IPO.
The fair value of options granted during the year was determined using a Black Scholes option pricing model due to the immediate vesting
conditions attached to these options. No options had been exercised as at 31 December 2017, therefore all 5,000,000 remained
outstanding.
60
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
Options issued during the prior period:
Grant date
Number of options
Exercise price
Vesting hurdle
Risk-free interest rate
Expiry date
Investor Options
14 December 2017
24,999,993
$0.25
None: Vested immediately
2.51%
14 December 2020
Broker options
14 December 2017
5,000,000
$0.25
None: Vested immediately
2.51%
14 December 2020
31. Events occurring after the balance sheet date
On 21 January 2019, the Company announced that two new recently signed integrations, Third Presence and AcuityAds had gone live.
On 23 January 2019, the Company issued 25,099,423 fully paid ordinary shares to professional and sophisticated investors at a price of
$0.028 (2.8 cents) per share, raising a total of $702,784 before costs of issue.
On 30 January 2019, the Company issued 13,471,396 fully paid ordinary shares on conversion of 106,188 convertible notes at a
conversion price of $0.011 (1.1 cents) per share.
On 20 January 2019, the Company issued:
•
•
•
625,000 unlisted convertible notes issued at USD $0.90 per Note with a face value of $1.00 USD per Note. Notes are secured
with a maturity date of 10 November 2019. The Notes are convertible at the lesser of $0.09 AUD converted into USD, and a
market share price-derived amount. These convertible notes replaced the 625,000 Loan Notes outstanding from the Loan Note
issue made in November 2018.
1,900,000 fully paid ordinary shares at a deemed issue price of $0.06 (6 cents) per share as the remaining security for the
convertible notes.
8,676,093 unlisted options exercisable at $0.052, expiring 29 January 2022.
On 4 February 2019, the Company issued 9,028,597 fully paid ordinary shares on conversion of 85,052 convertible notes at a conversion
price of $0.013 (1.3 cents) per share.
On 18 February 2019, the Company issued 7,498,236 fully paid ordinary shares on conversion of 92,500 convertible notes at a
conversion price of $0.018 (1.8 cents) per share.
On 18 February 2019 the Company announced a new integration, Comcast Freewheel.
On 25 February 2019 the Company announced two new integrations, MobFox and Chalk Digital.
On 28 February 2019, the Company issued the following:
•
•
•
589,300 fully paid ordinary shares to a consultant in lieu of consulting fees at a deemed issue price of $0.051 (5.1 cents) per
share;
2,000,000 fully paid ordinary shares to a consultant in lieu of consulting fees at a deemed issue price of $0.022 (2.2 cents) per
share;
18,607,945 fully paid ordinary shares for settlement of outstanding creditor balances at a deemed issue price of $0.021 (2.1
cents) per share.
61
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
On 8 March 2019, the Company issued the following:
•
•
10,657,140 fully paid ordinary shares for completion of the acquisition of AdCel LLC as per the Company's announcement on 30
July 2018, at a deemed issued price of $0.22 (22 cents) per share;
4,000,000 listed options as consideration for corporate advisory services, exercisable at $0.25 (25 cents ) per option by 22
December 2020.
On 18 March 2019, the Company issued the following:
•
•
11,347,597 fully paid ordinary shares on conversion of 117,500 unlisted convertible notes at a conversion price of $0.015 (1.5
cents) per share;
12,467,980 fully paid ordinary shares for settlement of outstanding creditor balances at a deemed issue price of $0.031 (3.1
cents) per share.
On 20 March 2019, the Company issued 17,719,531 fully paid ordinary shares on conversion of 188,760 unlisted convertible notes at a
conversion price of $0.015 (1.5 cents) per share.
No other matter or circumstance has arisen since 31 December 2018 that has significantly affected, or may significantly affect the
consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.
32. Remuneration of auditors
The auditor of engage:BDR Limited is BDO. The amounts received or due and receivable by BDO for audit and other services were as
follows:
Amounts received or due and receivable by BDO Australia for:
An audit of the financial report of the Group [1]
Other services in relation to the group and its subsidiaries:
Transaction and IPO related procedures [1] [2]
Total auditor’s remuneration
[1] 2017 auditors were EY Australia.
