ENGAGE:BDR LIMITED
ACN 621 160 585
ANNUAL REPORT - 31 DECEMBER 2019
engage:BDR Limited
Contents
31 December 2019
Corporate directory
Directors' report
Auditor's independence declaration
Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Directors' declaration
Independent auditor's report to the members of engage:BDR Limited
Shareholder information
2
3
22
23
24
25
26
27
52
53
60
1
engage:BDR Limited
Corporate directory
31 December 2019
Directors
Mr Ted Dhanik
Mr Kurtis Rintala
Mr Tom Anderson
Mr Darian Pizem
Mr Robert Antulov
Company secretary
Ms Melanie Leydin
Registered office
Principal place of business
Scottish House
Level 4
90 William Street
Melbourne Victoria 3000
Australia
8439 W Sunset Boulevard
Suite 302
West Hollywood
California 90069
USA
Share register
Auditor
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford, VIC 3067
Telephone: +61 3 9415 5000
Fax: +61 3 9473 2500
William Buck Audit (Vic) Pty Ltd
Level 20, 181 William 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 2019 Corporate Governance Statement has been released to ASX
on 20 March 2020 and is available on the Company's website.
2
engage:BDR Limited
Directors' report
31 December 2019
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 2019 (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 Darian Pizem (Non-Executive Director)
Mr Robert Antulov (Non-Executive Director)
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 $1,343,429 (31 December 2018: loss of
$10,840,198).
Non-programmatic display advertising sales
The Group’s non-progammatic display advertising sales was 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 was discontinued in
2019. The Group notes that this part of the Group’s revenue stream was planned to and has ceased to continue 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 the move to a fully automated operation
during 2020.
Programmatic display, native and video advertising sales
The Group’s Programmatic advertising sales includes selling display, native and video 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. The adoption of programmatic display advertising sales has
proven to be extremely successful in 2019 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.
The Group’s 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 salespeople, 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.
3
engage:BDR Limited
Directors' report
31 December 2019
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 mobile or CTV app content 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 video advertising sales
The Group’s non-programmatic video advertising sales included selling video inventory through tag-based technology to
direct advertisers, platforms and marketplaces. The Group 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. Management notes that the programmatic video sales has eclipse the non-
programmatic video revenue stream, as planned, in 2019. As a result, the non-programmatic video revenue stream has been
discontinued.
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 2019. The Group brought in incremental revenue
through this platform and further diversification of the Group’s product and service offering. With Instagram influencers,
TikTok, YouTube, Facebook and SnapChat becoming extremely popular, new marketing channels for advertisers and
platform efficiencies are required to scale this new form of media. IconicReach, engage:BDR’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 2020.
Mobile and Connected Television (CTV) App Ads
The Group expects to grow mobile and CTV app (AdCel) ad revenues significantly in 2020. This revenue is no longer
dependent on third party technologies compared with prior mobile and CTV app advertising revenues because of the Group’s
acquisition of AdCel in 2018. As the supply and demand partnerships are integrated by the engineering teams, the revenue
is expected to steadily grow throughout the year. AdCel is focused on boarding significant volumes of new app publishers,
primarily through the Group’s NetZero payments product, which enables publisher payments the same day the Group is
invoiced.
Significant changes in the state of affairs
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 29 January 2019, the Company issued:
●
●
●
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 26 January 2022.
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.
4
engage:BDR Limited
Directors' report
31 December 2019
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.
On 8 March 2019, the Company issued the following:
●
●
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.
On 2 April 2019, the Company issued the following:
●
●
●
●
800,000 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 30 January 2020. The Notes are convertible at the lesser of:
- 92% of the lowest daily VWAP during the five trading days prior to the date of a conversion notice in respect to those
Series 2 Notes being given to the Company, rounded down to the nearest $0.001; and
- 130% of the five day VWAP during the five trading days prior to the date of issue of the Notes.
3,300,034 fully paid ordinary shares with a deemed issue price of $0.015 (1.5 cents) per share, upon conversion of
35,000 unlisted Series 1 convertible notes;
10,889,034 fully paid ordinary shares with a deemed issue price of $0.031 (3.1 cents) per share, upon conversion of
240,000 unlisted Series 2 convertible notes;
14,959,756 fully paid ordinary shares with a deemed issue price of $0.041 (4.1 cents) per share in relation to settlement
of outstanding creditor balances.
On 5 April 2019, the Company issued 13,220,706 fully paid ordinary shares with a deemed issue price of $0.034 (3.4 cents)
per share, upon conversion of 320,000 unlisted Series 2 convertible notes.
On 8 April 2019, the Company issued the following:
5
engage:BDR Limited
Directors' report
31 December 2019
●
●
800,000 unlisted Series 3 convertible notes issued at $0.90 per Note with a face value of USD$1.00 per Note. Notes
are secured with a maturity date of 8 April 2020. The Notes are convertible at the lesser of:
- 92% of the lowest daily VWAP during the five trading days prior to the date of a conversion notice in respect of those
Series 3 Notes being given to the Company, rounded down to the nearest $0.001; and
- 130% of the five day VWAP during the five trading days prior to the date of issue of the Notes.
749,810 fully paid ordinary shares with a deemed price of $0.047 (4.7 cents) per share, for settlement of outstanding
liabilities.
On 17 April 2019, the Company announced that it has deployed Facebook advertising as part of its paid social strategy.
Advertisements on Facebook utilise users’ unique profiles as targeting metrics to allow brands to reach their most appropriate
potential customers. As announced on 11 February 2019, the Company targeted a launch in Q3 of this year for this product.
Management is pleased to report, that due to customer demand, the first phase of this product has gone live significantly
ahead of schedule.
On 18 April 2019, the Company issued the following:
●
●
●
7,504,000 fully paid ordinary shares with a deemed issue price of $0.039 (3.9 cents) per share, upon conversion of
140,000 unlisted Series 2 convertible notes and 70,000 unlisted Series 3 convertible notes;
1,136,945 fully paid ordinary shares with a deemed issue price of $0.049 (4.9 cents) per share in relation to settlement
of outstanding liabilities;
15,602,041 fully paid ordinary shares with a deemed issue price of $0.049 (4.9 cents) per share in relation to settlement
of outstanding creditor balances.
On 23 April 2019, the Company announced that IconicReach has expanded its influencer marketing to the video sharing
app, TikTok. IconicReach will be starting its first TikTok campaign with influencers in the music space, with the intent of
creating a viral dance contest by well-known artists.
On 7 May 2019, the Company issued the following:
●
●
6,241,616 fully paid ordinary shares with a deemed issue price of $0.039 (3.9 cents) per share, upon conversion of
170,000 unlisted Series 3 convertible notes;
19,165,736 fully paid ordinary shares with a deemed issue price of $0.042 (4.2 cents) per shares, in relation to
settlement of outstanding creditors and liability balances.
On 17 May 2019, the Company issued 7,255,000 fully paid ordinary shares with a deemed issue price of $0.028 (2.8 cents)
per share, upon conversion of 70,000 unlisted Series 2 convertible notes and 70,000 unlisted Series 3 convertible notes.
On 31 May 2019, the Company issued the following:
●
●
8,967,567 fully paid ordinary shares with a deemed issue price of $0.03 (3 cents) per share, upon conversion of 185,000
unlisted Series 3 convertible notes;
8,607,926 fully paid ordinary shares with a deemed issue price of $0.042 (4.2 cents) per share, in relation to settlement
of outstanding creditor balances.
On 14 June 2019, the Company issued the following:
●
●
4,382,407 fully paid ordinary shares with a deemed issue price of $0.033 (3.3 cents) per share, upon conversion of
30,000 unlisted Series 2 convertible notes and 70,000 unlisted Series 3 convertible notes;
8,563,860 fully paid ordinary shares with a deemed issue price of $0.038 (3.8 cents) per share, in relation to settlement
of outstanding creditor balances.
On 10 July 2019, the Company issued 8,399,240 fully paid ordinary shares for settlement of creditor balances and settlement
of outstanding liabilities at a deemed issue price of $0.043 (4.3 cents) per share.
On 9 August 2019, the Company issued the following:
●
●
9,767,745 fully paid ordinary shares with a deemed issue price of $0.034 (3.4 cents) per share, in relation to settlement
of outstanding creditor balances;
3,038,854 fully paid ordinary shares with a deemed issue price of $0.034 (3.4 cents) per share, in relation to settlement
of employee bonuses.
6
engage:BDR Limited
Directors' report
31 December 2019
On 30 August 2019, the Company issued 12,397,104 fully paid ordinary shares for settlement of outstanding creditor
balances at a deemed issue price of $0.03 (3 cents) per share.
On 23 September 2019, the Company announced an agreement with Alto Opportunity Master Fund SPC - Segregated
Master Portfolio B ("Alto") for the issue of zero coupon convertible amortising securities ("ZCSs").
The Agreement is structured as an initial drawdown (tranche) with the potential for a further 7 drawdowns. If the conditions
for all 7 subsequent tranches to be drawn down are satisfied (including the Investor agreeing to proceed with the individual
tranches – see further below), the total potential face value amount would be US$30.9 million and the aggregate issue price
before costs would be approximately US$26.25 million assuming the initial drawdown is US$1,750,000.
On 25 September 2019, the Company issued the following:
●
●
●
28,500,000 fully paid ordinary shares at a deemed issue price of $0.025 (2.5 cents) per share to Alto in accordance
with the Convertible Securities Purchase Agreement;
13,750,000 unlisted options exercisable at $0.026 (2.6 cents) expiring on 30 September 2022. The options were vested
immediately on issue;
Unlisted ZCS issued at USD$1,750,000 at a face value of USD$2,060,000. The ZCS is secured, with a maturity date of
30 November 2020.
On 7 November 2019, the Company issued 10,391,461 fully paid ordinary shares for settlement of outstanding creditor
balances at a deemed issue price of $0.027 (2.7 cents) per share.
On 22 November 2019, the Company issued 18,590,229 fully paid ordinary shares for settlement of outstanding creditor
balances at a deemed issue price of $0.021 (2.1 cents) per share.
