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Regulatory Story
Company Boku Inc
TIDM BOKU
Headline Final Results
Released 07:00 26-Mar-2019
Number 9526T07

RNS Number : 9526T
Boku Inc
26 March 2019
 

26 March 2019

Boku, Inc.

("Boku" or the "Company" and, together with its subsidiaries, the "Group")

 

Final Results

 

Boku (AIM: BOKU), the world's leading independent direct carrier billing company, today announces its final audited results for the year ended 31 December 2018.

 

Financial Highlights

·    

Revenue up 45% to $35.3m (2017: $24.4m)

·    

Adjusted EBITDA $6.3m vs. 2017 Adjusted EBITDA** loss ($2.3m)

·    

Reported Net loss of $4.3m down 85% (2017: $28.1m)

·    

$32.3m Gross cash at year end (31 December 2017: $20.2m)

·    

Monthly average cash balances of $24.4m (2017: $19.2m)

 

Operational Highlights

·    

Total Payment Volume (TPV) doubled to over $3.6bn (2017: $1.7 billion)

·    

13.5 million Monthly Active Users (MAU) in December 2018 (December 2017: 8.0 million)

·    

70 new Boku Account connections for major customers such as Apple, Microsoft and Spotify (2017: 45)

·    

Acquisition of mobile identity business, Danal Inc.on 1 January 2019

 

**Adjusted EBITDA: Earnings before interest, tax, depreciation and amortisation, adjusted for stock option expenses, forex gains/losses and exceptional items

 

Jon Prideaux, Chief Executive of Boku Inc, commented: "2018 has been a transformational year for Boku; two major milestones include reporting our maiden positive Adjusted EBITDA for the whole year and the acquisition of mobile identity business, Danal Inc. We've delivered growth on all of our KPIs illustrated at both the top and bottom lines.

 

"We believe that 2019 will be another year of exceptional growth as we continue to build upon our strong Payments business, growing Identity business, and our state of the art platform to deliver further products and services to our customers."

 

Capital Markets Day

 

Boku will hold a Capital Markets Day for institutional investors and analysts on Wednesday 22 May 2019. The event will be held in London, with the venue and timing to be confirmed. Further details will be provided in due course.

 

Enquiries:

 

Boku, Inc.

Jon Prideaux, Chief Executive Officer

Stuart Neal, Chief Financial Officer

+44 (0)20 3934 6630

Peel Hunt LLP (Nominated Adviser and Broker)

Edward Knight / Peter Stewart / Nick Prowting

+44 (0)20 7418 8900

IFC Advisory Limited (Financial PR & IR)

Tim Metcalfe / Heather Armstrong / Florence Chandler

+44 (0)20 3934 6630

 

Notes to Editors

Incorporated in 2008, Boku is the world's leading independent carrier commerce company. Boku's Platform, which is linked to billing, identity and sales systems of more than 170 mobile network operators, simplifies transacting on mobile devices. Boku's Payment products enable mobile phone users, of which there are more than five billion worldwide, to buy goods and services and charge them to their mobile phone bill or pre-pay balance. Its Identity Products are used to verify user details. Companies like Apple, Google, Facebook, Microsoft, PayPal, Spotify, Square, Sony and Western Union use Boku to simplify sign-up, acquire new paying users and prevent fraud.

 

 

Chairman's Statement

 

2018 has been a year of growth and expansion for Boku. Volumes processed through the platform have more than doubled to $3.6 billion, further strengthening our lead as the world's largest independent carrier billing company. New customers like Netflix and Rakuten have started to use our platform and existing customers like Sony, Spotify and Apple have expanded their use. Revenues have increased by 45% and for the first time adjusted EBITDA was positive for the whole year.

 

This increasing scale is a source of considerable competitive advantage to the Company. As a platform business, where incremental transactions can be processed for minimal marginal expense, higher volumes drive lower unit costs. This makes Boku a difficult company with which to compete.

 

The real value that we provide to our customers is to help them acquire new paying users and so it is a source of real pride that the number of Monthly Active Users making payments on the Boku Platform has increased to more than 13.5 million in December 2018, an increase of 66% over December 2017.

 

Last year I indicated that the Company was looking to invest in new capabilities that would allow new value to be unlocked from the platform. The acquisition of Danal Inc., completed on 1 January 2019, which makes the Company a leading player in the Mobile Identity market is just such an opportunity. Boku, by virtue of this acquisition, is now able to diversify its addressable market beyond digitally downloaded content to also include electronic remittances, mobile payments, on-demand services, online banking and government services. This application of our platform will drive future growth and lessen the risk of revenue concentration.

 

I want to thank my fellow Non-Executive Directors for their service throughout the year. Both Richard Hargreaves who chairs the Remuneration Committee and Keith Butcher who performs a similar function for the Audit Committee have been generous with their time and expertise to help the Company make the most of its public company position.

 

2019 will be another pivotal year. We have embarked on a course designed to help us diversify from being a single product company to become one with multiple products driven from our state-of-the-art platform. The management have developed the organisation to the point of profitability, and I have every confidence in their ability to help it achieve its potential.

 

I look forward to seeing yet further significant growth over the course of the next year.

 

 

Mark Britto

Non-Executive Chairman

25 March 2019

 

 

Chief Executive Officer's Report

 

2018 has been a stellar year for Boku. The volume of payments processed by the Boku Platform more than doubled. Revenues increased by 45%, costs grew only modestly, and the result was the Company's maiden positive Adjusted EBITDA for the whole year.

 

Looking to the future, our Payments business is on a steady growth trajectory. Operating in an expanding market, with most of the largest digital companies as customers, our growth is underpinned by their success. But, more than this, our business will benefit from an increased number of connections; in 2018 the number of our most advanced, Boku Account, connections increased to 177, enabling Boku payment for many millions of new subscribers.

 

These connections have now only started to yield their potential volume and revenue: once launched, subscribers only gradually discover our service as they attempt to make purchases. As a result, a two-year maturity cycle applies, meaning that the 109% TPV growth that we reported for 2018 is a consequence of the deployments that we made in the preceding two years, and the deployments undertaken this year still have two more years of growth to deliver.

 

Taken together, this provides a platform for steady growth with a predictable profile.

 

The Boku Payments business is generating more recurring revenue from returning users. Our users now fall into three categories, one-off; regular subscriptions and pseudo-subscriptions, like the app stores, where consumers repeatedly (though not necessarily regularly) make transactions using their phone number as their stored payment credential. This recurring revenue helps boost our volume. Every month around 1.5 million users make their first Boku transaction; with increasing numbers of them transacting repeatedly, growth continues to compound.

 

With gross profit margins at 93% (2017: 91%) and plentiful growth on predictable trends it would be easy to be complacent. It's tempting to play things safe. Tempting, but wrong.