2018
AUD $
70,000
2017
AUD $
140,000
-\
70,000
248,000
388,000
[2] These costs included fees related to the Independent Limited Assurance Review and non-statutory 30 June 2017 review undertaken
related to the IPO. Fees related to the IPO have been recorded as a deduction from equity in accordance with AASB 132.
The Directors are satisfied that the provision of non-audit services during the current period is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided
means that auditor independence was not compromised.
33. Parent entity information
Current assets
Non-current assets
Total assets
2018
AUD $
192,541
-
192,541
2017
AUD $
348,068
9,001,178
9,349,246
62
engage:BDR Limited
Notes to the Financial Statements
For the year ended 31 December 2018
Current liabilities
Total liabilities
Issued capital
Retained earnings
Share based payment reserve
Total shareholders’ equity
Loss of the parent entity
Total comprehensive loss of the parent entity
(2,209,371)
(2,209,371)
13,485,689
(15,814,102)
311,583
(2,016,830)
(15,694,070)
(15,694,070)
(120,000)
(120,000)
9,037,695
(120,032)
311,583
9,229,246
(120,032)
(120,032)
No contingent liabilities, or contractual commitments, or guarantees in relation to the debts of its subsidiaries have been entered into by
the parent entity as at 31 December 2018 (2017: None).
As discussed in Note 1 (a) the parent company was incorporated on August 17, 2017.
The parent entity has assessed for indicators of impairment of the investment in subsidiaries (engage:BDR LLC and AdCel LLC). As both
subsidiaries have a net liability position as at 31 December 2018, management has determined that the investment and loan amounts are
fully impaired and recognized through the Profit or Loss. The Loss of the parent entity excluding the impairment losses is $1,242,124.
63
engage:BDR Limited
Direcctors’ Declaration
31 December 2018
In the directors’ opinion:
(a)
(b)
(c)
The consolidated financial statements and notes of engage:BDR Limited are in accordance with the Corporations Act 2001 and other
mandatory professional reporting requirements;
The attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in note 2 of the financial statements;
The attached financial statements and notes give a true and fair view of the company’s and Group’s financial position as at 31
December 2018 and of their performance for the financial year ended on that date; and
(d)
There are reasonable grounds to believe that the company will be able to pay its debts as they become due and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in according with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the Board
T Dhanik
Director
Los Angeles
29 March 2019
64
Tel: +61 3 9603 1700
Fax: +61 3 9602 3870
www.bdo.com.au
Collins Square, Tower Four
Level 18, 727 Collins Street
Melbourne VIC 3008
GPO Box 5099 Melbourne VIC 3001
Australia
INDEPENDENT AUDITOR'S REPORT
To the members of engage:BDR Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of engage:BDR Limited (the Company) and its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 31 December 2018, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes
to the financial report, including a summary of significant accounting policies and the directors’
declaration.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
Giving a true and fair view of the Group’s financial position as at 31 December 2018 and of its
financial performance for the year ended on that date; and
(ii)
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd
ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd,
a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved
under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
Material uncertainty related to going concern
We draw attention to Note 2(c) in the financial report which describes the events and/or conditions
which give rise to the existence of a material uncertainty that may cast significant doubt about the
Group’s ability to continue as a going concern and therefore the Group may be unable to realise its
assets and discharge its liabilities in the normal course of business. Our opinion is not modified in
respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. In addition to the matter described in the Material uncertainty
related to going concern section, we have determined the matters described below to be the key audit
matters to be communicated in our report.
Revenue Recognition
Key audit matter
How the matter was addressed in our audit
engage:BDR Limited has adopted AASB 15 Revenue
Our audit procedures to address the key audit matter
from Contracts with Customers from 1 January 2018.
included the following:
Revenue recognition was identified as a key audit
matter due to the significance of revenue to the
financial report and the degree of judgement and
estimation required by management including the
identification of the discrete performance obligations
within each contract and the timing and quantum of
revenues to be recognised where the project related
performance obligation is satisfied over time.
The accounting policy for revenue recognition is
described in Note 2(f), ‘Revenue recognition’, and
details of revenue are disclosed in Note 4 of the
accompanying financial report.