On 20 December 2019, the Company issued the following:
●
●
31,967,080 fully paid ordinary shares with a deemed issue price of $0.022 (2.2 cents) per share, in relation to settlement
of outstanding creditor balances;
5,946,086 fully paid ordinary shares with a deemed issue price of $0.022 (2.2 cents) per share, in relation to settlement
of employee bonuses.
On 30 December 2019, the Company issued 33,858,947 fully paid ordinary shares for settlement of outstanding creditor
balances at a deemed issue price of $0.02 (2 cents) per share.
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 17 January 2020, the consolidated entity issued 26,975,464 fully paid ordinary shares (Collateral Shares) to Alto at a
deemed issue price of $0.017 (1.7 cents) per share.
On 3 March 2020, the consolidated entity issued 30,420,738 fully paid ordinary shares (Collateral Shares) to Alto at a deemed
issue price of $0.013 (1.3 cents) per share.
On 13 March 2020, the consolidated entity announced a drawdown of a zero coupon convertible amortising security ("ZCS")
with a face value of US$450,000 at an issue price of US$382,500. The ZCS was issued to Alto Opportunity Master Fund
SPC - Segregated Master Portfolio B pursuant to the purchase agreement for ZCS announced by the Company on 23
September 2019.
No other matter or circumstance has arisen since 31 December 2019 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.
7
engage:BDR Limited
Directors' report
31 December 2019
Likely developments and expected results of operations
Growth of programmatic and mobile app (AdCel) ad revenues the proprietary platforms
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 programmatic and mobile app (AdCel) ad revenues significantly in 2020. This
revenue is no longer dependent on third party technologies compared with prior video advertising revenues. In addition, the
gross margins expected to be achieved by the Group are likely to increase significantly as the Group is focused on the quality
of ad inventory, yielding the constant adjustments of costs of goods sold to publishers. In addition to the growth of the
programmatic and mobile app businesses 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, native and video revenue
The Group also expects to see continued growth of its programmatic display, native and video businesses. 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. 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, TikTok, Facebook,
YouTube and SnapChat influencers becoming extremely popular, new marketing channels for advertisers and platform
efficiencies are required to scale this new form of media. IconicReach, engage:BDR’s Instagram influencer full- and 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 2020.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State
law.
8
engage:BDR Limited
Directors' report
31 December 2019
Information on directors
Name:
Title:
Experience and expertise:
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
Other current directorships:
Former directorships (last 3 years): Nil
Interests in shares:
Interests in options:
Interests in rights:
57,681,498 fully paid ordinary shares
Nil
Nil
Name:
Title:
Experience and expertise:
Mr Kurtis Rintala
Co-Founder, Executive Director and Chief Operating Officer
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.
Other current directorships:
Nil
Former directorships (last 3 years): Nil
Interests in shares:
Interests in options:
Interests in rights:
36,717,391 fully paid ordinary shares
Nil
Nil
9
engage:BDR Limited
Directors' report
31 December 2019
Name:
Title:
Experience and expertise:
Mr Tom Anderson
Non-Executive Director
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.
Other current directorships:
Nil
Former directorships (last 3 years): Nil
Interests in shares:
Interests in options:
Interests in rights:
1,500,000 fully paid ordinary shares
Nil
Nil
10
engage:BDR Limited
Directors' report
31 December 2019
Name:
Title:
Experience and expertise:
Mr Darian Pizem
Non-Executive Director
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, performance equipment, 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.
Other current directorships:
Nil
Former directorships (last 3 years): Nil
Nil
Interests in shares:
Name:
Title:
Experience and expertise:
Mr Robert Antulov
Non-Executive Director
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
Other current directorships:
Former directorships (last 3 years): Director, Snakk Limited (NXT: SNK) - January 2016 to October 2018
665,500 fully paid ordinary shares
Interests in shares:
Nil
Interests in options:
'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.
11
engage:BDR Limited
Directors' report
31 December 2019
Company secretary
Ms. Melanie Leydin (appointed on 11 July 2019)
Ms Leydin has 25 years’ experience in the accounting profession including 13 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. She is
a Chartered Accountant and a Registered Company Auditor. Since February 2000, she has been the principal of Leydin
Freyer, specialising in outsourced company secretarial and financial duties.
Mr. Justin Mouchacca (resigned on 11 July 2019)
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.
Meetings of directors
The number of meetings of the company's Board of Directors ('the Board') held during the year ended 31 December 2019,
and the number of meetings attended by each director were:
Ted Dhanik
Kurtis Rintala
Tom Anderson
Darian Pizem
Robert Antulov
Full Board
Attended
Held
7
7
2
7
7
7
7
7
7
7
Held: represents the number of meetings held during the time the director held office.
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:
●
●
●
●
●
●
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
Share-based compensation
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
12
engage:BDR Limited
Directors' report
31 December 2019
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.
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.
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.
13
engage:BDR Limited
Directors' report
31 December 2019
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)
Robert Antulov (Non-Executive Director)
Youqi Li (Chief Technology Officer)
Andy Dhanik (Chief Revenue Officer)
Denys Kravchenko (Chief Technology Officer - AdCel)
Amounts of remuneration
Details of the remuneration of key management personnel of the Group are set out in the following tables.
Short-term benefits
Post-
employment
benefits
Defined-
Share-based
payments
Cash salary
and fees
$
Commission
/bonus (a)
$
Non-monetary
$
contribution
plan
$
Equity-settled
$
Total
$
64,015
40,000
58,599
-
-
-
337,789
337,789
340,664
-
241,483
251,545
264,775
1,595,995
-
-
-
340,664
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
64,015
40,000
58,599
678,453
337,789
87,228
150,243
43,614
281,085
328,711
401,788
308,389
2,217,744
2019
Non-Executive Directors:
Tom Anderson
Robert Antulov
Darian Pizem
Executive Directors:
Ted Dhanik (a)
Kurtis Rintala
Other Key Management
Personnel:
Youqi Li
Andy Dhanik (b)
Denys Kravchenko
(a) Bonus award of $340,664 to Mr. Ted Dhanik was made for 2019. This bonus was an offset against part of loan accounts.
Loan items were special exertions from the board to compensate the Executives for significantly reduced payroll in 2011
and 2013 and applied to outstanding loan balances with no cash paid.
(b) 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.
14
engage:BDR Limited
Directors' report
31 December 2019
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)
Short-term benefits
Post-
employment
benefits
Defined-
Share-based
payments
Cash salary
and fees
$
Commission
/bonus
$
Non-monetary
$
contribution
plan
$
Equity-settled
$
Total
$
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
-
-
-
-
-
-
-
-
36,828
40,326
1,973
4,822
657,379
620,761
491,604
1,853,693
(a) Mr McMenamin resigned on 30 October 2018
(b) Mr Phillips resigned on 23 November 2018.
(c) Mr Antulov was appointed on 23 November 2018.
(d) Mr Pizem was appointed on 30 October 2018.
(e) 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)
15
engage:BDR Limited
Directors' report
31 December 2019
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*
Andy Dhanik
Denys Kravchenko*
Fixed remuneration
2018
2019
STI - sales commission
Share based payments
2019
2018
2019
2018
100%
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
73%
63%
86%
-
48%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52%
-
27%
37%
14%
-
-
-
-
-
-
-
-
-
-
*
These employees are considered as key management personnel for 2019 financial year 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.
16
engage:BDR Limited
Directors' report
31 December 2019
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
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.
Youqi Li
Chief Technology Officer
27 August 2015
Ongoing
Mr Li receives an remuneration package including salary and pension of AUD$249,785
(USD$175,000) per annum. Payment of a benefit on early termination by the Group
without cause is equal to 2 months' base salary.
Notice period - 6 months
17
engage:BDR Limited
Directors' report
31 December 2019
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Andy Dhanik
Chief Revenue Officer
1 March 2014
Ongoing
Mr Dhanik receives an remuneration package including salary and pension of
AUD$249,785 (USD$175,000) per annum. Payment of a benefit on early termination
by the Group without cause is equal to 2 months' base salary.
Notice period - 6 months
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Denys Kravchenko
Chief Technology Officer (AdCel)
27 July 2018
Ongoing
Mr Kravchenko receives an remuneration package including salary and pension of
AUD$256,922 (USD$180,000) per annum. Payment of a benefit on early termination
by the Group without cause is equal to 2 months' base salary.
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
Notice period - 6 months
Share-based compensation
Issue of shares
Details of shares issued to directors and other key management personnel as part of compensation during the year ended
31 December 2019 are set out below:
Name
Date
Youqi Li
Youqi Li
Youqi Li
Andy Dhanik
Andy Dhanik
Andy Dhanik
Andy Dhanik
Andy Dhanik
Andy Dhanik
Andy Dhanik
Denys Kravchenko
Denys Kravchenko
Denys Kravchenko
7 May 2019
9 August 2019
20 December 2019
19 March 2019
8 April 2019
18 April 2019
7 May 2019
10 July 2019
9 August 2019
20 December 2019
7 May 2019
9 August 2019
20 December 2019
Deemed
Shares
Issue price
$AUD
681,857
868,244
1,321,353
680,072
449,886
426,354
511,393
335,970
651,183
1,321,353
340,929
434,122
660,673
$0.042
$0.034
$0.022
$0.031
$0.047
$0.049
$0.042
$0.043
$0.034
$0.022
$0.042
$0.034
$0.022
28,638
29,520
29,070
21,082
21,145
20,891
21,479
14,447
22,140
29,070
14,319
14,760
14,535
Options
There were no options over ordinary shares issued to directors and other key management personnel as part of
compensation that were outstanding as at 31 December 2019.
There were no options over ordinary shares granted to or vested by directors and other key management personnel as part
of compensation during the year ended 31 December 2019.
