SPACETALK LTD — Annual Report 2018

Aug 30, 2018

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ASX Announcement

MGM Wireless Limited (ASX:MWR)

31 August 2018

Technology company MGM Wireless Limited (ASX:MWR) (‘MGM’ or ‘the Company’) is pleased to release its financial statements for the year ended 30 June 2018, with results reflecting the Company’s successful, ongoing transformation to becoming a significant Wearables business.

2018 FINANCIAL RESULTS SUMMARY

2018 Key results
Twelve months ended 30 June
$ million unless otherwise specified	2018	2017	Change
Sales Revenue	2.74	2.62	5%
Total Revenue	2.74	2.63	4%
Wearables Revenue	0.449	0	-%
School Communication Business Revenue	2.23	2.54	-12%
EBITDA	0.67	0.76	-11%
Net Loss	(1.13)	(0.53)	114%
Dividend per share (cents)	0	0	0%
EBITDA margin	2%	29%	-27%
Net cash from operating activities	1.25	1.70	-26%
Cash balance	2.65	1.11	139%
Net cash/(debt)	2.65	1.11	139%
Earnings per share (basic) cents	(11.71)	(6.15)	90%
**Contracted Schools & Early Learning Centres **	1,372	1,061	29%

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Appendix 4E Preliminary final report Year ending 30 June 2018

FY18 HIGHLIGHTS

• Launched Company developed SPACETALK – a children’s all-in-one smartphone, watch and GPS device – exceeding all expectations and sales projections

• Advanced Company transformation to the “Wearables” sector

• After 9 months of sales, realised revenues from our Wearables business that are:

• 20% of overall Company revenues and continues to grow

• on track to overtake and exceed School Communication revenues in FY2019

• Within the Wearables business, revenues from our direct online sales are on track to becoming $1 million+ pa revenue business – a significant achievement in its first year.

• SPACETALK has been unequivocally recognised by industry experts as the best, children’s smartphone device on the market globally.

• Commenced Bricks and Mortar rollout.

• Booked a solid EBITDA of $671K despite significant costs and investment associated with launching a new Wearables business of this size and magnitude

• Increased cash balances 139% to $2.65 million following a successful capital raising and heavily oversubscribed Share Purchase Plan.

• Maintained a Zero debt position.

• Increased the number of contracted schools, significantly, by 29% although revenues down by 12.3%

• Recorded a Net Loss After Tax of $1.13 million due to amortising prior year investments and non-cash expenses from the issue of options and employee shares.

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Appendix 4E Preliminary final report Year ending 30 June 2018

Appendix 4E Preliminary Final Report Under Listing Rule 4.3A

MGM Wireless Limited

(ABN 93 091 351 530) Year Ending 30 June 2018

(Previous corresponding period – Year ending 30 June 2017)

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Appendix 4E Preliminary final report Year ending 30 June 2018

Appendix 4E Preliminary Final Report

MGM Wireless Limited

(ABN 93 091 351 530) Year Ending 30 June 2018

(Previous corresponding period – Year ending 30 June 2017)

Results for announcement to the market

		$
Revenue from ordinary activities	up 5%	to 2,744,102
Profit/(loss) from ordinary activities after tax attributable to	Down 114%	to (1,129,935)
members
Net Profit/(loss) for period attributable to members	Down 104%	to (1,121,825)
Dividends (distributions)	Amount	Franked amount
	per security	per security
Final dividend	Nil¢	Nil¢
Previous corresponding period	Nil¢	Nil¢
Record date for determining entitlements to dividends	Not applicable
Payment date	Not applicable
Net tangible asset backing	30 June 2018	30 June 2017
Net tangible asset backing per ordinary security	$0.26	$0.16
Control gained or lost over entities during the period
Name of entity	Not	applicable
Date of gaining or losing control	Not	applicable
Dividend or distribution reinvestment plan details
There is no conduit foreign income for this dividend.
Joint venture and associate details	Not	applicable
Foreign entities' accounting standards used	Not	applicable
Status of Audit

The statutory financial statements of the consolidated entity are in the process of being audited.