Assessing the Group's accounting policy for
revenue to ensure it has been correctly
formulated in accordance with the Australian
Accounting Standards.
Performing revenue substantive procedures
and analytical review.
Selecting a sample of revenue transactions to
ensure revenue was recognised in
accordance with AASB 15 Revenue from
Contracts with Customers.
Reviewing the disclosures regarding revenue
recognition to ensure compliance with AASB
15 Revenue from Contracts with Customers.
Acquisition of Adcel LLC and related goodwill impairment test
Key audit matter
How the matter was addressed in our audit
As disclosed in note 26 the Group acquired Adcel LLC
Our audit procedures to address the key audit matter
during the year ended 31 December 2018. As required
included the following:
by AASB 3 Business Combinations, management
performed a review for other intangible assets
acquired as part of the acquisition, treating the
remaining excess of purchase consideration over the
identifiable net assets acquired as goodwill. This is
significant to our audit because it resulted in the
recognition of goodwill and capitalised software
development costs.
This has been identified as a key audit matter because
of the significance of the transaction and the
management judgements involved in estimating fair
values.
Reading the purchase and sales agreement to
understand the terms and conditions of the
acquisition and evaluating management’s
application of the relevant accounting
standards;
Evaluating the assumptions and methodology
in management's determination of the fair
value of assets and liabilities acquired;
Obtaining a copy of the external valuation
report to critically assess the determination
of fair values of the identifiable intangibles
assets associated with the acquisition;
Reviewing the Company’s discounted cash
flow model used to assess the carrying value
of goodwill.
Capitalisation of software development costs
Key audit matter
How the matter was addressed in our audit
As disclosed in Note 16, the Group capitalised software
Our audit procedures to address the key audit matter
development in the statement of financial position.
included the following:
The capitalisation of software development costs was a
Evaluating the key assumptions made in
key audit matter due to the significance of the balance
capitalising development costs, including an
and the judgement involved in assessing whether the
assessment of whether capitalised costs
criteria set out in AASB 138 Intangible Assets for
related to the development phase of the
capitalisation of such costs have been met and the
project and the generation of probable
useful life appropriately determined.
future economic benefits;
Agreeing payroll costs capitalised to
supporting payroll records and assessing the
determination as to whether the capitalised
costs relate to development activities;
Evaluating the Company’s assessment of the
useful life of the software development
assets.
Remeasurement of payables
Key audit matter
How the matter was addressed in our audit
As disclosed in Note 7, the Group derecognised
Our audit procedures to address the key audit matter
liabilities and recorded them as other income in profit
included the following:
or loss.
Assessing the Group’s policy for identifying
We considered this issue to be a key audit matter due
liabilities to be derecognised, including
to the significance of the balance reported as other
considering the criteria for derecognition
income and the extent to which management
under AASB 9 Financial Instruments.
judgements and estimates determine the value to be
derecognised.
Testing a sample of liabilities derecognised
to ensure they are in line with the policy and
the requirements of AASB 9.
Other information
The directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 31 December 2018, but does not include
the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 11 to 18 of the directors’ report for the
year ended 31 December 2018.