18
engage:BDR Limited
Directors' report
31 December 2019
Additional information
The earnings of the consolidated entity for the five years to 31 December 2019 are summarised below:
2019
$
2018
$
2017
$
2016*
$
2015*
$
Sales revenue
EBITDA Operating profit/(loss)
Loss before income tax expense
Loss after income tax expense
17,079,118 11,443,935 13,135,970 21,845,216 36,919,027
1,604,732
(2,491,012)
(3,302,832)
(1,343,429)
(3,302,832)
(1,343,429)
(6,286,229)
(10,839,127)
(10,840,198)
(7,098,066)
(9,583,419)
(10,566,001)
(1,455,961)
(2,927,728)
(3,671,811)
*
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:
Balance at Received
as part of
the start of
the year
remuneration Additions
Ordinary shares
Ted Dhanik
Kurtis Rintala
Tom Anderson
Robert Antulov
Youqi Li
Andy Dhanik
Denys Kravchenko
55,949,870
35,217,391
1,500,000
665,500
1,500,000
3,000,000
2,885,904
100,718,665
-
-
-
-
2,871,454
4,376,211
1,435,727
8,683,392
Balance at
the end of
the year
Disposals
-
-
-
-
-
-
-
-
- 55,949,870
- 35,217,391
1,500,000
-
665,500
-
4,371,454
-
3,196,211
(4,180,000)
(2,885,904)
1,435,727
(7,065,904) 102,336,153
Loans to key management personnel and their related parties
As at 31 December 2019 the Group recognised a loan receivable for funds payable by Mr Ted Dhanik (USD$1,191,163;
AUD$1,700,204) (2018: USD$1,313,754; AUD$1,864,598) and Mr Andy Dhanik (USD$65,277; AUD$93,173) (2018:
USD$71,060; AUD$100,855).
From 1 July 2019, Loans to directors and key management personnel were charged interest at a simple interest rate of 5%
per annum, calculated monthly. This interest rate is consistent with local interest rates charged for secured personal debt.
For the year ended 31 December 2019, loans given to Mr Ted Dhanik and Mr Andy Dhanik accrued an interest of
AUD$35,708 and AUD$1,815 respectively. The loans made to both directors and key management personnel are repayable
by 31 August 2020. These have been disclosed as current receivables. $1,267,785 outstanding loans are secured against
each individuals' shareholding and will be settled in cash. All loans were approved by the Board of Directors of the Group.
This concludes the remuneration report, which has been audited.
19
engage:BDR Limited
Directors' report
31 December 2019
Shares under option
Unissued ordinary shares of the Company under option at the date of this report are as follows:
Grant date
Expiry date
14 December 2017
8 March 2019
29 January 2019
25 September 2019
14 December 2020
22 December 2020
26 January 2022
30 September 2022
Exercise
price
Number
under option
$0.250 29,999,993
4,000,000
$0.250
$0.052
8,676,093
$0.026 13,750,000
56,426,086
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
2019 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
There were no non-audit services provided during the financial year by the current auditor.
Officers of the Company who are former partners of William Buck Audit (Vic) Pty Ltd
There are no officers of the Company who are former partners of William Buck Audit (Vic) Pty Ltd.
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.
20
engage:BDR Limited
Directors' report
31 December 2019
Restatement of prior year comparative balances
The settlement of amount owing to legacy creditors were previously disclosed as other income. This has been reclassified
as an offset against cost of sales in 2019 financial year. As such, the settlement amount of $3,264,585 were credited against
cost of sales in the statement of profit or loss and other comprehensive income. The comparative numbers have been
restated. $1,485,384 was credited against cost of sales and a corresponding adjustment was made to other income.
Rounding
All values in the Directors' report have been rounded off the dollar ($) 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
20 March 2020
21
AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE
CORPORATIONS ACT 2001 TO THE DIRECTORS OF ENGAGE:BDR LIMITED
I declare that, to the best of my knowledge and belief during the year ended 31 December
2019 there have been:
— no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
— no contraventions of any applicable code of professional conduct in relation to the
audit.
William Buck Audit (Vic) Pty Ltd
ABN 59 116 151 136
N.S. Benbow
Director
Melbourne, 20 March 2020
22
engage:BDR Limited
Statement of profit or loss and other comprehensive income
For the year ended 31 December 2019
Revenue from contracts with customers
Cost of sales
Other income
Expenses
Employee and contractor costs
Operations and administration expense
Advertising and marketing expense
Other expenses
Consolidated
Note
2019
$
2018
$
5
17,079,118 11,443,935
(5,632,553)
5,811,382
(7,794,937)
9,284,181
89,441
113,765
6
7
(2,684,608)
(4,891,711)
(109,301)
(83,270)
(5,997,039)
(5,391,180)
(269,667)
(553,490)
EBITDA Operating profit/(loss)
1,604,732 (6,286,229)
Depreciation and amortisation expense
Impairment losses
Share based payment expense
Finance costs
Loss before income tax expense
Income tax expense
(882,335)
(140,004)
(327,536)
(1,598,286)
(2,615,491)
(1,290,445)
(284,281)
(362,681)
(1,343,429)
(10,839,127)
-
(1,071)
Loss after income tax expense for the year attributable to the owners of
engage:BDR Limited
(1,343,429)
(10,840,198)
Other comprehensive loss
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
Other comprehensive loss for the year, net of tax
Total comprehensive loss for the year attributable to the owners of
engage:BDR Limited
(77,977)
(511,767)
(688,546)
(313,039)
(766,523)
(824,806)
(2,109,952)
(11,665,004)
Cents
Cents
Basic loss per share
Diluted loss per share
24
24
(0.26)
(0.26)
(4.03)
(4.03)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
23
engage:BDR Limited
Statement of financial position
As at 31 December 2019
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Investments in equity instruments
Prepaid expenses
Related party receivables
Other assets
Total current assets
Non-current assets
Investments in equity instruments
Property, plant and equipment
Right-of-use assets
Capitalised software costs
Goodwill
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Employee benefits
Contract liabilities
Total current liabilities
Non-current liabilities
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets/(liabilities)
Equity
Issued capital
Share based payment reserve
Equity investment reserve
Foreign currency translation reserve
Accumulated losses
Total equity/(deficiency)
Consolidated
Note
2019
$
2018
$
8
9
20
10
1,831,673
5,786,531
51,692
392,622
2,311,510
1,383,616
11,757,644
320,276
2,026,138
114,314
281,831
2,229,032
-
4,971,591
-
268,811
401,619
3,032,083
1,468,517
5,171,030
50,640
299,497
-
2,519,265
1,455,522
4,324,924
11
12
16,928,674
9,296,515
13
14
5,896,438 12,447,393
2,598,440
6,791,258
292,285
222,218
52,410
-
409,074
81,518
12,991,432 15,799,602
29,572
29,572
105,760
105,760
13,021,004 15,905,362
3,907,670
(6,608,847)
15
35,582,304 20,025,656
3,533,918
(2,363,366)
(98,761)
(27,706,294)
603,739
(2,441,343)
(787,307)
(29,049,723)
3,907,670
(6,608,847)
The above statement of financial position should be read in conjunction with the accompanying notes
24
engage:BDR Limited
Statement of changes in equity
For the year ended 31 December 2019
Consolidated
Issued
capital
$
Share based
payment
reserve
$
Equity
investment
reserve
$
Foreign
currency
translation
reserve
$
Accumulated
losses
$
Total
deficiency in
equity
$
Balance at 1 January 2018
15,665,594
3,533,918
-
214,278
(18,717,695)
696,095
Adjustment for change in
accounting policy
Balance at 1 January 2018 -
restated
Loss after income tax expense
for the year
Other comprehensive income
for the year, net of tax
Total comprehensive income for
the year
Transactions with owners in
their capacity as owners:
Contributions of equity, net of
transaction costs (note 15)
-
-
(1,851,599)
-
1,851,599
-
15,665,594
3,533,918
(1,851,599)
214,278
(16,866,096)
696,095
-
-
-
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)
Consolidated
Issued
capital
$
Share based
payment
reserve
$
Equity
investment
reserve
$
Foreign
currency
translation
reserve
$
Accumulated
losses
$
Total equity
$
Balance at 1 January 2019
20,025,656
3,533,918
(2,363,366)
(98,761)
(27,706,294)
(6,608,847)
Loss after income tax expense
for the year
Other comprehensive income
for the year, net of tax
Total comprehensive income for
the year
Transactions with owners in
their capacity as owners:
Contributions of equity, net of
transaction costs (note 15)
Share-based payments (note
25)
Transfer of legacy investor
options to issued capital
-
-
-
12,334,314
-
-
-
-
-
292,155
3,222,334
(3,222,334)
-
-
(1,343,429)
(1,343,429)
(77,977)
(688,546)
-
(766,523)
(77,977)
(688,546)
(1,343,429)
(2,109,952)
-
-
-
-
-
-
-
-
-
12,334,314
292,155
-
Balance at 31 December 2019
35,582,304
603,739
(2,441,343)
(787,307)
(29,049,723)
3,907,670
The above statement of changes in equity should be read in conjunction with the accompanying notes
25
engage:BDR Limited
Statement of cash flows
For the year ended 31 December 2019
Cash flows from operating activities
Loss before income tax expense for the year
Adjustments for:
Depreciation and amortisation
Share-based payments
Impairment losses
Accrued finance charges
Executive bonuses used to offset related party debt
Interest income from related party debt
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in prepayments
Decrease in trade and other payables
Increase in contract liabilities
Finance charges paid
Income taxes paid
Net cash used in operating activities
Cash flows from investing activities
Proceeds from release of security deposits
Purchase of property, plant and equipment
Capitalised software development
Loans to related parties (shareholders)
Acquisition of subsidiary - cash acquired
Net cash used in investing activities
Cash flows from financing activities
Proceeds from capital raises
Cost of capital raise
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liabilities
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Consolidated
Note
2019
$
2018
$
(1,343,429)
(10,839,127)
882,335
327,536
140,004
1,598,286
337,127
(78,285)
2,615,491
712,205
1,290,445
362,681
679,929
(63,025)
1,863,574
(5,241,401)
(3,760,393)
(174,922)
(1,045,034)
81,518
852,300
276,958
(4,235,367)
-
(3,035,257)
(754,997)
-
(8,347,510)
(245,723)
(1,071)
(3,790,254)
(8,594,304)
28,567
-
(1,471,447)
(337,503)
-
-
(42,910)
(405,829)
(329,432)
115,120
(1,780,383)
(663,051)
702,784
(8,222)
8,092,379
(1,336,444)
(357,165)
2,211,700
(120,000)
1,150,983
(87,138)
(693,846)
7,093,332
2,461,699
1,522,695
320,276
(11,298)
(6,795,656)
7,274,894
(158,962)
15
Cash and cash equivalents at the end of the financial year
8
1,831,673
320,276
The above statement of cash flows should be read in conjunction with the accompanying notes
26
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 1. General 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)
and AdCel LLC collectively referred to as ‘the Group’ or ‘engage:BDR’. The financial report is for the year ended 31 December
2019 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 Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered
office and principal place of business are:
Registered office
Scottish House
Level 4
90 William Street
Melbourne Victoria 3000
Australia
Principal place of business
8439 W Sunset Boulevard
Suite 302
West Hollywood
California 90069
USA
A description of the nature of the Group's operations and its principal activities are included in the Directors' report, which is
not part of the financial report.