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Appendix 4E Preliminary final report Year ending 30 June 2018

MGM Wireless Limited Commentary on Results For the Year Ended 30 June 2018

The directors of MGM Wireless Ltd are pleased to report the Company’s financial results for the 12 months to 30 June 2018.

Operational Highlights

• In October 2017, after a four-year development period, we launched SPACETALK, an all-in-one children’s phone, GPS tracker and smartwatch.

• When we launched, SPACETALK was virtually an unknown brand, however, our internal online SPACETALK ‘stretch’ sales targets leading up to Christmas 2017 were exceeded by more than 150%.

• Sales for the year were mostly via our e-commerce platform and Company owned website ‘allmytribe.com’. Sales grew monthly and by year end we had almost sold out of our initial production run.

• Our e-commerce business is, post year end, now on track to deliver $1 million + p.a. revenue in FY2019.

• SPACETALK received strong interest from Australia’s largest bricks and mortar retailers and signed a distribution sales agreement with Leading Edge stores.

• We exhibited SPACETALK at Mobile World Congress (MWC18) in Barcelona and were very well received.

• We commenced product trials with several Australian and international distributors and retailers.

• We strengthened senior management with the appointment of key personnel.

• We upgraded our market size expectations from 3,000 to 10,000 units per annum to 120,000 – 180,000 units ($30 million to $60 million per annum - Australia only) based on independent research by Gartner[1] and after leading Australian bricks and mortar retailers recommended management to accelerate its rollout strategy and aim much higher to achieve mass market take up and leadership.

Financial Highlights

• Wearable SPACETALK revenues of $0.44m accounted for 20% of overall revenues ($2.47m) despite starting at a zero base and having a sales period of only 9 months in the financial year.

• To operate each SPACETALK watch requires the AllMyTribe App with a monthly subscription fee of $5.99 for up to 2 watches or $8.99 for up to 5 watches. Currently, each SPACETALK watch is generating recurring monthly gross revenue averaging $3.61 per month.

• Overall revenues were up 5%. This is attributable to the success of our Wearables launch as revenue from our School Communications was $2.23mil, down 12.3% from previous year as InApp messaging replaces SMS. In FY2018, the Company recorded strong sales from its Queensland Department of Education contract.

• Operational expenditure was well controlled with material increases targeted to the areas of advertising and marketing, up $220k and Employee Costs up $110k.

• We recorded an EBITDA of $671k which is down 11% from FY17 but is after Wearables development and launch costs of $1.68m.

• We recorded a Net Loss after Tax of $1.13m which includes non-cash expenses of $615k, Option/Share issue costs and $1.81m in Amortisation and Depreciation.

1 https://www.gartner.com/newsroom/id/3790965

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Appendix 4E Preliminary final report Year ending 30 June 2018

• We completed a placement to sophisticated investors of $691k, a Share Purchase Plan of $995k which was heavily oversubscribed; and a Rights Offer of $293k. We would like to recognize and thank our shareholder base for their overwhelming support.

• We maintained a zero-debt position. Our cash balance at year end was $2.65m.

The Company is pleased to report that during the period substantial progress was made in the SPACETALK rollout. This success has positioned the Company to be at the forefront of one of the highest growth consumer product categories – Wearables.

Since launching SPACETALK in October 2017, sales performed beyond the Company’s expectations despite being limited predominantly to a single channel - the Company’s own website – allmytribe.com and our brand being almost completely unknown. Online sales grew through the year and have now, post year end, reached a run rate of $1 million p.a.

Late in the reporting period the rollout to bricks and mortar retailers began with the addition of several stores from the Leading Edge Group stocking SPACETALK, experiencing sales and all placing reorders. JB Hi-Fi’s on-line store commenced sales after year end on August 5, with sales to-date exceeding everyone’s expectations.