 

A company can strive to breakthrough to profitability for years. On reaching profitability, a company is typically congratulated however, the point of profitability is a dangerous time. The company is faced with a choice: does it settle for what it has, or carry on investing for growth? Does one reap or sow?

 

All things must pass. The growth achieved from pursuing one application of Boku's platform will inevitably, eventually peak over time. Not this year or next, but inevitably the S curve will start to asymptote, level off, slow down.

 

So, Boku has chosen a path of growth: we have built a platform which brings together the world's largest connected community and for now, most of our revenue comes from using it to help people sign up smoothly to digital services. We're powering app stores. We're helping digital music services to grow their premium users, streaming video companies come to us to help them grow their user bases too. But collectively these sectors account for only 5% of global e-commerce.

 

Our technology can help more than 5% of commerce - our imperative is to build out our platform to be able to service new merchant segments including Finance, Payments, Money Transfer, Governments and On-demand services; to provide these organisations with a way for their customers to transact on mobile with security and ease of use; to address a bigger market and to embrace the bigger trend, not just the movement to digital entertainment, but to embrace the wider movement to mobile transactions.

 

Our acquisition of Danal Inc. should be seen in this context. It is the springboard that will enable us to repeat our trick of becoming the globally dominant player in our segment driven by our access to carrier assets. With a great platform, strong channel partners and identity connections already live with carriers in North America and Europe, we have acquired a business at a point of inflection that has signed up important customers and is ready to deploy its services more broadly, within a market that is experiencing substantial growth.

 

Faced with the choice of reaping or sowing, we have chosen the path of investment; to expand our business, take some of the cash that is being generated from the Payments Business and build a second business line, Identity, on the Boku Platform; to utilise the same skills, carrier connections and sales approach to build a second strand of Carrier Commerce.

 

Outlook

 

We look forward to 2019 with enormous optimism. In the next 12 months, Boku will operate with multiple product lines across a broader set of customers, adding value to a greater proportion of mobile commerce. For 2019, we anticipate that continued growth in our Payments Business and investment in Identity will deliver Revenues of at least the current analyst consensus of $52 million, with 15% to 20% of this coming from Identity. Trading in Identity has so far been encouraging with a significant contract signed in February. Gross Margins in Payments are projected to remain strong at 93%, those in the Identity business will strengthen to c.40%.

 

We expect Adjusted EBITDA to grow by 45-50%, driven by underlying performance and the implementation of IFRS 16 ($1.9 million).

 

Our forecast is for a record year: record revenues, record EBITDA, investment in new products and continued cash generation. And this is just the start, our flexible platform allows us to roll out new products into other sectors, to make more mobile transactions simple. Truly, the journey has just begun.

 

 

Jon Prideaux

Chief Executive Officer

Date 25 March 2019

 

 

Chief Financial Officer's Report

 

2018 was the year that Boku became a multi-product business, with significant investment in Mobile Identity services, culminating in the acquisition of Danal Inc.

 

What is pleasing about our 2018 results is the degree of predictability in our Payments division. We help our merchants to acquire new paying users, these users in turn consume digital products and this drives our TPV number. TPV is the raw material from which we generate revenue. The other key ingredient to our revenue is the take rate - for the year to December 2018 our weighted average take rate fell at a far slower rate from 1.4% in 2017 (compared to 3.1% to 1.4% between 2016 and 2017). This decline was fully anticipated and reflects a mix of business and volume related discounts for certain clients.

 

Net Loss

 

The Company reported a Net Loss for the year of $4.3 million, an improvement of 85% compared to the $28.7 million the net loss posted in 2017 (2017 included costs of Admission to AIM and the conversion of convertible notes. Net of these costs, 2017 Net Loss would have been $7.4 million). Net Profitability in 2018 was influenced by a change in accounting for Employee Long Term Incentives (up $3.1 million on 2017 driven by a higher company share price and a change in accounting policy for tax on share-based payments), a write down of a deferred tax asset ($1.1 million), the costs of acquiring Danal Inc ($0.4 million) and some internal restructuring costs ($0.6 million).

 

When adjusted for the above items, the Net Profit would have been a $1.3 million for 2018 (please refer to note 4 to the financial statements for further details).

 

Revenue and Gross Margin

 

Revenue for the year of $35.3 million was up by 45% on 2017. This performance was driven by overall TPV growth and average weighted take rates that held up at 1%.

 

Strong growth from our App Store clients was balanced with an equally buoyant performance by our Settlement business portfolio. The Company benefitted from exposure across all channels to market phenomena such as FIFA, Fortnite and general growth in the market for Digital products and services.

 

Having a mixed portfolio of customers in Music Subscriptions, Movies, Games, Social Media, in addition to supporting both direct and indirect channels, helps to maintain a reasonable margin mix.

 

Mix of business combined with continued buying prowess helped gross profit margin continue to increase to 93% up from 91% in the previous year. Gross Profit therefore climbed 48% on revenue that was up 45%.

 

Operating Expenditure

 

Adjusted Operating Expenditure (Operating Expenditure adjusted for depreciation, amortisation, foreign exchange, stock option expense, exceptional items, loss on disposal of property and restructuring costs) increased by 8% to $26.4 million in 2018 (2017: $24.5 million). The 2018 increase was mostly driven by the Group's £1.5 million of seed investment in Boku Labs and Boku Mobile Identity. Please refer to note 5 for details.

 

Underlying expenditure in the core Payments Business grew by just $0.4 million (2% higher than 2017). The majority of this increase resulted from a modest investment in our core payments infrastructure, more specifically a data centre upgrade project which increased the latent processing capacity of the Boku platform to now be capable of processing at up to 600 transactions per second (TPS) (current highest peak is 216 TPS).

 

From 1st January 2019 onwards, costs relating to Operating Leases will be required to be capitalised and amortised below EBITDA under IFRS16. This will have the effect of increasing the Company's EBITDA going forward (please refer to Note 1 of the Financial Statements for further details).

 

Operating Result

 

Reported Operating Losses for 2018 of $2.4 million were down from $9.0 million in 2017. This can be broken down as follows:

·     Foreign Exchange movements caused a small ($0.3 million) charge to the P&L compared to a $0.4 million gain in 2017.

·     Stock Option Expenses - The Company recognised costs of $4.6 million in 2018 compared with $1.5 million in 2017. Of the $4.6 million booked in 2018, $1.0 million was paid out in cash (via employers NI), the remainder was non-cash and expensed per below:

During 2018 the Company introduced a new Employee Equity Scheme to retain and reward employees. Within the scheme, share awards for senior management are deferred by 3 years and are "paid out" in line with company performance against Adjusted EBITDA/share targets.

Due to the high share price on the date of issuing the RSU grants (September 2018: $2.24; 2017: $0.37 pence per share) to the employees and executives the share-based compensation expense is far higher than in previous years (2018: $3.4 million; 2017: $909,000).