The financial statements were authorised for issue, in accordance with a resolution of directors, on 20 March 2020. The
directors have the power to amend and reissue the financial statements.
Note 2. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective
notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated.
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 derivative financial liabilities at fair value through profit or loss.
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 3.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only.
Supplementary information about the parent entity is disclosed in note 21.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of engage:BDR Limited
('company' or 'parent entity') as at 31 December 2019 and the results of all subsidiaries for the year then ended. engage:BDR
Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'.
27
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity 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.
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.
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.
Going concern
The financial report has been prepared on a going concern basis, which takes into account the net current liabilities of
$1,233,788 and negative operating cash flows of $3,790,254 for the year ended 31 December 2019.
These conditions give rise to a material uncertainty that may cast significant doubt about the group’s ability to continue as a
going concern.
During the year ended 31 December 2019, the Group improved its net asset position by settling legacy creditors by a way of
share issues. The Group also raised additional working capital through a share purchase plan from existing professional and
sophisticated investors and zero coupon convertible amortising securities ("ZCSs") (Refer to note 14). As at the date of this
report the directors have assessed that the Group continues to comply with the covenants set under its financing
arrangements with its debtor factoring facility and those set by Alto Capital.
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 2020 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 settle ZCS note and outstanding creditors via share issue, instead of cash payments;
Repayment of some or all of secured related party loan receivables;
The Group’s ability, if required, to seek the support from its founders and major shareholders for the further injection of
capital; and
Its ability to exercise control over discretionary operational cash outflows.
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.
28
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
Foreign currency translation
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 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.
Foreign currency 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).
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.
New standards, interpretations and amendments adopted by the Group
AASB 16 Leases
AASB 16 is applicable for annual reporting periods commencing on or after 1 January 2019. As from 1 January 2019, the
Group has adopted AASB 16 in respect to Leases. AASB 16 supersedes AASB 117 Leases and eliminates the classifications
of operating leases and finance leases. Subject to exceptions, a ‘Right-of-Use’ asset and a related lease liability will be
recognised in the statement of financial position at the commencement date of a lease. The right-of-use asset is measured
at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or
before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where
included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying
asset, and restoring the site or asset. The lease liability is initially recognised at the present value of the non-cancellable
lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate
cannot be readily determined, the consolidated entity’s incremental borrowing rate. Lease payments comprise of fixed
payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected
to be paid under residual value guarantees, exercise price of a purchase option when exercise of the option is reasonably
certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or
a rate are expensed in the period in which they are incurred. The exceptions to AASB 16 relate to short-term leases of 12
months or less and leases of low-value assets (such as personal computers and small office furniture), where an accounting
choice exists whereby either a right-of-use asset is recognised or lease payments are expensed to profit or loss as incurred.
29
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 2. Significant accounting policies (continued)
The unwind of the financial charge on the lease liability and the depreciation of the leased asset are recognised in the
statement of comprehensive income. Expenses in respect of leases include depreciation of the right-of-use and interest
expense in respect of the lease liability. Right-of-use assets are depreciated on a straight-line basis over the unexpired period
of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain
ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use
assets are subject to impairment or adjusted for any premeasurement of lease liabilities. Lease liabilities are measured at
amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following:
future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a
purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding
right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.
The Group has applied the modified retrospective method of adoption with the date of initial application at 1 January 2019,
and therefore the comparative information has not been restated and continues to be reported under the preceding standard,
AASB 117. On transition to AASB 16, the Group recognised an additional $281,229 of right-of-use assets and $281,229 of
lease liabilities. The Group has recognised a depreciation charge during the period of $64,515 in relation to depreciation of
the right-of-use asset, and additional finance costs of $5,324 due to interest expense on the lease liability.
When measuring lease liabilities, the Group discounted the lease payments using an estimated incremental borrowing rate
date of initial application of AASB 16. The rate applied was 5.50%.
AASB Interpretation 23 Uncertainty over Income Tax Treatments
Interpretation 23 requires the assessment of whether the effect of uncertainty over income tax treatments should be included
in the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The
Interpretation outlines the requirements to determine whether an entity considers uncertain tax treatments separately, the
assumptions an entity makes about the examination of tax treatments by taxation authorities, ho w an entity determines
taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and how an entity considers changes
in facts and circumstances.
The Group has adopted Interpretation 23 from 1 January 2019, based on an assessment of whether it is ‘probable’ that a
taxation authority will accept an uncertain tax treatment. This assessment takes into account that for certain jurisdictions in
which the Group operates, a local tax authority may seek to open a company’s books as far back as inception of the Group.
Where it is probable, the Group has determined tax balances consistently with the tax treatment used or planned to be used
in its income tax filings. Where the Group has determined that it is not probable that the taxation authority will accept an
uncertain tax treatment, the most likely amount or the expected value has been used in determining taxable balances
(depending on which method is expected to better predict the resolution of the uncertainty). There has been no impact from
the adoption of Interpretation 23 in this reporting period.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory,
have not been early adopted by the Group for the annual reporting period ended 31 December 2019. The Group has not yet
assessed the impact of these new or amended Accounting Standards and Interpretations.
Note 3. Critical accounting judgements, estimates and assumptions
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.
30
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 3. Critical accounting judgements, estimates and assumptions (continued)
Classification of settlement of amount owing to creditors
The settlement of amount owing to legacy creditors were previously disclosed as other income. This has been reclassified
as an offset against cost of sales in 2019 financial year. As such, the settlement amount of $3,264,585 were credited against
cost of sales in the statement of profit or loss and other comprehensive income. The comparative numbers have been
restated. $1,485,384 was credited against cost of sales and a corresponding adjustment was made to other income.
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity
instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes
model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and
assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and
liabilities within the next annual reporting period but may impact profit or loss and equity.
Capitalisation of software costs
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.
Allowance for expected credit losses
The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the
lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit
loss rate for each group. These assumptions include recent sales experience and historical collection rates. The
recoverability of related party loans are also assessed. The balances are being paid down in accordance with the terms and
conditions. The loans are secured against each individuals' shareholding.
Goodwill
The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill
has suffered any impairment, in accordance with the accounting policy stated in note 12. The recoverable amounts of cash-
generating units have been determined based on fair value less costs approach, by comparing of the market capitalisation
of the Group to its net assets, adjusted for control premium.
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.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future
taxable amounts will be available to utilise those temporary differences and losses. The directors have determined that the
losses to date do not validate the requirement to book any DTA for carry forward losses and will consider the recognition of
DTAs in future periods.
31
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 3. Critical accounting judgements, estimates and assumptions (continued)
Valuation of embedded derivatives on convertible notes
The Group entered into an agreement with Alto Opportunity Master Fund SPC - Segregated Master Portfolio B ("Alto") for
the issue of zero coupon convertible amortising securities ("ZCSs"). The fair value of the embedded derivative was
determined in line with AASB 132 and AASB 9. The future share price of the Group was projected using a Geometric
Brownian Motion model for each possible trading day of the amortisation period, with the volatility of each step representing
the daily volatility of the Group's share price over the last year from the valuation date.
A Monte Carlo simulation of 40,000 simulations was conducted for the Geometric Brownian Motion model to obtain theoretical
share prices for each amortisation period. This was used to determine the Conversion Discount between the closing share
price and the conversion price. The average Conversion Discount represents the fair value of the embedded derivative.
Note 4. Operating segments
In previous year the Group had assessed its operations to comprise of two reportable segments – being programmatic and
collaborative marketing 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 collaborative marketing) they have been combined and shown together (refer note 5).
Geographic information
Australia
United State of America
Other*
Consolidated
2019
$
2018
$
438
365
15,994,144 10,640,639
802,931
1,084,536
Total revenue from contract with customers
17,079,118 11,443,935
*
No other single country represents greater than 10% of the Group’s total revenue.
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
Consolidated
2019
$
2018
$
14,349,414
8,959,984
Accounting policy for operating segments
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.
Note 5. Revenue from contracts with customers
Revenue from contracts with customers - Rendering of services
17,079,118 11,443,935
Consolidated
2019
2018
32
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 5. Revenue from contracts with customers (continued)
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
Programmatic
Collaborative marketing
Geographical regions
Australia
United States of America
Other*
Consolidated
2019
$
2018
$
16,429,753
649,365
9,899,458
1,544,477
17,079,118 11,443,935
438
365
15,994,144 10,640,639
802,931
1,084,536
Timing of revenue recognition
Services rendered at a point in time
*No other single country represents greater than 10% of the Group’s total revenue.
Accounting policy for revenue from contracts with customers
17,079,118 11,443,935
17,079,118 11,443,935
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.
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
33
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 5. Revenue from contracts with customers (continued)
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.
Note 6. Employee and contractor costs
Salary costs
Defined contribution plan (401(k))
Other payroll-related expenses
Total employee and contractor costs
Accounting policy for employee benefits
Consolidated
2019
$
2018
$
2,747,590
2,336
(65,318)
5,609,135
39,054
348,850
2,684,608
5,997,039
Wages and salaries, vested 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.
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.
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.