At financial year end, SPACETALK revenues accounted for 20% of overall revenues and we forecast they will exceed school communication revenues in FY2019; transforming the Company into a Wearable sector participant and exposing it to one of the highest growing consumer categories globally. This transformation brings about enormous opportunity and the Company is positioning itself to be the market leader with its best-of-breed product.

Management continues to focus on expenses and costs even during this transformational and high growth stage. We maintain a positive EBITDA of $671k despite the significant development and investment costs with launching a new product of this magnitude, which is reflective of this conservative approach.

School Business

The way schools need to communicate and engage with parents is undergoing change and challenges, as consumers move away from the computer desktop to a wide range of device types and mobile phone-based consumption of content.

Exciting new revenue growth opportunities are emerging for the Company’s school business, with the emergence of, and access to, artificial intelligence and machine learning technologies. MGM Wireless believes opportunities exist to incorporate these new technologies into its products to further improve the effectiveness of our Company products while driving revenue growth.

The Company sees an ongoing positive future for its schools business.

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Appendix 4E Preliminary final report Year ending 30 June 2018

Consolidated statement of Profit or Loss and Other Comprehensive Income

Notes	30/06/2018 30/06/2017 $ $ Group Year Ended
Continuing Operations Revenue 2 Cost of sales Doubtful debts Interest costs Amortisation & depreciation Option and share issue costs Consulting fees Corporate and administration Advertising and marketing Employee costs (Loss)/ Gain on foreign exchange (Loss)/Profit before tax Income tax benefit 3 (Loss)/Profit for the year Other comprehensive income/Items that may be classified subsequently to profit or loss Exchange differences on translating foreign operations Other comprehensive income net of tax Total comprehensive (loss)/income for the year (Loss)/Profit attributable to: Owners of the Company Earnings per share From continuing and discontinued operations:	2,744,102 2,626,617 (308,072) (193,992) (37,147) (230,755) (11,960) (11,296) (1,808,510) (1,738,029) (615,449) - 0 (45,706) (839,808) (842,189) (219,969) - (660,056) (550,777) (8,140) -
	(1,765,009) (986,127) 635,074 452,328
	(1,129,935) (533,799)
	8,110 (17,411)
	8,110 (17,411)
	(1,121,825) (551,210)
	(1,121,825) (551,210)
Basic (cents per share) 4	(11.71) (6.15)
Diluted (cents per share) 4	(11.25) (6.15)

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Appendix 4E Preliminary final report Year ending 30 June 2018

Consolidated statement of financial position

Consolidated statement of financial position
Notes	30/06/2018 30/06/2017 $ $ Group As At
ASSETS Current Assets Cash and cash equivalents 5 Trade and other receivables 6 Inventories Other current assets 7 Total Current Assets Non-Current Assets Property, plant and equipment 9 Intangible assets 10 Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables 11 Provisions Current Tax Liabilities Total Current Liabilities	2,649,810 1,109,972 237,143 362,794 120,133 - 825,624 922,510
	3,832,710 2,395,276
	174,546 174,061 2,548,645 2,647,286
	2,723,191 2,821,347
	6,555,901 5,216,623
	513,573 593,906 217,582 243,050 154,583 311,011
	885,738 1,147,967
Non-Current Liabilities Deferred tax liabilities	10,889 65,671
Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Issued capital 12 Reserves 13 Accumulated losses Total Equity	10,889 65,671
	896,627 1,213,638
	5,659,274 4,002,985
	9,966,782 7,469,606 735,512 446,464 (5,043,020) (3,913,085)
	5,659,274 4,002,985

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Appendix 4E Preliminary final report Year ending 30 June 2018