The 2018 expense is highly influenced by the change in accounting policy for accrued employer payroll taxes on issued share options (see note 2).

·     Exceptional Items improved from $2.6 million of cost to $1.1 million of cost between 2017 and 2018 In 2018. Exceptional Items incorporated the cost of acquiring Danal Inc ($0.4 million, which mostly includes the legal costs incurred prior to the acquisition of Danal on 1January 2019) and the cost of closing a surplus legal entity in Italy ($0.6 million). In 2017 exceptional items included costs relating to the Admission on AIM ($2.1 million).

 

Adjusted EBITDA improved from a loss of $2.3 million in 2017 to a profit off $6.3 million in 2018.

 

Financing Expenses

 

Net financing expense reduced significantly from $19.6 million in 2017 to $0.6 million in 2018. The 2018 cost includes the one-time costs of $0.1 million to early exit a German factoring facility in Q1 2018.

 

In addition, the working capital debt facility was paid down to minimum interest levels ($2.2 million) in Q1 2018.

 

Run rate interest expenses are just $15,000 per month as at December 2018.

 

2017 Finance expenses include the finance costs related to Convertible Notes which were converted into common stock at the Admission to AIM ($17.1 million).

 

Balance Sheet and Cashflow

 

The Company strengthened its cashflow in 2018 which can be demonstrated by its closing cash balances increasing to $32.3 million at the end of 2018 from $20.2 million at 31 December 2017.

 

Monthly average cash balances, which smooth the impact of intra-month flows of both carrier and merchant payments, climbed to $24.4 million in December 2018 from $19.2 million in December 2017, proving that Adjusted EBITDA performance is starting to convert into cash. Cash generated from Operations during the year was $13.5 million.

 

From a working capital perspective, Current Assets exceeded Current Liabilities at 31 December 2018 by $4.4 million compared with $1.3 million at the 2017 year end.

 

The working capital loan facility was reduced from $2.4 million to $2.2 million during 2018. Net Cash was $30.1 million at the end of 2018 (31 December 2017: $18.7 million).

 

Intangible Assets were reduced to $22.5 million over the period, down from $25.8 million at December 2017 reflecting annual amortisation. Remaining intangible assets include $17.9 million of Goodwill emanating from historical acquisitions. 

 

Looking Ahead and the Acquisition of Danal Inc

 

The Company successfully concluded the acquisition of Danal Inc, effective 1 January 2019. The transaction will help the company to springboard plans to widen its addressable target market exponentially, beyond digitally downloaded content and into broader m-commerce.

 

Danal was acquired for 26.7 million Boku shares (equal to 10.7% of the enlarged share capital) with posted 2018 revenues of $5.3 million and expected strong revenue growth in2019 delivered through a material sales pipeline. A further payment in Boku shares and warrants will be made, on a ratcheted basis, should the acquired business deliver above $10.0 million in revenues during 2019. Any such payment or further issue of shares would be made in the financial year ending 31 December 2020. As of the approval of the Annual Report, the Group is finalizing its evaluation of the purchase price accounting relating to the acquisition and an update will be provided at the Group's forthcoming interim announcement.

 

Revenue upside will be delivered through accelerated global roll out to carriers with whom Boku already has a relationship and cross sell opportunities into Boku's existing merchant base.

 

The Company expects the acquisition to be Group EBITDA accretive from 2020 onwards.

 

Aside from investment in Mobile Identity, the Company expects to see continued growth in its core Payments business and will be making investments in new product developments in Payments to sustain this growth. This will be funded through a modest increase in Operating Expenses and by reallocating existing resources as they roll off current projects.

 

 

Stuart Neal

Chief Financial Officer

Date: 25 March 2019

 

 

Market Review

 

Mobile Phones - the start of the usage revolution

 

Andreessen Horowitz, a leading venture capital firm and shareholder in the company, made a presentation in 2016 called "Mobile is eating the world" and another in 2018 called the "End of the beginning". The thesis of the presentations was that whilst we are well on the way to distributing smartphones to all adults on the planet, the usage of those devices, which signals the start of a new computing paradigm, has only just begun.

 

Use of the mobile device in commerce is growing rapidly - for example, 40% of Amazon's sales in the US during the 2018 Holiday season were initiated on a phone. In Asian countries, like India and China, where internet adoption happened primarily on mobile, not PC, the percentages are much higher. Despite this, Andreessen Horowitz argues, we are still a long way short of achieving usage to match the distribution.

 

This shift from distribution to usage is evident in Apple's change of emphasis from a business that grows primarily by selling new iPhones to one that grows by selling more services to the existing base of iPhone customers.

 

The distribution task is basically over. But mass usage is just beginning.

 

This unprecedented, global deployment of computing power has created a new, mobile-centric economy. As usage increases, an ever-wider selection of goods and services will be bought and sold on the smart phone. Online retail, digital entertainment, on-demand services, and even interactions with Governments are undertaken on mobile, and every one of those interactions - which embrace the whole lifecycle including enrolment, login, purchase, and regular usage -- needs to be easy for the user and secure for the supplier.

 

Mobile Phone vs PC - a different paradigm

 

Transacting on mobile is not the same as transacting on a PC, just with a smaller screen. Many problems that have been solved for the PC need to be solved again for mobile. To illustrate this in a small way: most e-Commerce services use your email address as your identifier. But many people who have come to the internet in a mobile-first environment don't have an email address, or prefer not to use it. They use WhatsApp or WeChat or Facebook Messenger to communicate. The index of their digital identity is not their email address, it's their mobile phone number.

 

The smartphone changes the user interface. It's hard enough to type in 16 digits of your card number on a keyboard (and the 4-digit expiry date and the 3-digit CVV and quite possibly your name and address too), but, on the glass of a smartphone, it's positively painful.

 

On the other hand, mobile phones offer many unique advantages - they are always with the user, they can be geo-located, they have multiple sensors including built-in cameras, Bluetooth antennae, biometric readers, and a network connection that allows the user to download, install, and run countless apps from anywhere in a matter of seconds. These advantages offer the potential for a completely new user experience.

 

Disruption across Multiple Industries

 

This new mobile computing paradigm is disrupting industry after industry at every stage of the customer lifecycle. How you get your bank account; the way that transportation services are delivered; the fact that you're prepared to register to consume music or watch films; the way you play games and how you pay for them; how you book hotel rooms how you book a restaurant or order a takeaway. All these experiences are different today because we have in our pockets a location aware, user-friendly computer that is connected to the internet at all times.