34
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 7. 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
Municipal and other taxes
Insurance expense
Other operations and administration expenses
Note 8. Current assets - cash and cash equivalents
Cash at bank
Consolidated
2019
$
2018
$
1,464,075
1,201,274
593,797
296,404
396,086
339,433
65,067
487,208
48,367
1,049,672
1,105,685
656,921
461,063
648,799
565,261
150,337
479,807
273,635
4,891,711
5,391,180
Consolidated
2019
$
2018
$
1,831,673
320,276
Accounting policy for cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
Note 9. Current assets - trade and other receivables
Trade receivables [1]
Less: Allowance for expected credit losses
Other receivables
Consolidated
2019
$
2018
$
6,230,040
(459,615)
5,770,425
2,387,919
(489,173)
1,898,746
16,106
127,392
5,786,531
2,026,138
[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 (refer note 14). 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.
35
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 9. Current assets - trade and other receivables (continued)
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 $4,213,186 (December 2018: $1,048,731). This arrangement has no expiration date with an interest
rate of 8.00%.
Allowance for expected credit losses
The ageing of the receivables and allowance for expected credit losses provided for above are as follows:
Consolidated
Not overdue
0 to 30 days
31 to 60 days
61 to 90 days
Over 91 days
Expected credit loss rate
2019
%
2018
%
Carrying amount
2018
$
2019
$
Allowance for expected
credit losses
2019
$
2018
$
1%
5%
15%
30%
68%
1%
5%
11%
30%
65%
4,018,586
1,690,047
10,231
34,433
476,743
1,532,827
82,235
41,950
49,365
681,542
40,186
84,502
1,535
10,330
324,185
15,328
4,112
4,615
14,810
443,002
6,230,040
2,387,919
460,738
481,867
The average age of the Group’s trade receivables is 133 days (2018: 173 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 customer base being large and unrelated. Accordingly, the Directors believe that there is no further provision
required in excess of the provision for doubtful debts
Movements in the allowance for expected credit losses are as follows:
Opening balance
Impairment recognised during the year
Amounts written off as uncollectible
Exchange difference
Closing balance
Consolidated
2019
$
2018
$
(489,173)
(321,205)
364,392
(13,629)
(340,655)
(461,063)
355,996
(43,451)
(459,615)
(489,173)
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.
Accounting policy for 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.
36
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 10. Current assets - other assets
Security deposits
Shares held in trust*
Consolidated
2019
$
2018
$
35,564
1,348,052
1,383,616
-
-
-
*Share held in trust refers to fully paid ordinary shares issued to a third party which is to be used for settlement of creditor
obligations of the Group.
Note 11. Non-current assets - capitalised software costs
Capitalised software costs
Less: Accumulated amortisation
Consolidated
2019
$
2018
$
7,628,752
(4,596,669)
6,158,244
(3,638,979)
3,032,083
2,519,265
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 January 2018
Additions
Additions through business combinations
De-recognition of ineligible projects
Exchange differences
Impairment of assets
Amortisation expense
Balance at 31 December 2018
Additions
Exchange differences
Amortisation expense
Balance at 31 December 2019
Capitalised
software
costs
$
Non-compete
clause
$
Total
$
3,543,983
585,277
1,142,040
(153,470)
326,532
(999,029)
(1,926,068)
2,519,265
1,461,157
4,124
(952,463)
3,032,083
429,777
-
-
-
-
(291,417)
(138,360)
-
-
-
-
-
3,973,760
585,277
1,142,040
(153,470)
326,532
(1,290,446)
(2,064,428)
2,519,265
1,461,157
4,124
(952,463)
3,032,083
Software 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 and 10 years, with a weighted average of 3 years (2018: 3 years). Impairment of capitalised software costs is
considered at each reporting period.
The review of the business did not identify any impairment of any intangible assets following consideration of indicators of
impairment under AASB 136. As at the year ended 31 December 2019, 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.
37
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 11. Non-current assets - capitalised software costs (continued)
Accounting policy for capitalised software 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 software costs are amortised on a straight-line basis over the period of their expected benefit, being their finite
life of 3- 10 years.
Note 12. Non-current assets - goodwill
Goodwill
Consolidated
2019
$
2018
$
1,468,517
1,455,522
In assessing for impairment, the Directors considered goodwill in the context of the Group having one cash-generating unit,
being Ad media. On that basis, they have assessed impairment applying the fair value less costs to sell method. In making
this assessment, the Directors note the following:
●
●
Market capitalisation of the group as at 31 December 2019 was $15,672,689.
20% control premium was factored into the analysis, then compared with net assets of $3,410,208.
It was concluded that the fair value less cost to sell was greater than the net assets in the cash generating unit, thus no
impairment was recognised for the year ending 31 December 2019.
Accounting policy for 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.
Note 13. Current liabilities - trade and other payables
Trade payables
Credit card liabilities
Accrued expenses
Accrued payroll liabilities
Bonus and commissions payable
Accrued municipal tax
Deferred consideration payable for acquisition of business
Consolidated
2019
$
2018
$
4,949,747
13,852
705,517
19,527
112,255
95,540
-
9,115,785
441,173
1,243,575
237,757
238,696
115,350
1,055,057
5,896,438 12,447,393
Refer to note 16 for further information on financial instruments.
Accounting policy for 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.
38
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 14. Current liabilities - borrowings
Debtor factoring borrowings
Convertible notes payable
Embedded derivative on convertible notes
Other borrowings
Consolidated
2019
$
2018
$
4,213,186
1,516,403
857,808
203,861
2,598,440
-
-
-
6,791,258
2,598,440
Refer to note 16 for further information on financial instruments.
On 23 September 2019, the Company entered into an agreement with Alto Opportunity Master Fund SPC – Segregated
Master Portfolio B (“the Investor”) for the issue of zero coupon convertible amortising securities (“ZCSs”), under an initial
drawdown and up to 7 further drawdowns.
On 25 September 2019 the Company undertook the initial drawdown of a ZCS with a face value of US$2,060,000
(approximately A$3,038,000 000 at the exchange rate at drawdown date) and an issue price of US$1,750,000 (approximately
A$2,580,000 at the exchange rate at drawdown date). The ZCS has a maturity of one year after drawdown.
On 25 September 2019, the Company issued 28.5 million new collateral shares to Alto as security for the ZCS.
During the half year ended, the Company made two instalment repayments of the ZCS, one by a cash payment of
US$176,817 (A$260,000) and one by a transfer of 16,372,594, from the balance of collateral shares, with a total value of
US$176,817 (A$295,000), based on a share allocation price equal to 85% of the average of the 2 lowest daily VWAPs for
the preceding 20 trading days.
During the period the Group issued convertible notes with conversion clauses that were variable. At initial recognition an
embedded derivative is recognised on the statement of financial position at fair value and that embedded derivative is
subsequently recorded at its fair value thereafter, with changes in fair value going through to the statement of profit or loss
and other comprehensive income. The difference between the consideration received (net of costs) and the embedded
derivative is reflected in the principal value of the convertible note liability. The underlying debt principal is amortised back to
its face value at maturity, net of transaction costs, using the effective interest rate method.
Note 15. Equity - issued capital
Consolidated
2019
Shares
2018
Shares
2019
$
2018
$
Ordinary shares - fully paid
712,394,973 288,604,744 35,582,304 20,025,656
39
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 15. Equity - issued capital (continued)
Movements in ordinary share capital
Details
Balance as at 1 January 2018
Shares issued to convertible note holders – principal and interest
Shares issued to convertible note holders – additional
Shares issued during capital raise, net of fees
Shares issued for consulting fees
Shares issued during Share Purchase Plan
Shares issued in relation to AdCel acquisition
Shares issued to AdCel executives
Share issued as collateral for Loan note
Balance as at 31 December 2018
Share issued for purchase plan
Shares issued as collateral for loan note
Shares issued to convertible note holders
Shares issued for consulting fees
Shares issued for outstanding creditors
Shares issued for AdCel acquisition
Shares issued for settlement of employee bonuses
Collateral shares exercised
Transfer from share based payment reserve
Cost of capital raising
Balance as at 31 December 2019
Shares
$
249,699,958 15,665,594
431,612
124,882
1,880,000
360,000
204,350
1,007,013
352,205
-
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 20,025,656
702,784
25,099,423
30,400,000
-
2,825,962
120,825,721
74,054
2,589,300
6,922,317
225,233,705
1,055,057
10,657,140
234,135
8,984,940
528,227
-
3,222,334
-
(8,222)
-
712,394,973 35,582,304
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion
to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company
does not have a limited amount of authorised capital.
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.
Share buy-back
There is no current on-market share buy-back.
Accounting policy for issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
Note 16. Financial instruments
Financial risk management objectives
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.
40
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 16. Financial instruments (continued)
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
Non-current portion of lease liability
Borrowings - due to factor - current
Borrowings - current
Convertible notes payable
Embedded derivative on convertible notes
Deferred payable
Total
Market risk
Consolidated
2019
$
2018
$
1,831,673
5,786,531
2,311,518
51,692
9,981,414
320,276
2,026,441
2,637,326
114,314
5,098,357
5,882,586 10,305,181
441,173
13,852
292,285
222,218
105,760
29,572
1,048,731
4,213,186
1,549,708
203,861
-
1,516,403
-
857,808
1,055,057
-
12,939,486 14,797,895
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.
With the exception of financial assets worth AUD$35,223 and financial liabilities worth AUD$2,887,568 denominated in $AUD
and other currencies, all other financial assets and liabilities of the Group were denominated in $USD.
There is no material sensitivity to the profit and loss arising from changes in foreign exchange rates, given translation
differences are accounted for in the foreign currency translation reserves.
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.
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 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 (refer note 20).
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.
41
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 16. Financial instruments (continued)
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.
2019
Fixed rate
Debtor factoring borrowings (a)
Convertible notes (b)
Drawn
$
Undrawn
$
Total
$
4,213,186
4,213,186
2,497,859 34,970,026 37,467,885
-
6,711,045 34,970,026 41,681,071
(a) 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. This arrangement
has no expiration date with an interest rate of 8.00%.
(b) Convertible notes were issued on 19 September 2019. Face value of drawn portion is US$2,060,000 (AU$2,940,336).
The face value of total undrawn is US$28,840,000 (AU$41,164,716). The convertible notes expire on 30 November
2020.
2018
Fixed rate
Loan Notes*
Convertible notes
Total
Drawn
$
Undrawn
$
Total
$
880,938
-
1,064,468
4,798,991
1,945,406
4,798,991
880,938
5,863,459
6,744,397
* 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. As of 31 December 2019 these have been fully
paid.
