Crowd Media Holdings Limited Releases Preliminary Final Report for FY19

A global leader in influencer led performance marketing, Crowd Media Holdings Limited (ASX: CM8) mainly operates two divisions:

• Digital Marketing Division (Media) – This division works hand in hands with brands and digital influencers to deliver branded content to the massive and fast-growing millennial and Generation Z market;
• Mobile division- This division produces content like apps, games and music.

FY19 Results

The company recently released its preliminary final report for FY19. In the report, the company has reported revenue from ordinary activities of $23.92 million, down 38.0% as compared to previous corresponding period, and a loss of $4.796 million, down 81.6% when compared with the same period a year ago.

As mentioned in 2018 Annual General Meeting, the changing regulatory framework around the company’s Mobile division and continued investment in its Media division are the main contributors of the FY19 loss.

As per the preliminary final report, at the end of FY19, the company had total current assets of $6.41 million and total current liabilities of $4.866 million. During the year, the company received $26.87 million as receipts from customers and paid $29.5 million to suppliers and employees. The net cash used in operating activities during the year was $2.44 million. The company received $120,536 from investing activities and $133,264 from financing activities in FY19. At the end of the financial year, Crowd Media had cash and cash equivalents of $839,462 and net assets of $948,113.

Media Division saw its total revenue improve from $492,430 in FY18 to $1,634,199 in FY19. However, the mobile division’s Q&A and subscription segment revenue dropped from $38,067,834 in FY18 to $22,286,568 in FY19, in line with the company’s projections.

Coming Back to Profitability

Although the company reported a loss in FY19, in the current year, CM8is expecting to bring itself back to profitability with positive EBITDA and positive operating cash flow. In order to do so, it has already implemented various cost reduction initiatives.

As reported on 7 June 2019, the company was able to reduce 1.4 million in annualised costs associated with employment costs in the recent redundancy round, and to help conserve more cash, it also proposed changes to CEO and Board’s remuneration.

For FY20, Crowd Mobile’sCEO Domenic Carosa has agreed to accept 50 per cent of his salary in the form of Crowd Media shares. Similarly, the Chairman and Board have also agreed to accept 25 per cent of their fees in Crowd Media shares.

Outlook for FY2020:

• Crowd Media is expecting positive EBITDA and positive operating cash flow in FY2020;
• In FY2020, Crowd Media will intensify its efforts to reduce its debt;
• Crowd Media division: The company intends to deliver globally competitive social media and digital influencer campaigns to clients and to generate material revenues with strong year on year growth;
• Crowd Mobile division: The company is planning first to stabilise and then grow its revenues and profits across the Q&A and subscription mobile businesses.

Recent Developments

Strategic Partnership with IIC: To fund its existing requirements, Crowd Media recently executed a binding Heads of Agreement (HOA) with Invincible Investment Consortium (IIC), which has agreed to invest up to $3.7 million into the company. With this new investment, the company now believes that it is well positioned to capitalise on a number of existing and new opportunities.

Besides this, the strategic partnership with IIC will be a great advantage to Crowd Media, as IIC can introduce new businesses to Crowd Media, helping the company to develop new business synergies and joint ventures.

As per the terms of the agreement, Crowd will issue IIC (and/or their nominees) with convertible notes with a face value of up to $3.7 million.

Notes to be Issued:

• Tranche 1 Notes: 1,700 Tranche 1 Notes, being the Tranche 1 Subscription Amount of $1,700,000 divided by the Face Value;
• Tranche 2 Notes: 2,000 Tranche 2 Notes, being the Tranche 2 Subscription Amount of $2,000,000 divided by the Face Value

Funds from both the Tranches will be used in the following manner-

• Tranche 1
  • To pay down the convertible notes issued to Obsidian,
  • To cover redundancy costs forming part of the previously announced organisational restructure,
  • To provide additional general working capital.

• Tranche 2
  • Funds will mostly be used for the proposed joint venture, partnership or any other corporate activity as identified in the business plan.

Under the agreement, IIC principals Steven Schapera and Robert Quandt, key contributors to the investment consortium, will Join Crowd Media’s Board in September 2019. The company believes that with this strategic investment & partnership, its social media and digital marketing capabilities, as well as its Artificial Intelligence and subscription technology platforms are now ready to be more effectively deployed with the assistance of IIC.

Convertible Securities Agreement with Obsidian Global Partners: In order to improve its balance sheet, in June 2019, the company entered into a Convertible Securities Agreement with Obsidian Global Partners, LLC, under which Obsidian is planning to invest up to $1.5 million in cash across two tranches in return for convertible notes in the company. The first tranche was executed on 12 June 2019, pursuant to which the company raised $750,000 and issued 5,259 convertible notes with a face value of USD$120 each. On 28 June 2019, Obsidian converted 500 notes to shares.

Recent Updates:

• Recently signed two initial Insertion Orders (Agreements) with Cannabis Hemp CBD Oil company Elixinol, its first client in the growing cannabis and CBD oil sector.
• Executed new 3rd party agreements for digital marketing services including digital influencer marketing for multiple international brands;
• Executed a pilot agreement with Moneyfarm, one of the largest digital wealth companies in Europe;
• Launched a new media kit to reflect the shifting focus of Crowd Media to the large and growing digital influencer and social media marketing sector;

Stock Information: At market close on 3 September 2019, CM8’s stock was trading at a price of $0.019 with a market capitalisation of $4.89 million.