 

The move to mobile has, in particular, disrupted entertainment: the digitisation of games, music and video has proceeded apace. The old media of CDs and DVDs have become all but obsolete. There is a landgrab underway, with new and established players trying to sign up as many new users as possible. Removing friction from the sign-up process and accessing as many users as possible became necessary parts of the armoury for any serious digital content provider. Providing solutions for merchants in this area has been Boku's initial focus.

 

But mobile disruption doesn't just apply to digital, it applies to all types of transaction. As more business transactions across more market sectors migrate to mobile, the same challenges that faced digital content merchants now apply to a much wider range of other businesses - the need to attract and retain high quality users is universal.

 

Risk and fraud solutions developed for the PC world don't always address the problems of mobile: One-time PINs can be intercepted with social engineering or malware, apps can be hacked, logins can be phished, and phones, especially those running Android, can be rooted and compromised. The result: increasingly large-scale abuse and fraud on mobile. Legacy anti-fraud solutions typically add friction to transactions. What is needed is a way to deliver security with low friction on mobile. This is the next area where Boku is providing solutions.

 

The Value of Mobile Operator Networks

 

What these two examples show is that as more businesses transition to mobile, the need will grow for simple, secure ways to acquire new customers, verify their identity, provision services onto the handset and detect threats in real time. Because these transactions all happen on mobile devices, Mobile Network Operators hold the key.

 

Central to the Mobile Network Operator's ability to secure and authorise voice and data connections is the SIM card. The SIM card provides every mobile phone in the world with a secure element owned by the Mobile Operator. The Mobile Operator can verify that secure element, silently, in real-time; they can detect your mobile number without having to ask for it. In most instances, they also know who you are, know information about your mobile device, know information about your payment or top-up history, and can facilitate financial transactions by leveraging the existing billing relationship they've set up with each mobile subscriber. These assets provide a powerful and essential collection of tools for enabling this new era of mobile usage.

 

Mobile Network Operators may hold the keys that can unlock much of this latent potential, but they need Boku's help to commercialise these unique assets because, in practice, these capabilities are inaccessible and fragmented behind the hundreds of different back office systems. It's easy for consumers to make phone calls and send text messages, but it is nearly impossible for businesses trying to access any other Mobile Network capability to independently connect to the multitude of different Mobile Operator systems.

 

The Boku Platform

 

Boku has developed a platform to solve the problem of accessing and monetising these hard-to-reach mobile assets. By connecting to the user-facing systems of Mobile Operators around the world, we build products, delivered via simple-to-use APIs that enable enterprise customers to transform the mobile experience for their users and power the growth of their business.

 

With Boku as the trusted intermediary, we can make the power of Mobile Networks available to the world's app developers, businesses and governments.

 

Other solutions try to deliver low friction approaches, but they require registration; with Boku you registered when you got the phone.

 

The Boku Platform can use Mobile Network Operator and other systems silently to:

 

·     authenticate the handset;

·     gather information about the device;

·     check the user's eligibility for different services;

·     charge and credit the user;

·     collect and disburse aggregated funds in multiple currencies from multiple countries;

·     provide new services onto mobile subscriptions;

·     provide coarse or fine location data for devices;

·     expose certain characteristics of the customer profile including pre-paid/post-paid and length of tenure;

·     send and receive messages

 

These raw ingredients can be combined in different ways to produce a myriad of products that solve problems for merchants.

 

While it is carrier information that provides the Boku Platform with much of its distinctive character, the platform is also effective in aggregating and harmonizing mobile capabilities that come from other non-carrier sources. In mobile payment, these additional payment methods can enhance the offer by providing alternative sources of funds when the carrier bill is not appropriate or economic. Combining carrier identity data with other sources can deliver an even higher level of security or insight.

 

The Boku Platform: Mobile Transactions Made Simple

 

Our platform is a powerful asset. Initially used to help companies distributing digital content acquire new customers, its capabilities can just as easily be applied to other aspects of the customer journey and to other industries. Whether it's retaining customers through prompted messaging, preventing the abuse of marketing promotions, validating the users that access a service or delivering the service to the right device, all aspects of the customer journey can be enhanced by the Boku Platform.

 

At scale. Globally. Across multiple industries.

 

Having applied our technology to solving customer acquisition for digital content, we now have the tools and capabilities that can be applied to other parts of the value chain and across multiple other sectors. We have started already by delivering mobile fraud and identity solutions for Banking, Money Transfer and On-Demand Services, and, once we have established strong presence in these markets, we will repeat the process again in new sectors, applying the power of our Platform that connects billions of consumers through their most personal ubiquitous device to simplify more aspects of mobile commerce.

 

The Benefits of Scale

 

To attract the biggest merchants, Boku built a global organisation and a high function platform which meets the needs of many merchants. These merchants bring us the highest volumes of transactions, which in turn, yield the lowest unit cost in the industry. In the last two years, as the volume of successful transactions processed through the Boku Platform has more than tripled, unit costs have reduced by nearly three quarters. Further growth is possible at modest cost: in the course of 2018, capacity was increased by 55% for an expenditure of less than $330,000.

 

Bigger is also better: Boku's scale brings more data to optimise performance. For example, the value of transactions processed through a single merchant-carrier connection increased by 37% after it was moved to the Boku Platform, through the use of Boku's optimisation tools. On average, a Merchant that uses our Platform can expect to see its volume increase by more than 20%. These economies and advantages apply across multiple products - success in Payments means better Identity products. Wider coverage for one application helps another.

 

Carrier Network

 

The carrier network that Boku has built over 10 years with an investment of more than $100m is hard to replicate. The unparalleled level and quality of carrier connections that we enjoy is a consequence of the merchant connections that we have been able to acquire. Because each carrier connection is unique it would be very hard, if not impossible, for anyone else, even had they the resources, to be able to copy the breadth and depth of our carrier network.

 

Global Merchant Base

 

Boku has developed an unrivalled network of Global brands as customers. Companies like Apple, Facebook, Microsoft, Netflix, PayPal, Rakuten, Sony, Spotify, Square, Uber and Western Union all trust Boku to be their Partner. With 13 offices in 10 countries Boku has developed the global coverage and the way of working that makes us the natural choice for any organisation looking to access the power of mobile operator networks globally.

 

Boku Payments For Digital Goods

 

The market for digital content paid for by carrier billing is estimated by Ovum at $26 billion in 2018, growing at 11% CAGR (Compound Average Growth Rate).

 

Target Merchants

 

Many of the world's largest digital retailers including app stores, like Apple and Google, console makers like Microsoft and Sony, and streaming companies like Spotify and Netflix, utilise Boku, as do the leading MMO (massive multiplayer online) game publishers such as Activision Blizzard and Tencent Riot, social gaming platforms such as Facebook Games, and gaming PSPs (payment service provider) such as Xsolla. We are also seeking to extend our reach in Asia, targeting companies from China, Korea and Japan to help them acquire new users, especially as they seek to expand abroad.