42
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 16. Financial instruments (continued)
(ii) Maturities of financial liabilities
The following table summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted
payments.
Consolidated - 2019
Less than 6
months
$
Between 6 to
12 months
$
Between 1
and 2 years
$
Between 2
and 3 years
$
Remaining
contractual
maturities
$
Trade and other payables
Credit card liabilities
Borrowings - Due to factor*
Convertible notes payable**
Borrowings (principal) - Promissory notes
Borrowings - Other
Total non-derivatives
5,882,586
13,852
4,216,126
1,424,527
55,349
148,512
11,740,952
-
-
-
949,684
-
-
949,684
-
-
-
-
-
-
-
5,882,586
-
13,852
-
4,216,126
-
2,374,211
-
55,349
-
148,512
-
- 12,690,636
*
**
Borrowings represent the advances recorded against certain receivables balances which are factored under the facility.
Convertible note balance comprised of the principal and interest payable the Group entered in on 19 September 2019.
The convertible note expires on 18 November 2020.
Consolidated - 2018
Between 6
Less than 6
months
$
and 12
months
$
Between 1
and 2 years
$
Between 2
and 3 years
$
Remaining
contractual
maturities
$
Trade and other payables
Credit card liabilities
Borrowings - Due to factor
Borrowings (principal) - Promissory notes
Loan notes
Deferred payable
Total non-derivatives
11,357,346
441,173
1,048,731
668,770
880,938
1,055,057
15,452,015
2,892
-
-
-
-
-
2,892
-
-
-
-
-
-
-
- 11,360,238
441,173
-
1,048,731
-
668,770
-
880,938
-
-
1,055,057
- 15,454,907
(iii) Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
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 has an ASX-imposed restriction of 15% of total share capital per annum on the amount of share capital it can
issue under a placement, which may be increased by a further 10% under a special resolution put to shareholders at its
general meetings.
Note 17. Fair value measurement
The Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest
level of input that is significant to the entire fair value measurement, being:
43
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 17. Fair value measurement (continued)
●
●
●
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly
Level 3: Unobservable inputs for the asset or liability
With the exception of embedded derivatives which is measured using level 2 inputs (refer note 3), all other major financial
assets and liabilities are measured using level 1 inputs.
Accounting policy for 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 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.
Note 18. Key management personnel disclosures
Directors
The following persons were directors of engage:BDR Limited during the financial year:
Mr Ted Dhanik (Executive Chairman and Chief Executive
Officer)
Mr Kurtis Rintala (Executive Director and Chief Operating
Officer)
Mr Tom Anderson (Non-Executive Director)
Mr Darian Pizem (Non-Executive Director)
Mr Robert Antulov (Non-Executive Director)
Other key management personnel
The following persons also had the authority and responsibility for planning, directing and controlling the major activities of
the consolidated entity, directly or indirectly, during the financial year:
Mr Youqi Li (Chief Technology Officer)
Mr Andy Dhanik (Chief Revenue Officer)
Mr Denys Kravchenko (Chief Technology Officer - AdCel)
44
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 18. Key management personnel disclosures (continued)
Compensation
The aggregate compensation made to directors and other members of key management personnel of the consolidated entity
is set out below:
Short-term employee benefits
Share-based payments
401(k) withholding
Note 19. Remuneration of auditors
Consolidated
2019
$
2018
$
1,936,659
281,085
-
1,851,883
-
1,810
2,217,744
1,853,693
During the financial year the following fees were paid or payable for services provided by William Buck Audit (Vic) Pty Ltd,
the auditor of the company:
Audit services - William Buck Audit (Vic) Pty Ltd (2018: BDO East Coast Partnership)
Audit or review of the financial statements
50,000
70,000
Consolidated
2019
$
2018
$
Note 20. Related party transactions
Parent entity
engage:BDR Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 22.
Key management personnel
Disclosures relating to key management personnel are set out in note 18 and the remuneration report included in the
directors' report.
Loans to/from related parties
The following balances are outstanding at the reporting date in relation to loans with related parties:
Beginning of the year
Loans advanced
Bonus awarded to key management personnel offset against loan balances
Interest charged
Exchange difference
45
Consolidated
2019
$
2018
$
2,229,032
337,503
(337,127)
78,285
3,817
2,277,582
329,432
(672,582)
63,025
231,575
2,311,510
2,229,032
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 20. Related party transactions (continued)
Terms and conditions
From 1 July 2019, Loans to directors and key management personnel were charged interest at a simple interest rate of 5%
per annum, calculated monthly. This interest rate is consistent with local interest rates charged for secured personal debt.
The loans made to both directors and key management personnel are repayable by 31 August 2020. These have been
disclosed as current receivables. $1,267,785 outstanding loans are secured against each individuals' shareholding and will
be settled in cash. All loans were approved by the Board of Directors of the Group .
Note 21. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Loss after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Share based payment reserve
Accumulated losses
Total equity/(deficiency)
Parent
2019
$
2018
$
(16,464,271)
(15,694,070)
(16,464,271)
(15,694,070)
Parent
2019
$
2018
$
48,244
192,541
6,795,238
192,541
2,887,568
2,209,371
2,887,568
2,209,371
35,582,304 13,485,689
311,583
(15,814,102)
603,739
(32,278,373)
3,907,670
(2,016,830)
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity had no guarantees in relation to the debts of its subsidiaries as at 31 December 2019 (2018: None).
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2019 (2018: None).
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2019 (2018: None).
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 2, except
for the following:
●
●
●
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
Investments in associates are accounted for at cost, less any impairment, in the parent entity.
Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an
indicator of an impairment of the investment.
46
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 22. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policy described in note 2:
Name
engage:BDR LLC
Tiveo LLC*
AdCel LLC
Principal place of business /
Country of incorporation
United States of America
United States of America
United States of America
Ownership interest
2018
2019
%
%
100%
100%
100%
100%
100%
100%
*
Tiveo LLC is a wholly owned subsidiary of engage:BDR LLC.
Note 23. Events after the reporting period
On 17 January 2020, the consolidated entity issued 26,975,464 fully paid ordinary shares (Collateral Shares) to Alto at a
deemed issue price of $0.017 (1.7 cents) per share.
On 3 March 2020, the consolidated entity issued 30,420,738 fully paid ordinary shares (Collateral Shares) to Alto at a deemed
issue price of $0.013 (1.3 cents) per share.
On 13 March 2020, the consolidated entity announced a drawdown of a zero coupon convertible amortising security ("ZCS")
with a face value of US$450,000 at an issue price of US$382,500. The ZCS was issued to Alto Opportunity Master Fund
SPC - Segregated Master Portfolio B pursuant to the purchase agreement for ZCS announced by the Company on 23
September 2019.
No other matter or circumstance has arisen since 31 December 2019 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.
Note 24. Earnings per share
Consolidated
2019
$
2018
$
Loss after income tax attributable to the owners of engage:BDR Limited
(1,343,429)
(10,840,198)
Weighted average number of ordinary shares used in calculating basic earnings per share
515,130,862 269,188,212
Weighted average number of ordinary shares used in calculating diluted earnings per share 515,130,862 269,188,212
Number
Number
Basic loss per share
Diluted loss per share
Accounting policy for earnings per share
Cents
Cents
(0.26)
(0.26)
(4.03)
(4.03)
Basic earnings per share
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.
47
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 24. Earnings per share (continued)
Diluted earnings per share
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 to
acquire ordinary shares, are considered non-dilutive and therefore not included in the diluted earnings per share calculation.
Note 25. Share-based payments
During the 2019 financial year, the Group issued the following share options:
●
●
●
8,676,093 unlisted options to corporate advisors exercisable at $0.052, expiring 29 January 2022. The options were
vested immediately on issue;
4,000,000 listed options as consideration for corporate advisory services, exercisable at $0.25 (25 cents ) per option by
22 December 2020. The options were vested immediately on issue;
13,750,000 unlisted options exercisable at $0.026 (2.6 cents) expiring on 30 September 2022. The options were vested
immediately on issue.
Set out below are summaries of options granted under the plan:
2019
Grant date
Expiry date
price
Exercise
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
14/12/2017
29/01/2019
08/03/2019
25/09/2019
14/12/2020
26/01/2022
22/12/2020
30/09/2022
-
$0.250 29,999,993
8,676,093
-
$0.052
-
$0.250
4,000,000
- 13,750,000
$0.026
29,999,993 26,426,093
Weighted average exercise price
$0.250
$0.068
2018
Grant date
Expiry date
price
Exercise
Balance at
the start of
the year
Granted
Exercised
14/12/2017
14/12/2020
$0.250
Weighted average exercise price
- 29,999,993
- 29,999,993
-
$0.250
Set out below are the options exercisable at the end of the financial year:
Grant date
Expiry date
14/12/2017
29/01/2019
08/03/2019
25/09/2019
14/12/2020
26/01/2022
22/12/2020
30/09/2022
-
-
-
-
-
-
-
-
-
- 29,999,993
8,676,093
-
-
4,000,000
- 13,750,000
- 56,426,086
-
$0.165
Expired/
forfeited/
other
Balance at
the end of
the year
- 29,999,993
- 29,999,993
-
$0.250
2019
2018
Number
Number
29,999,993 29,999,993
-
-
-
8,676,093
4,000,000
13,750,000
56,426,086 29,999,993
48
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 25. Share-based payments (continued)
For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the
grant date, are as follows:
Grant date
Expiry date
29/01/2019
08/03/2019
25/09/2019
26/01/2022
22/12/2022
30/09/2022
Share price Exercise
at grant date
price
Expected
volatility
Dividend
Risk-free
Fair value
yield
interest rate at grant date
$0.038
$0.019
$0.023
$0.052
$0.250
$0.026
-
-
-
-
-
-
-
-
-
$0.015
$0.001
$0.011
During the 2019 financial year, the Group issued fully paid ordinary shares to employees and contractors (refer note 15), the
spot price ranging between $0.021 (2.1 cents) and $0.051 (5.1 cents) was used to determine the equity value.