Consolidated statement of changes in equity

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Issued Accumulated Share Based Foreign Total
Capital Losses Payment Currency Equity
Reserve Translation
Reserve
Consolidated $ $ $ $ $
At 30 June 2016 7,454,029 (3,266,672) 483,583 (19,708) 4,651,232
Profit attributable to members - (533,799) - - (533,799)
Currency translation differences - - - (17,411) (17,411)
Total comprehensive income - (533,799) - (17,411) (551,210)
Transactions with owners
Contributions and distributions
- - -
Payment of dividends (112,614) (112,614)
Issue of shares (DRP scheme) 15,577 - - - 15,577
Transactions with owners 15,577 (112,614) - - (97,037)
At 30 June 2017 7,469,606 (3,913,085) 483,583 (37,119) 4,002,985
Loss attributable to members - (1,129,935) - - (1,129,935)
Currency translation differences - - - 8,110 8,110
Total comprehensive income - (1,129,935) - 8,110 (1,121,825)
Transactions with owners
Contributions and distributions
Shares Issued 2,436,732 - - - 2,436,732
- -
Options exercised 166,348 (38,848) 127,500
Share issue costs (105,904) - - - (105,904)
Options/ rights issued - - 319,786 - 319,786
Transactions with owners 2,497,176 - 280,938 - 2,778,114
At 30 June 2018 9,966,782 (5,043,020) 764,521 (29,009) 5,659,274
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Appendix 4E Preliminary final report Year ending 30 June 2018

Consolidated statement of cash flows

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Group Year Ended
Notes 30/06/2018 30/06/2017
$ $
Cash flows from operating activities
Receipts from customers 3,144,163 3,320,767
Payments to suppliers (2,477,127) (2,017,919)
Tax receipts 599,956 406,478
Interest payments (11,960) (11,296)
Net cash generated from / (used in) operations 1,255,032 1,698,030
Cash flows from investing activities
Payments for plant and equipment (26,767) (13,384)
Payment for development (1,683,587) (1,750,886)
Net cash provided / (used) by investing activities (1,710,354) (1,764,270)
Cash flows from financing activities
-
Payment of dividends (97,037)
-
Repayment of borrowing (115,000)
Proceeds from issue of shares 1,965,454 -
cost associated with issue of shares (105,904) -
Proceeds from options exercised 127,500 -
Net cash provided / (used) by financing activities 1,987,050 (212,037)
Net increase / (decrease) in cash held 1,531,728 (278,277)
Cash at the beginning of the year 1,109,972 1,405,660
Effect of exchange rate changes 8,110 (17,411)
Cash at the end of the year 5 2,649,810 1,109,972
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Appendix 4E Preliminary final report Year ending 30 June 2018

MGM Wireless Limited

Notes to the Financial Statements for the Year Ended 30 June 2018

1. Significant Accounting Policies

Statement of Compliance

The Appendix 4E preliminary final report has been prepared in accordance with ASX listing rules and the recognition and measurement criteria of Accounting Standards and interpretations. Accounting Standards include Australian equivalents to International Financial Reporting Standards.

Basis of Preparation

The Appendix 4E has been prepared on the basis of historical cost. The accounting policies and methods of computation adopted in the preparation of the Appendix 4E are consistent with those adopted and disclosed in the Company’s 2017 annual financial report.

2. Revenue	30/06/2018 30/06/2017 $ $ Group Year Ended
The following is an analysis of the Group's revenue Revenue Schools sales SI Income All MyTribe sales Sundry income Total sales revenue	2,233,866 2,547,590 54,000 69,750 449,472 - 6,764 9,277
	2,744,102 2,626,617

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Appendix 4E Preliminary final report Year ending 30 June 2018