 

Merchant Benefits

 

Boku Payments help digital merchants recruit new users. Oftentimes, users only need a single tap to set their phone number as their payment credential, improving conversion rates. Whilst charging to your phone bill is an expensive means of payment for merchants compared to bank-provided alternatives, it is a cost-effective means of acquiring new users.

 

Business Model and Revenues

 

Boku Payments have processed over $3.6 billion of transactions in 2018 and accounted for all the revenue generated by the Boku Group in 2018 at $35.3 million, an increase of 45% compared to the previous year. 

 

Fees are charged as a percentage of the overall transaction value with some differences between customers depending on whether Boku handles the funds (the settlement model) or acts solely as a technical processor (transaction model). Some merchants also receive volume discounts as part of their pricing scheme. Take rates (re divided by total payment volume) averaged 1% for the year. The rate of reduction has stabilised, following reductions in prior years driven by a change in the mix between the settlement and transaction business models.

 

Growth Drivers

 

In 2018, Boku's volume grew by 109% to more than $3.6bn of value processed, a relatively modest penetration of a large and growing market. The disruption of digital has only just begun. App store growth is forecast at 18% CAGR, which provides a strong tailwind for Boku who already processes 40% of the carrier billed volume coming from app stores. Further growth comes from Boku increasing the number of Boku Account connections*, thereby making the service more widely available. These connections increased to 177 by the end of the year an increase of 65% on 2017's closing figure of 107. Each new connection starts a process of discovery of the Boku payment option amongst that carrier's customers, a process that typically continues for two years. Further growth can also be anticipated from new customers and new funding sources being added to the Boku Platform. In short: super-normal growth is baked in.

 

Competitive Advantage

 

Boku's advantage lies in its scale. Having more merchants helps us get the best connections from carriers with the best commercial conditions. In turn, this helps us to recruit more merchants which drives up our transaction volumes and provides us a richer data set for performance optimisation. Similarly, the fact that we have a wider breadth of merchants and a larger scale of volume than any other provider means that we can simultaneously have the broadest range of functionality and the lowest unit costs.

*Connections relate to the link between the merchant and the carrier

 

Boku Identity

 

The acquisition of Danal Inc., now renamed Boku Identity Inc., was completed on 1 January 2019.

 

McKinsey estimates the size of the Identity-as-a-Service at $10 billion in 2017, growing to $16 billion --$20 billion in 2022 (9-15% CAGR).

 

Geographically, all parts of the world are exhibiting growth, but this is particularly pronounced in Asia, where identity data is hard to source; mobile is the predominant channel for internet access giving Mobile Operator data a distinct advantage.

 

Target Merchants

 

Any organisation transacting on a mobile device or wanting to analyse the mobile behaviour of their users is a potential customer for Boku Identity. Boku is particularly focused on organisations in the Payments, Money Transfer, Banking, On-Demand Services and Government sectors.

Customers of Danal Inc. include PayPal, Square, Western Union, MoneyGram, JP Morgan Chase, BNP Paribas, Uber and the US Government's Internal Revenue Service.

 

Merchant Benefits

 

Historically there has been a trade-off between ease of use and security. Increase security and you introduce friction which can drive away potential customers; provide a simple user experience and leave yourself vulnerable to fraud. Boku Identity products allow security with no friction, because the Mobile Operator knows your phone number without having to ask. Using the secure SIM card as your identity, combined with other back office data held by the Mobile Operator, can reduce fraud and ensure compliance without needing to inconvenience the end user.

Use cases:

-      

Secure, frictionless 2 Factor Authentication: Silently validate a mobile device without the need for an SMS, using automatic mobile number verification

-      

Know Your Customer: Streamline the KYC process by validating the name and address entered by a user against Mobile Operator data

-      

Promotion abuse: Reduce offer fraud by linking marketing promotions to secure SIM-based user identities instead of email or unverified mobile numbers

-      

Account Takeover Prevention: Pro-actively monitor and detect SIM card changes to prevent SIM swap fraud

-      

Credit card and bank fraud: Reduce fraud by providing real-time Mobile Operator data as risk inputs for enterprise risk and fraud systems

-      

CRM data compliance: Ensure compliance with consumer regulations by validating phone number ownership and monitoring for phone deactivations and number transfers

 

Business Model and Revenues

 

Merchants are charged either on a per user basis - for monitoring - or on a per transaction basis, typically with monthly minimum amounts. In December 2018, 12.2 million numbers were being monitored. 175 million billable transactions processed in 2018, a 95% increase on the number processed in 2017. At present charges are predominantly for data elements, over time it is intended to introduce premium pricing for higher value, packaged products.

 

Danal revenues amounted to $5.3 million in 2018 (pro-forma, these unaudited revenues were reported by Danal Inc. prior to its acquisition by Boku on 1 January), a modest increase from $5.1 million in 2017, generated from the provision of mobile identity and compliance services to customers predominantly in the United States.

 

Growth Drivers

 

As mobile transactions increase, demand for mobile identity solutions is increasing in lockstep. There is plentiful demand. Growth is constrained by supply of carrier data and sales capacity. Both of these are addressed by integrating Boku Identity into the Boku Group. Supply can be increased by Boku's capacity to source and build new connections at global scale - 20 new connections are planned for 2019. Sales capacity is being tripled, with more account management and business development staff being hired.

 

Competitive advantage

 

Traditional identity providers have tended to connect to large static databases, which are optimised for PC-based e-Commerce. Boku Identity's connections provide access to the unique Mobile Operator data set which provides real-time information about a customer's status, all without interrupting the user experience.

 

Boku Identity is able to leverage the existing network of Mobile Operator relationships and connection capabilities developed by Boku Payments in order to expand into to new markets faster than any competitor.

 

 

 

BOKU, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

Restated*

 

 

 

 

Year ended

31 December

Year ended

31 December

 

 

 

2018

2017

 

Note

 

$'000

$'000

 

 

 

 

 

Revenue

4

 

35,275

24,412

Cost of sales

 

 

(2,512)

(2,265)

Gross profit

 

 

32,763

22,147

Administrative expenses

5

 

(35,179)

(31,147)

 

 

 

 

 

Operating loss analysed as:

 

 

 

 

Adjusted EBITDA**

 

 

6,324

(2,319)

Depreciation and amortisation

 

 

(2,794)

(2,985)

Stock Option expense

 

 

(4,593)

(1,480)

Foreign exchange gains/(losses)

 

 

(279)

428

Exceptional items (included in

administrative expenses)

5

 

 

(1,074)

 

(2,644)

 

 

 

 

 

 

Operating loss

 

 

(2,416)

(9,000)

Finance income

7

 

53

18

Finance expense

7

 

(631)

(19,558)

Loss before tax

 

 

(2,994)

(28,540)

Tax expense

8

 

(1,339)

(129)

Net loss for the period attributable to equity holders of the parent company

 

 

(4,333)

(28,669)

 

 

 

 

 

Other comprehensive income/(losses) net of tax

Items that will or may be reclassified to profit or loss

 

 

 

 

Foreign currency translation (loss)/gain

 

 

(938)

2,269

Net increase/(decrease) in fair value of cash flow hedge derivatives

15

 

27

(38)

Total comprehensive (loss)/gain for the period

 

 

(911)

2,231

 

Total comprehensive loss for the period attributable to equity holders of the parent company

 

 

(5,244)

(26,438)

 

 

 

 

 

Loss per share for loss attributable to the owners of the parent during the year

 

 

 

 

Basic and fully diluted ($)

9

 

(0.02)

(0.19)

 

* the 2017 Income Statement was restated due to a change in accounting policy to employer taxes for share options (and RSUs).