In our opinion, the Remuneration Report of engage:BDR Limited, for the year ended 31 December 2018,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
BDO East Coast Partnership
James Mooney
Partner
Melbourne, 29 March 2019
engage:BDR Limited
Shareholder information
31 December 2018
The shareholder information set out below was applicable as at 27 March 2019.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
First Round Capital LLC
Mr Kenneth Kwan
Mr Kurtis Rintala
Comsec Nominees Pty Ltd
Argon Adtech Group
Mr Abdulaziz Saleh Alrajhi
Netshare Nominees Pty Ltd
Run Capital Limited
Citicorp Nominees Pty Limited
Pershing Australia Nominees Pty Ltd (Accum A/C)
Ms Lay Kheng Ong
CMC Market Stockbroking Nominees Pty Limited (Accum A/C)
CST Capital Pty Ltd (CST Investments Fund A/C)
Mr Anthony Collet
BNP Paribas Nominees Pty Ltd (IB AU Noms Retailclient DRP)
Mr Jason Steingold
Mr Ninoslav Zmijanjac
Dr David James Walland
Rylet Pty Ltd
State One Nominees Pty Ltd (Accumulation A/C)
70
Number
of holders
of options
over
ordinary
shares
Number
of holders
of ordinary
shares
43
58
252
881
322
1,556
444
-
233
321
287
47
888
-
Ordinary shares
Number held
% of total
shares
issued
57,681,498
52,529,242
36,717,391
21,356,068
15,210,302
9,341,647
6,944,282
6,518,789
6,005,601
4,996,195
4,200,000
3,823,420
3,000,000
3,000,000
2,997,319
2,931,470
2,693,290
2,633,801
2,600,000
2,517,115
247,697,430
13.77
12.54
8.76
5.10
3.63
2.23
1.66
1.56
1.43
1.19
1.00
0.91
0.72
0.72
0.72
0.70
0.64
0.63
0.62
0.60
59.13
engage:BDR Limited
Shareholder information
31 December 2018
Mr Colin Richard Korn
Mr Christopher John Girling and Ms Yvette Louise Clark (Moloscyg Superannuation A/C)
Clarksons Boathouse Pty Ltd (Clarkson Super Fund A/C)
Mr Girish Mallesara Hiriyannagowda
Taos Pty Ltd (Geilings & Co Pty Super A/C)
Wine Guru Australia Pty Ltd (Donela Family A/C)
Sean Anthony Mulligan + Anya Rebecca Mulligan (S & A Mulligan Super A/C)
Mr Luke Steven Schembri
Michael James Dixon
Conrad Joseph Lawrence Goodger
Comsec Nominees Pty Limited
J P Morgan Nominees Australia Pty Limited
Dr David James Walland
Mr John Louis Sultana
Mr Jeffrey William Cozens
Bellaire Capital Pty Ltd (Bellaire Capital Invest A/C)
Mr Ernie Aljin Abella
Mr John Anthony Thomas
Mr Hazim Ejaz
Ajava Holdings Pty Ltd
Unquoted equity securities
Unlisted convertible notes
Unlisted options over ordinary shares issued
The following persons hold 20% or more of unquoted equity securities:
Options over ordinary shares
Number held
% of total
options
issued
1,394,951
1,200,000
1,075,000
990,734
877,682
829,374
800,000
750,000
711,706
705,000
682,447
675,000
575,000
552,625
444,444
426,350
358,429
326,000
300,000
290,000
4.81
4.14
3.71
3.42
3.03
2.86
2.76
2.59
2.45
2.43
2.35
2.33
1.98
1.91
1.53
1.47
1.24
1.12
1.03
1.00
13,964,742
48.16
Number
on issue
Number
of holders
35,000
8,676,093
1
1
Name
CST Investments Fund
CST Investments Fund
Class
Unlisted convertible notes
Unlisted options over ordinary shares issued
Number held
35,000
8,676,093
Substantial holders
Substantial holders in the company are set out below:
First Round Capital LLC
Mr Kenneth Kwan
Mr Kurtis Rintala
71
Ordinary shares
Number held
57,681,498
52,529,242
36,717,391
% of total
shares
issued
13.77
12.54
8.76
engage:BDR Limited
Shareholder information
31 December 2018
Voting rights
The voting rights attached to ordinary shares are set out below:
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have
one vote.
There are no other classes of equity securities.
Securities subject to voluntary escrow
Class
Fully paid ordinary shares
Listed options (exercisable at $0.25)
Expiry date
14 December 2019
11 December 2020
Number
of shares
73,464,065
5,000,000
78,464,065
Consistency with business objective - ASX Listing Rule 4.10.19
In accordance with Listing Rule 4.10.19, the Group states that it has used the cash and assets in a form readily convertible to cash in a
way consistent with its business objective as disclosed in the Prospectus dated 8 September 2017 and Replacement Prospectus dated
15 September 2017.
Annual General Meeting
Engage:BDR Limited advises that its Annual General Meeting will be held on Wednesday 29 May 2019. The time and other details
relating to the meeting will be advised in the Notice of Meeting to be sent to all Shareholders and released to ASX immediately upon
despatch.
Corporate Governance Statement
The Company’s 2018 Corporate Governance Statement has been released to ASX on this day and is available on the Company’s
website at: https://engagebdr.com/investor-center/board-management-and-corporate-governance/
72