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Group
Year Ended
30/06/2018 30/06/2017
3. Income Tax $ $
3.1 Income tax benefit
The income tax benefit for the year can be reconciled to the accounting profit or loss as
follows:
(Loss)/ profit for the year (1,765,009) (986,127)
Prima facie tax benefit at 27.5% (2016: 30%) (485,377) (271,185)
Non-deductible items
Other 170,428 86,302
Research and development tax offset (283,667) (331,479) [
Effect on deferred tax balances due to change in income tax rate from 30% to 27.5% - 461
- -
Previously unrecognised deferred tax assets and liabilities
Adjustments recognised in the current year in relation to the current tax of prior years (7,283) 63,573
Adjustments recognised in the current year in relation to the deferred tax of prior years (29,175) -
Total income tax benefit (635,074) (452,328)
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Appendix 4E Preliminary final report Year ending 30 June 2018

4. Earnings per share

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Group
Year Ended
30/06/2018 30/06/2017
$ $
Basic earnings per share
Total basic earnings per share (cents per share) (11.71) (6.15)
Diluted earnings per share
Total diluted earnings per share (cents per share) (11.25) (6.15)
4.1 Basic earnings per share
The earnings and weighted average number of ordinary shares used in the
calculation of basic earnings per share are as follows.
Net (loss)/profit for the year attributable to owners of the Company (1,129,935) (533,799)
Earnings used in the calculation of total basic earnings per share (1,129,935) (533,799)
Weighted average number of ordinary shares for the
purposes of basic earnings per share (all measures) 9,645,837 8,682,878
4.2 Diluted earnings per share
The earnings and weighted average number of ordinary shares used in
the calculation of diluted earnings per share are as follows.
Net (loss)/profit for the year attributable to owners of the Company (1,129,935) (533,799)
Earnings used in the calculation of total diluted earnings per share (1,129,935) (533,799)
Weighted average number of ordinary shares for the
purposes of diluted earnings per share (all measures) 10,043,599 8,682,878
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Appendix 4E Preliminary final report Year ending 30 June 2018

5. Cash and Cash Equivalents

For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown in the statement of cash flows can be reconciled to the related items in the statement of financial position as follows:

	Group
	Year Ended
	30/06/2018 30/06/2017
	$ $
Cash & cash equivalents
Cash and bank balances	2,649,810 1,109,972
	Group
	Year Ended
	30/06/2018 30/06/2017
	$ $
6 Trade and other receivables
Trade receivables	327,858 549,767
Provision for doubtful debts	(90,715) (186,973)
	237,143 362,794
	Group
	Year Ended
7. Other Current Assets	30/06/2018 30/06/2017
	$ $
R&D tax incentive	771,219 901,224
Prepayments	54,405 21,286
	825,624 922,510

8. Other Financial Assets

									Cost of		Cost of
									Parent		Parent
									Entity's		Entity's
									Investment		Investment
			Date of		Country of		Class of		30/06/2018		30/06/2017
	Unlisted Controlled Entity		Acquisition		Incorporation		Shares		$		$
	MGM Wireless Holdings Pty Ltd		08/10/2003		Australia		Ordinary		767,000		767,000
	Message You LLC		11/09/2006		USA		Ordinary		124,440		124,440
	MGM Wireless (NZ) Pty Ltd		18/05/2010		Australia		Ordinary		80		80
									891,520		891,520

The equity holding in all companies is 100%

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Appendix 4E Preliminary final report Year ending 30 June 2018

9. Plant, Equipment and Leasehold Improvements

	Plant and Leasehold
	Equipment Improvements Total
	$ $ $
Cost
Balance at 30 June 2016	321,110 182,607 503,717
Additions	10,986 2,398 13,384
Balance at 30 June 2017	332,096 185,005 **517,101 **
Additions	22,555 4,212 26,767
Balance at 30 June 2018	354,651 189,217 543,868
Accumulated depreciation and impairment
Balance at 30 June 2016	(242,844) (92,412) (335,256)
Depreciation expense	(5,171) (2,613) (7,784)
Balance at 30 June 2017	(248,015) (95,025) (343,040)
Depreciation expense	(19,478) (6,804) (26,282)
Balance at 30 June 2018	(267,493) (101,829) (369,322)
Written Down Value 30 June 2018	87,158 87,388 174,546