 

 

 

 

 

**Earnings before interest, tax, depreciation, amortisation, stock option expense, foreign exchange gains/(losses), and exceptional items. Management has assessed this performance measure as relevant for the user of the accounts

 

BOKU, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

 

Restated*

 

 

 

31 December

31 December

 

 

 

2018

2017

 

Note

 

$'000

$'000

Non-current assets

 

 

 

 

Property, plant and equipment

10

 

286

410

Intangible assets

11

 

22,466

25,799

Deferred income tax assets

  8

 

254

714

Total non-current assets

 

 

23,006

26,923

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

13

 

51,658

59,115

Derivative financial instrument

15

 

3

-

Cash and cash equivalents

14

 

31,073

18,741

Restricted cash

14

 

1,251

1,439

Total current assets

 

 

83,985

79,295

 

 

 

 

 

Total assets

 

 

106,991

106,218

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

16

 

77,374

75,514

Derivative financial instrument

15

 

-

24

Loans and borrowings

17

 

2,193

2,482

Total current liabilities

 

 

79,567

78,020

 

 

 

 

 

Non-current liabilities

 

 

 

 

Other payables

16

 

107

124

Deferred tax liabilities

  8

 

671

-

Loans and borrowings

17

 

-

43

Total non-current liabilities

 

 

778

167

 

 

 

 

 

Total liabilities

 

 

80,345

78,187

 

 

 

 

 

Net assets/ (net liabilities)

 

 

26,646

28,031

 

 

 

 

 

Equity attributable to equity holders of the company

 

 

 

 

Share capital

18

 

22

21

Share premium

 

 

178,079

174,220

Cash flow hedging reserve

 

 

3

(24)

Foreign exchange reserve

 

 

(1,867)

(928)

Retained losses

 

 

(149,591)

(145,258)

Total equity

 

 

26,646

28,031

* the restatement relates to a change in accounting policy to employer taxes for share options (and RSUs). 

 

 

BOKU, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

Share capital

Share premium

Cash flow hedging reserve

Foreign exchange reserve

Retained losses

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

Equity as at 1 January 2017

15

119,315

14

(3,197)

(116,589)

(442)

Loss for the year restated*

-

-

-

-

(28,669)

(28,669)

Other comprehensive income/ (losses)

-

-

(38)

2,269

-

2,231

Issue of new shares on IPO

2

19,023

-

-

-

19,025

Shares issued for convertible note

4

       33,772

-

-

          -

33,776

Shares issued in respect of warrants

-

             462

-

-

          -

       462

Share issue costs

-

(983)

-

-

-

(983)

Issue of share capital upon exercise of 3,357 stock options

 

1,722

-

-

-

1,722

Share-based payment1

-

909

-

-

-

909

Equity as at 31 December 2017

21

174,220

(24)

(928)

(145,258)

28,031

Loss for the year

-

-

-

-

(4,333)

(4,333)

Other comprehensive income/(losses)

-

-

27

(939)

-

(912)

Issue of share capital upon exercise of 9,710,341 stock options

1

510

-

-

-

511

Share-based payment1

-

3,349

-

-

-

3,349

Equity as at 31 December 2018

22

178,079

3

(1,867)

(149,591)

26,646

               

 

 

 

1 Share based expense has been credited against share premium in accordance with the local company law and practice in US.

Employer taxes paid on the exercise of shares as well as the accrual for employer taxes has been recorded in the retained losses reserve.

 

* the restatement relates to a change in accounting policy to employer taxes for share options (and RSUs).  

 

 

 

 

BOKU, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

Restated*

 

 

 

Year ended

31 December

Year ended

31 December

 

 

 

2018

2017

 

Note

 

$'000

$'000

 

 

 

 

 

Cash generated from/ (used in) operations  

23

 

13,742

(6,819)

Income taxes paid

 

 

(248)

-

Net cash from/ (used in) operating activities

 

 

13,494

(6,819)

Investing activities

 

 

 

 

Purchase of property, plant and equipment

 

 

(91)

(223)

Purchased of software development

 

 

(238)

(97)

Restricted cash (net)

 

 

188

(959)

Investments, net of cash acquired

12

 

(164)

-

Interest received

 

 

53

18

Net cash used in investing activities

 

 

(252)

(1,261)

Financing activities

 

 

 

 

Payments to finance lease creditors

 

 

(82)

(117)

Share Issue Costs

 

 

-

(983)

Issue of common stock

 

 

510

20,747

Interest paid

 

 

(631)

(937)

Proceeds from line of credit

 

 

-

2,321

Repayment of line of credit

 

 

(250)

(5,921)

Net cash from financing activities

 

 

(453)

15,110

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

12,789

7,030

Effect of foreign currency translation on cash and cash equivalent

 

 

(457)

389

Cash and cash equivalents at beginning of period

 

 

18,741

11,322

Cash and cash equivalents at end of period

 

 

31,073

18,741

 

* the restatement relates to a change in accounting policy to employer taxes for share options (and RSUs). 

 

 

Notes to the Consolidated Financial Statements

 

1.  Corporate Information

The consolidated financial information represents the results of Boku Inc. ("the Company") and its subsidiaries (together referred to as "the Group").

 

Boku Inc. is a company incorporated and domiciled in the United States of America. The registered office of the Company is located at 735 Battery St., 2nd Floor, and San Francisco, CA 94111, United States.

 

On 20th November 2017, the Company's shares were listed on the Alternative Investment Market of the London Stock Exchange ("AIM").

 

The principal business of the Group is the provision of mobile billing and payment solutions for mobile network operators and merchants. These solutions enable consumers to make online payments using their mobile devices.

 

The financial information set out in this document does not constitute the Group's full annual Report and financial statements for the year ended 31 December 2018 or 31 December 2017. The annual report and financial statements for the year ended 31 December 2018 were approved by the Board of Directors on 25 March 2018, along with this preliminary announcement. The financial statements for the year ended 31 December 2018 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for the year ended 2018 was unqualified and did not draw attention to any matters by way of emphasis.