Accounting policy for 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 2019 as compensation and has issued shares to a third parties in lieu of services provided.
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 above.
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.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is
treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied
during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the
award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense
is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award
is treated as if they were a modification.
Note 26. Contingent assets and liabilities
The Directors are not aware of any contingent assets or contingent liabilities as at 31 December 2019 (2018: Nil)
Note 27. Changes to unaudited Preliminary Financial Report
On 28 February 2020, the Group released its unaudited preliminary financial report for the year ended 31 December 2019.
Upon finalisation of the audit, due to the complexity of the share facility, an adjustment has been made to increase shares
held in trust. Consequentially adjustments have been made to impairment losses and foreign currency translation reserve.
The Group also made an reallocation between right-of-use assets and property, plant and equipment.
The tables below summaries the impact to statement of profit or loss and other comprehensive income and statement of
financial position:
49
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 27. Changes to unaudited Preliminary Financial Report (continued)
Statement of profit or loss and other comprehensive income
(condensed)
Operating profit
Depreciation and amortisation expense
Impairment losses
Share based payment expense
Finance costs
Loss after income tax expense
Unaudited
Appendix 4E Adjustment final report
Audited
$
$
$
1,604,732
(882,335)
-
(327,536)
(1,598,286)
(1,203,425)
-
-
(140,004)
-
-
(140,004)
1,604,732
(882,335)
(140,004)
(327,536)
(1,598,286)
(1,343,429)
Other comprehensive loss
Loss on the revaluation of equity instruments at fair value through other
comprehensive income, net of tax
Exchange differences on translation of foreign operations
Other comprehensive loss for the year, net of tax
(77,977)
(1,326,012)
(1,403,989)
-
637,466
637,466
(77,977)
(688,546)
(766,523)
Total comprehensive loss for the year
(2,607,414)
497,462
(2,109,952)
Basic loss per share
Diluted loss per share
Appendix 4E
Cents
Adjustment
Cents
Audited final
report
Cents
(0.23)
(0.23)
(0.03)
(0.03)
(0.26)
(0.26)
50
engage:BDR Limited
Notes to the financial statements
31 December 2019
Note 27. Changes to unaudited Preliminary Financial Report (continued)
Statement of financial position (condensed)
Assets
Cash and cash equivalents
Trade and other receivables
Investment in equity instruments
Prepaid expenses
Related party receivables
Other assets
Property, plant and equipment
Right-of-use assets
Intangibles
Goodwill
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share based payment reserve
Equity investment reserve
Foreign currency translation reserve
Accumulated losses
Total Equity
Unaudited
Appendix 4E
$
Audited
financial
report
$
Adjustments
$
1,831,673
5,786,531
51,692
392,622
2,311,510
886,154
-
670,430
3,032,083
1,468,517
16,431,212
12,991,432
29,572
13,021,004
-
-
-
-
-
497,462
268,811
(268,811)
-
-
1,831,673
5,786,531
51,692
392,622
2,311,510
1,383,616
268,811
401,619
3,032,083
1,468,517
497,462 16,928,674
- 12,991,432
-
29,572
- 13,021,004
3,410,208
497,462
3,907,670
35,582,304
603,739
(2,441,343)
(1,424,773)
(28,909,719)
3,410,208
- 35,582,304
603,739
-
(2,441,343)
-
(787,307)
637,466
(29,049,723)
(140,004)
3,907,670
497,462
51
engage:BDR Limited
Directors' declaration
31 December 2019
In the directors' opinion:
●
●
●
●
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the
Corporations Regulations 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 to the financial statements;
the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at
31 December 2019 and of its performance for the financial year ended on that date; and
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due
and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
___________________________
Ted Dhanik
Co-Founder and Executive Chairman
20 March 2020
52
engage:BDR Limited
Independent auditor’s report to members
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of engage:BDR Limited (the Company) and its
controlled entities (the Group), which comprises the consolidated statement of financial
position as at 31 December 2019, 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
statements, including a summary of significant accounting policies and other explanatory
information, 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 2019
and of its financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
(ii)
Material Uncertainty Relating to Going Concern
We draw attention to Note 2 to the financial report, which describes that as at 31 December
2019 the Group had net current liabilities of $1,233,788, and for the year then ended incurred
net cash outflows from operations of $3,790,254. These conditions, along with any other
matters set forth in Note 2, indicate that a material uncertainty exists that may cast significant
doubt on the Company’s ability to continue as a going concern. Our conclusion is not
modified in respect of this matter.
Other Matter
We were appointed as auditor to engage:BDR Limited at their most recent general meeting
on 16 January 2020. The comparative results set out in this financial report was audited by
another auditor. That auditor expressed an unmodified opinion on the financial report of the
Company for the year ended 31 December 2018.
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 auditor independence requirements of
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.
53
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
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.
DERECOGNITION OF AMOUNTS PAYABLE TO SUPPLIERS
Area of focus
How our audit addressed it
During the reporting period, the Group
extinguised a significant portion of amounts
payable to its suppliers. These legacy
amounts payable related to invoices that the
Group had received from those suppliers,
dating back to 2011. Although the Group had
fully provided for those invoices in previous
financial reports, it had withheld payments
set out as owing and payable on those
invoices due to disputes with those suppliers
relating to a) inaccurate or invalid claims by
those suppliers for website traffic (traffic
being a key input driving the quantum of the
total invoice); and disputed claims with
suppliers for other reasons, whereby that
supplier had either restructured or re-
administered itself so that the supplier, under
California State Law no longer has the
appropriate corporate authority to transact
with and claim amounts that previously it
claimed it was owing.
During the financial reporting period,
management has proactively deleveraged its
working capital position over the reporting
period by negotiating settlements with its
suppliers for some of those outstanding
invoices. During the financial reporting
period, a total of 191,374,864 shares were
issued in order to settle a total of $6,177,420
in creditor claims. Each settlement of those
claims has been referrable to the prevailing
traded spot price of the Company as at the
date of settlement.
Our procedures involved the following:
• Understanding, through consultation with
our own internal specialists and with the
Group’s legal counsel, how California State
Law and US Federal Law applies where
claims for payment by suppliers of
technology services are under dispute for
long periods of time;
• Confirming settlements of suppliers to both
the issue of shares or payment of cash and
the deed of settlement / waiver entered
into with each supplier upon settlement;
• Confirming major creditor balances and
their rolled positions from 31 December
2018 to 31 December 2019;
• Discussing with the Group’s legal counsel
the existence of any further disputed
claims and cross-checking those claims
with the amounts provided for in amounts
payable to suppliers in the statement of
financial position; and finally
• Recalculating from a sample of settled
positions from major creditors any gain on
settlement to the statement of profit or
loss.
We also ensured that these matters were
completely and accurately disclosed in the financial
statements.
54
LOANS TO RELATED PARTIES, SHAREHOLDERS AND KEY EMPLOYEES
How our audit addressed it
Our procedures included:
• Confirming loan balances
outstanding to
counterparties and
substantiating those loans
to loan documentation; and
•
Tracing loan share
collateral to the Company’s
share register and to the
Directors’ minute
collateralising the loan.
We also ensured that these
matters were completely and
accurately disclosed in the
financial statements, including,
where relevant, the related
party disclosures.
Area of focus
The Group has a long-established policy of making cash
loans to its related parties, shareholders and key employees.
Presently interest is charged at on these loans at 5.00% per
annum, which is consistent with US market interest rates for
similar loans. The loans were made principally to the Group’s
related parties and key employees in the 2016 and 2017
financial years. Since this date however further additional
amounts have been loaned after this date with surplus cash
flows as set out in note 20 to the financial statements.
As set out in the Replacement Prospectus upon its IPO, the
loans were originally expected to mature in June 2018,
however this was extended to June 2019, and then, by
Directors’ resolution to August 2020. Together with the
August resolution, a total of $1,267,785 of the loans were
secured against the personal shareholding interests of each
loan recipient.
The nature and content of these loans have been disclosed
both in the financial statements and the accompanying
Remuneration Report set out in the Directors’ Report,
specifically addressing the following matters:
•
The terms and conditions of the loans, including their
security, interest rate and maturity features; and
• Roll-forward analyses of the loans from the
commencement to the end of the year.
55
ASSESSMENT OF IMPAIRMENT OF INTANGIBLE ASSETS
Area of focus
The Group holds a total of $4,500,600 in intangible assets
relating to a) its capitalized development projects; and b)
goodwill acquired from past acquisitions.
Given that the Group holds indefinite-life intangible assets, it
is required to test annually for impairment.
Consistent with its determination as at 30 June 2019, the
Directors and management of the Company now internally
evaluate the Group under one reporting segment and one
cash-generating unit, and the previous delineation between
programmatic and non-programmatic segments (as applied
at 31 December 2018) is now assessed by the Chief
Operating Decision Maker as one segment.
Consequently, the impairment assessment conducted at 31
December 2019 evaluates the Group as one single cash
generating unit.
In assessing for impairment, the Directors evaluated the
carrying value of intangible assets firstly by identifying any
indicators of impairment against specific assets (i.e.: software
development projects abandoned) and then as a whole
against the Group by evaluating its fair value less costs to
sell. In applying this methodology, the Directors considered
the enterprise value of the Group, being its market
capitalisation, adjusted for net debt, an estimated control
premium and costs for sale.
The results of this impairment assessment are disclosed in
Note 12 to the financial statements.
How our audit addressed it
Our procedures involved:
• Consulting internally to
assess the
reasonableness of the
determination that the
business has only a single
segment and is a single
cash-generating unit;
• Consulting internally to
determine the
appropriateness of the
impairment test
methodology used, being
on a fair value less costs to
sell approach by
examining the Company’s
enterprise value; and
• Corroborating and
substantiating the
Company’s enterprise
value calculations,
compared with net assets
of the Company.
We also ensured that these
matters were completely and
accurately disclosed in the
financial statements.
56
How our audit addressed it
Our procedures involved:
• Consulting internally to
determine the
appropriateness of the
assessment of the Note as
having a variable conversion
clause that would require a
separate measurement of
an embedded derivative
liability;
Appraising the
independence and
competence of the external
specialist employed to fair
value the embedded
derivative liability, both at
intial recognition and at 31
December 2019;
• Recalculating the discount
to the face value (plus cash
redemption loading feature)
of the principal value of the
Note as at initial recognition
and at 31 December 2019;
and
• Confirming the terms of the
Note to Alto Capital and
vouching those terms to the
Note’s documentation.