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		Appendix 4E Preliminary final report Year ending 30June 2018
10. Intangible Assets		Group
		Year Ended
		30/06/2018 30/06/2017
		$ $
At cost		9,659,782 7,976,195
Accumulated amortisation and impairment		(7,111,137) (5,328,909)
CarryingValue		2,548,645 2,647,286
		Capitalised
	Distribution	Development
	Rights	Costs Total
Cost	$	$ $
Balance at 30 June 2016	441,017	5,784,292 6,225,309
Additions from internal developments	-	1,750,886 1,750,886
Balance at 30 June 2017	441,017	7,535,178 7,976,195
Additions from internal developments	-	1,683,587 1,683,587
Balance at 30 June 2018	441,017	9,218,765 **9,659,782 **
Accumulated amortisation and impairment
Balance at 30 June 2016	(132,305)	(3,466,359) (3,598,664)
Amortisation	(44,102)	(1,686,143) (1,730,245)
Balance at 30 June 2017	(176,407)	(5,152,502) (5,328,909)
Amortisation	(44,100)	(1,738,128) (1,782,228)
Balance at 30 June 2018	(220,507)	(6,890,630) (7,111,137)
Carrying Value 30 June 2018	220,510	2,328,135 2,548,645

11. Trade and Other Payables	30/06/2018 30/06/2017 $ $ Group Year Ended
Trade payables	367,957 404,665
Indirect tax liability	80,180 96,693 65,436 92,548
Accrued SMS charges
	513,573 593,906

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Appendix 4E Preliminary final report Year ending 30 June 2018

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12. Issued capital Group
Year Ended
30/06/2018 30/06/2017
$ $
Ordinary shares, fully paid 9,966,782 7,469,606
(30 June 2018: 11,847,500, 30 June 2017: 8,691,438)
Group
Number of Share
shares capital $
12.2 Fully paid ordinary shares
Balance as at 30 June 2016 8,664,960 7,454,029
Shares issued to Directors 26,478 15,577
Balance as at 30 June 2017 8,691,438 7,469,606
Shares issued in entitlement offer on 3 October 2017 487,230 170,531
Shares issued to the underwriter on 9 October 2017 350,000 122,500
Shares issued to contractor for corporate and investor solutions 370,000 343,348
Share issued in placement on 23 April 2018 750,000 750,000
Shares issued in purchase plan on 29 May 2018 1,049,923 1,049,923
Shares issued on exercise of employee options 148,909 166,778
Share issue costs - (105,904)
Balance as at 30 June 2018 11,847,500 9,966,782
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Appendix 4E
Preliminary final report
Year ending 30 June 2018
13. Reserves Group
Year Ended
30/06/2018 30/06/2017
$ $
Option issue reserve 764,521 483,583
Foreign currency translation reserve (29,009) (37,119)
735,512 446,464
Foreign
Option Issue Currency
Reserve Translation
Reserve
Balance as at 30 June 2016 483,583 (19,708)
- -
Options issued
- -
Options exercised
Currency translation differences - (17,411)
Balance as at 30 June 2017 483,583 (37,119)
-
Options issued 319,786
-
Options exercised (38,848)
Currency translation differences - 8,110
Balance as at 30 June 2018 764,521 (29,009)
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Nature and purpose of reserve

The option issue reserve is used to accumulate amounts received on the issue of options and records items recognised as expenses on valuation of incentive based share options.

The foreign currency translation reserve is used to record exchange rate differences arising from the translation of the financial statements of foreign subsidiaries and is recognised directly in the Statement of Profit or Loss and Other Comprehensive Income before accumulation in this reserve.

14. Subsequent Events

There has not been any matter or circumstance that has arisen since 30 June 2018, which has significantly affected, or may significantly affect, the operations of the Group, the result of those operations, or the state of affairs of the Group in subsequent financial years.

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Signed: Mark Fortunatow Director

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