 

2.  Accounting policies

The financial information has been prepared using the historical cost convention, as modified by the revaluation of certain derivative financial instruments, as stated in the accounting policies below. These policies have been consistently applied to all periods presented, unless otherwise stated.

 

Basis of preparation

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") and IFRIC Interpretations issued by the International Accounting Standards Board (IASB). 

The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed below.

 

The presentation currency of the financial statements is US Dollars, rounded to the nearest thousands ($'000) unless otherwise indicated. The Company's functional currency is US Dollars.

 

Going concern

 

The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of this financial information.

 

The forecast contains certain assumptions about the performance of the business including growth in future revenue which are deemed high volume and low value in nature, the cost model and margins; and importantly the level of cash recovery from trading. Furthermore, investment in winning customers via marketing expenditure, remains an important function of the forecasts. The Group obtained additional funding through the placement of shares on AIM in November 2017 which helped fund the business during 2018. Boku has been cash generative during 2018 which helped provide further working capital to cover all operating activities.

 

The Directors are aware of the risks and uncertainties facing the business, but the assumptions used are the Directors' best estimate of the future development of the business.

 

After considering the forecasts and the risks, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the financial information.

 

Basis of consolidation

 

Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial information presents the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

 

The consolidated financial information incorporates the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

 

A list of the subsidiary undertakings which, in the opinion of the Directors, principally affected the amounts of profit or loss and net assets of the Group is given in note 12 of the financial information.

 

 

Changes in accounting policies and disclosures

 

(a) New and amended standards adopted by the Group

 

The Group has applied any applicable new standards, amendments to standards and interpretations that are mandatory for the financial year beginning on 1 January 2018. However, no adjustments were required on transition.

 

● The Group applied IFRS 15 Revenue from Contracts with Customers, which was effective from 1 January 2018. IFRS 15 is intended to clarify the principles of revenue recognition and establish a single framework for revenue recognition. This standard replaces the previous standard IAS 11 Construction Contracts, IAS18 Revenue and revenue related IFRICs. The core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

An analysis of the key considerations that IFRS 15 has on the Group's revenue streams is summarised below.

 

1. Settlement Model: when it acts as an agent between a merchant and mobile network operators (MNOs) or an aggregator (a middleman between the Group and the MNO). Management has determined that it is acting as an agent under IFRS 15 because it does not have the primary responsibility for providing the services to the customer. Therefore, been no change in the classification as an agent from the previous assessment that there was no exposure to the risks and rewards.

 

2. Transactional Model: from larger virtual and digital merchants who receive the sale collections directly and pay a service fee to the Group.

 

Under both the transactional and settlement model (see point 1 and 2 above), revenue was previously recognised under IAS 18 once the merchant transfers risks and rewards to the customer. Under IFRS 15, the Group's contracts with customers include one performance obligation only. This relates to an obligation to facilitate the payment for the transaction between the merchant and their end users. Under IFRS 15 revenues for this service is recognised under this contract at a point in time as the obligation is fulfilled at time when transaction happens. There has been no change on the adoption of IFRS 15, as the point of delivery of the performance obligation is the same as when the risks and rewards have been transferred. . Payments are due once the Group receives the monthly statement of information from the Aggregator or the MNO. There is no financial effect of the change in policy for the current and comparative periods, hence no adjustments were required to the current or comparative periods.

 

3.  Other revenue: from special merchant integrations, subscription services and early settlement of funds.

 

Under IAS 18, the revenue earned from special merchant integrations were previously spread over the term of the customer contract. This is in line with the treatment under IFRS 15, as the customer gets the benefit equally over the subscription period. Payments are due once the integrations has successfully occurred. There is no financial effect of the change in policy for the current and comparative periods, hence no adjustments were required to the current or comparative periods.

Under IAS 18, the revenue earned from early settlement of funds is recognised when the early settlement is made by the merchant. Under IFRS 15, the performance obligation is met once the early termination of the agreement has been announced and BOKU is entitled to the early termination fee. This is not different to the previous treatment as the point when meeting the performance obligation is the same as when risk and rewards. There is no financial effect of the change in policy for the current and comparative periods, hence no adjustments were required to the current or comparative periods.

 

IFRS 9 Financial Instruments,

 

In adopting IFRS 9, the only changes made from the previous reporting period is in relation to the impairment of financial assets. The Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In adopting IFRS 9 the Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. The impairment provision on shareholders loan, measured at amortised cost, have been calculated in accordance with IFRS 9's general approach,

 

 The Group has elected to adopt the initial application date of 1 Jan 2018 and has not restated comparatives. The effect of IFRS 9 is an increase to the provision of $548,000 on the current year and the effect on the prior year was immaterial. For trade receivables, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive income, as this is a directly attributable to the operations. The Group has chosen to continue applying the hedge accounting requirements of IAS 39.

 

(b) New, amended standards, interpretations not yet effective

 

The following new standards, interpretations and amendments, which are not yet effective and have not been adopted early in this financial information, will or may have an effect on the Group's future financial statements:

 

IFRS 16 Leases, effective date 1 January 2019 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 completes the IASB's project to improve the financial reporting of leases and replaces the previous leases Standard, IAS 17 Leases, and related Interpretations.

 

Adoption of IFRS 16 will result in the Group recognising the right use of assets and lease liabilities for all contracts that are, or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the group does not recognise related assets or liabilities, disclosing instead the total commitment in its annual financial statements. At 31 December 2018 the commitment disclosed was $4.3m. Assuming the group's lease commitments remain at this level, the effect of discounting those commitments might be expected to result in the right-of-use assets and lease liabilities of approximately $3.8m being recognized on 1 January 2019. Instead of recognising an operating expense for its operating lease payments, the group will instead recognize interest on its lease liabilities and amortisation on its right of use assets. This will increase the reported EBITDA by the amount of its current operating lease costs (which for the year ended 31 December 2018 was $1.9m).

 

Since the Group last reported, the Board has decided to apply the modified retrospective method when the standard is first adopted in its financial statements for the year ended 31 December 2019. Therefore, there will be no impact on any comparative accounting period (interim or annual) up to and including 31 December 2018, with any leases recognised on balance sheet on the date of initial application of IFRS 16 (1 January 2019). In applying the modifying retrospective approach, the Board has further decided to measure the right of use assets by reference to the amount at which lease liabilities are measured on 1 January 2019. Therefore, there is no immediate impact on these financial statements as a result of adopting the standard on that date.

 

Changes to the accounting policy for national insurance on share-based payments

 

The group has amended its accounting policy for national insurance on share-based payments following a review with regards to all options and restricted stock units currently available. Following the adoption of this updated policy the Group now accrues for employer's-based taxes (e.g. National Insurance, FICO) as part of the share-based payments charge in line with IFRS 2, in each accounting period. The prior year has been represented following this change in accounting policy.