We also ensured that these matters
were completely and accurately
disclosed in the financial
statements.
ACCOUNTING FOR THE ISSUE OF THE ZCS NOTE
Area of focus
In September 2019 the Group achieved a new source of
financing from a counterparty, Alto Capital. As disclosed in
note 14 to the financial statements, the product that it
issued in order to raise an additional $USD 1.75m in new
finance was a ZCS Note (the Note).
The Note has the following features which have impacted
the accounting treatment derived for these financial
statements:
•
•
•
•
•
•
A discount to face value upon issue;
A variable equity conversion feature (featuring a
VWAP discount but with a fixed ceiling of AUD 35
cents per share), convertible in the hands of the
investor;
•
The requirement to issue collateral shares with an
anti-dilution protection (collateral to be held no less
than 2.50% of the Company’s shares and up to
4.90%);
A further 3.50% loading to face value in the event
that the Note is redeemed for cash;
A participating right conferred to Alto Capital to
participate in future financing opportunities of the
Company (up to 50%) on terms not
disadvantageous to those for the issue of the ZCS
Note; and
Extensive and specific default clauses, including
those mandating set cash burn rates and liquidity
thresholds.
The Group has accounted for the conversion clause in the
arrangement as an embedded derivative, for which it has
sought external specialist expertise to fair value on its
statement of financial position, both at the date of issue and
as at 31 December 2019, with movements in the fair value
of those derivative contracts taken to the profit or loss.
In order to successfully raise the Note, the Group paid a 4%
(of total face value) arranger’s fee, together with the issue
of 13.5m options with a strike price of 2.60 AUD cents per
share. Each of these is included in the cost of the Note and
amortised over the duration of each of the tranches (in total
8) of the ZCS notes.
The Company’s directors have accounted for the principal
value of the Note by applying the face value plus the cash
redemption loading feature.
57
REVENUE RECOGNITION
Area of focus
We refer you to Note 5 to the financial statements, which
sets out the Group’s accounting policies for recognising
revenues, which require the identification of discrete
performance obligations within a contract and, when
performed over time, the amortisation used for recognising
revenue as it is performed against those performance
obligations.
These matters require judgment and estimation in order to
determine a) what those performance obligations are; and
b) over what period over time they are achieved under a
contract.
Due to the fact that the Group’s invoicing policies do not
always marry up with its revenue recognition for all of its
service product streams, an amount of $81,518 is
represented in the statement of financial position as a
contract liability.
How our audit addressed it
Our procedures involved:
•
•
•
Assessing the Group’s
revenue accounting policies
to ensure that they meet the
requirements of AASB 15
Revenue;
Examining and testing
controls over revenues by
testing a sample of contracts
which either completed or
were mid-completion at
report date; and
Performing other
substantive procedures over
revenue, include substantive
analytical review
procedures.
We also ensured that these matters
were completely and accurately
disclosed in the financial
statements.
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 2019, 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.
58
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 these financial statements 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 independent auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors’ report for the year ended 31
December 2019.
In our opinion, the Remuneration Report of engage:BDR Limited, for the year ended 31 December 2019,
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.
William Buck Audit (Vic) Pty Ltd
ABN: 59 116 151 136
N. S. Benbow
Director
Melbourne, 20th March, 2020
59
engage:BDR Limited
Shareholder information
31 December 2019
The shareholder information set out below was applicable as at 18 March 2020.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
Number of
holders of
ordinary
shares
Number of
holders of listed
options over
ordinary shares
%
units
%
units
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
51
51 0.02
201 0.25
1,043 5.41
577 94.31
-
-
224 3.29
299 6.10
263 17.46
40 73.15
1,923
100
826
100
Holding less than a
marketable parcel
814
-
Number of
holder of
unlisted zero
coupon
convertible
amortising
securities
issued at
USD$1,750,000
at a current
face value of
USD$1,339,000
1
-
-
-
-
1
%
units
100
-
-
-
-
100
Number of
holder of
unlisted zero
coupon
convertible
amortising
securities
issued at
USD$382,500
at a current
face value of
USD$450,000
1
-
-
-
-
1
%
units
100
-
-
-
-
100
-
Number of
holders of
unlisted options
expiring 30
January 2022,
exercisable at
$0.052
Number of holders
of unlisted options
expiring 30
September 2022,
exercisable at
$0.026
%
units
%
units
100
-
-
-
-
100
1
-
-
-
-
1
-
100
-
-
-
-
100
1
-
-
-
-
1
-
60
engage:BDR Limited
Shareholder information
31 December 2019
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
Alto Opportunity Master Fund + SPC (Segregated Master Port B A/C)
Mr Kurtis Rintala
Mrs Elizabeth Anne Macrae
GHJC Pty Ltd
Wippit Holdings Pty Ltd
Hoi An Investment Pty Ltd
Citicorp Nominees Pty Limited
Argon Blockchain Holdings
GHC Nominees Pty Ltd (Jeffco A/C)
Mr Geoffrey Mark Cottle
Mr Abdulaziz Saleh Alrajhi
Dr David James Walland
J P Morgan Nominees Australia Pty Limited
Neweconomy Com Au Nominees Pty Limited (900 Account)
RCL Run Capital Limited
Mr David Anthony Weir
Mr Benchun Zhou
Coffee Camp Pty Ltd (Coffee Camp A/C)
Ordinary shares
% of total
shares
issued
Number held
57,681,498
52,529,242
36,852,539
36,717,391
28,200,000
26,399,799
20,500,000
18,207,746
17,050,068
15,210,302
13,500,198
12,575,000
9,341,647
7,200,000
7,197,777
7,002,187
6,518,789
6,376,900
6,193,018
6,098,807
7.49
6.82
4.79
4.77
3.66
3.43
2.66
2.37
2.21
1.98
1.75
1.63
1.21
0.94
0.94
0.91
0.85
0.83
0.80
0.79
391,352,908
50.83
61
engage:BDR Limited
Shareholder information
31 December 2019
Bellaire Capital Pty Ltd (Bellaire Capital Invest A/C)
GHJC Pty Ltd
Mr Jorgen Ulrik Jorgensen
Mr Colin Richard Korn
Vesterbo Pty Ltd (J Jorgensen Super Fund A/C)
Clarksons Boathouse Pty Ltd (Clarkson Super Fund A/C)
Mr Henry Christopher Ponniah
Mr Christopher John Girling + Ms Yvette Louise Clark (Moloscyg Superannuation A/C)
Mr Girish Mallesara Hiriyannagowda
Mr Luke Steven Schembri
Mr Jeffrey William Cozens
Conrad Joseph Lawrence Goodger
Sean Anthony Mulligan + Anya Rebecca Mulligan (S & A Mulligan Super A/C)
Wine Guru Australia Pty Ltd (Donela Family A/C)
Michael James Dixon
Mr Ernie Aljin Abella
Mr John Antony Thomas
Mr Patrick Gerard Durkin
Ajava Holdings Pty Ltd
Mr Kevin Daniel Leary + Mrs Helen Patricia Leary (Kevin & Helen Leary S/F A/C)
Rubenstein Family Investments Pty Ltd (Rubenstein Family A/C)
Unquoted equity securities
Listed options over
ordinary shares
% of total
options
issued
Number held
4,000,000
2,226,921
1,682,634
1,509,236
1,117,366
1,075,000
1,072,003
1,065,650
1,060,939
1,001,111
1,000,000
801,260
800,000
730,754
711,706
358,429
326,000
300,000
290,000
250,000
250,000
11.76
6.55
4.95
4.44
3.29
3.16
3.15
3.13
3.12
2.94
2.94
2.36
2.35
2.15
2.09
1.05
0.96
0.88
0.85
0.74
0.74
21,629,009
63.61
Number
on issue
Number
of holders
Unlisted listed options expiring 30 January 2022, exercisable at $0.052
Unlisted listed options expiring 30 September 2022, exercisable at $0.026
Unlisted zero coupon convertible amortising securities issued at USD$1,750,000 at a current
face value of US$1,339,000
Unlisted zero coupon convertible amortising securities (Series B) issued at USD$382,500 at
a current face value of US$450,000
8,676,093
13,750,000
1
1
1
1
1
1
The following persons hold 20% or more of unquoted equity securities:
Name
Class
Number held
CST Capital Pty Ltd (CST Investments Fund A/C)
Alto Opportunity Master Fund + SPC (Segregated
Master Port B A/C)
Alto Opportunity Master Fund + SPC (Segregated
Master Port B A/C)
Alto Opportunity Master Fund + SPC (Segregated
Master Port B A/C)
Unlisted options expiring 30 January 2022,
exercisable at $0.052
Unlisted options expiring 30 September 2022,
exercisable at $0.026
Unlisted zero coupon convertible amortising securities
issued at USD$1,750,000 at a current face value of
US$1,339,000
Unlisted zero coupon convertible amortising securities
(Series B) issued at USD$382,500 at a current face
value of US$450,000
8,676,093
13,750,000
1
1
62
engage:BDR Limited
Shareholder information
31 December 2019
Substantial holders in the company are set out below:
First Round Capital LLC
Mr Kenneth Kwan
Voting rights
Ordinary shares
% of total
shares
issued
Number held
57,681,498
52,529,242
7.49
6.82
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.
Other securities
Other classes of securities issued by the Company do not carry voting rights.
Annual General Meeting
Engage:BDR Limited advises that its Annual General Meeting will be held on or about Friday 29 May 2020. 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.
The Closing date for receipt of nomination for the position of Director is Wednesday 8 April 2020. Any nominations must be
received in writing no later than 5.00pm (Melbourne time) on Wednesday, 8 April 2020 at the Company’s Registered Office.
The Company notes that the deadline for nominations for the position of Director is separate to voting on Director elections.
Details of the Director’s to be elected will be provided in the Company’s Notice of Annual General Meeting in due course.
Corporate Governance Statement
The Company’s 2019 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/
63