 

 

 

The impact in the change in accounting policy on the consolidated income statement for 2017 is:

 

 

 

 

2017

Income statement impact

 

 

$'000

Total previous loss before tax

 

 

(27,969)

Share based payment charge

 

 

(571)

Updated loss before tax

 

 

(28,540)

 

 

The impact of the change in accounting policy on previously reported total equity may be summarised as follows:

 

 

 

 

2017

Impact on equity

 

 

$'000

Total equity as previously reported

 

 

28,602

Share based payment charge

 

 

(571)

Updated loss before tax

 

 

28,031

 

 

The impact of the change in accounting policy on the previously reported consolidated statement of financial position as at 31st December 2017, is summarised as follows

 

 

 

 

31 December 2017

 

31 December 2017

 

 

 

$'000

$'000

$'000

 

 

 

As previously reported

Change in policy

 

Updated

Current Trade and other payables

 

 

74,981

533

75,514

 Long term Trade and other payables

 

 

86

38

124

 

 

Foreign Currency

The main functional currencies for the Company's subsidiaries are the United States Dollar, Euro and Great Britain Pound.

 

Foreign currency transactions and balances

i)          Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

ii)         Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the reporting period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

iii)        Share capital, share premium, brought forward earnings are translated using the exchange rates prevailing at the dates of the transactions.

 

Consolidation of foreign entities

On consolidation, results of the foreign entities are translated from the local functional currency to US$ using average exchange rates during the period. All asset and liabilities are translated from the local functional currency to US$ using the reporting period end exchange rates. These exchange differences arising from the translation of the net investment in foreign entities are recognised in other comprehensive income and accumulated in a separate component of equity.

 

Exchange differences are recycled to profit or loss as a reclassification adjustment upon disposal of the foreign operation.

 

Revenue

 

The Group applied IFRS 15 Revenue from Contracts with Customers, which was effective from 1 January 2018. IFRS 15 is intended to clarify the principles of revenue recognition and establish a single framework for revenue recognition. This standard replaces the previous standard IAS 11 Construction Contracts, IAS18 Revenue and revenue related IFRICs. The core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  

 

Boku Group recognises revenue in accordance with that core principle by applying the following steps: identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognise revenue when (or as) the entity satisfies a performance obligation.

 

Contract assets and contract liabilities are included within 'trade and other receivables' and 'trade and other payables' respectively on the face of the statement of financial position.

 

The Group provides a payment platform to facilitate the mobile payment processing of virtual and digital goods purchases and also provides a collection service for amounts due to the merchants.

 

The Group's revenue is principally its service fees earned from its merchants (we do not offer volume discounts). There are slight differences to contracts depending on the services provided
 

Cost of sales

Cost of sales is primarily related to the costs incurred by the Group to authorise the transactions of mobile device customers with the associated MNOs.

 

Operating Segments

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the executive management team including the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and the Chief Revenue Officer.

 

The Board considers that the Group's provision of a payment platform for the payment processing of virtual goods and digital goods purchases constitutes one operating and one reporting segment, as defined under IFRS 8. Management reviews the performance of the Group by reference to total results against budget.

 

Retirement Benefits: Defined contribution schemes

The Company has a 401(k) plan, a type of defined contribution scheme in the United States in which all employees are eligible to participate after meeting eligibility requirements. Participants may elect to have a portion of their salary deferred and contributed to the scheme up to the limit allowed by applicable income tax regulations. The Company has made a matching contribution to the scheme for the year ended 31 December 2018.

 

Contributions to defined contribution schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

 

Share-based payments

Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest.

 

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

 

Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.

 

Share options and RSUs (restricted stock units) which will incur future employer payroll taxes on exercise, are accrued for the future cost of National Insurance from the point the options are granted over their vesting period. This accrual is then reviewed and amended at each subsequent balance sheet date under IFRS 2.

 

 

Intangible assets

 

(i)         Goodwill

The Group uses the acquisition method of accounting for the acquisition of a subsidiary. The consideration transferred is measured at the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed in the period. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. 

 

In respect of business combinations that have occurred since 1 January 2014, goodwill represents the excess of the cost of the acquisition and the Group's interest fair value of net identifiable assets and liabilities acquired. In respect of business combinations prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under US GAAP. As permitted by IFRS 1, Goodwill arising on acquisitions prior to 1 January 2014 is stated in accordance with US GAAP and has not been remeasured on transition to IFRS. Goodwill is recognised and measured at the acquisition date.  

 

Goodwill is capitalised as an intangible asset at cost less any accumulated impairment losses. Any impairment in carrying value is being charged to the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed.

 

 Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

 

Goodwill is allocated to appropriate cash generating units (CGUs). Goodwill is not amortised but is tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows. The major assumptions are disclosed in note 11.

 

(ii)        Intangible assets acquired as part of a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset. The cost of such intangible assets is their fair value at the acquisition date and comprises Group's tradenames, merchant relationships and developed technologies. All intangible assets acquired through business combination are amortised over their useful lives.

 

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. The carrying values are tested for impairment when there is an indication that the value of the assets might be impaired

 

(iii)       Research and development

Expenditure on research activities as defined in IFRS is recognised in the income statement as an expense as incurred.

 

Expenditure on internally developed software products and substantial enhancements to existing software product is recognised as intangible assets only when the following criteria are met:

1.         it is technically feasible to develop the product to be used or sold;

2.         there is an intention to complete and use or sell the product;

3.         the Group is able to use or sell the product;

4.         use or sale of the product will generate future economic benefits;

5.         adequate resources are available to complete the development; and

6.         expenditure on the development of the product can be measured reliably.

 

The capitalised expenditure represents costs directly attributable to the development of the asset from the point at which the above criteria are met up to the point at which the product is ready to use. The costs include external direct costs of materials and services consumed in developing and obtaining internal-use computer software, and payroll and payroll-related costs for employees who are directly associated with and who devote time to developing the internal-use software. If the qualifying conditions are not met, such development expenditure is recognised as an expense in the period in which it is incurred.

 

(iv)       Amortisation rates

The significant intangibles recognised by the Group and their useful economic lives are as follows:

 

Intangible asset

Tradenames

Merchant relationships

Developed technologies

Domain names

Internally developed software

Useful economic life

10 years

5 years

1 - 7 years

5 years

3 - 6.75 years

 

Thee amortisation expense is recognised within administrative expenses in the consolidated statement of comprehensive income.         

 

Property, plant and equipment

Property, plant and equipment are held under the cost model and are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

 

Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method. The estimated useful lives range as follows:

 

Office equipment and furniture

Computer equipment and software

Leasehold improvement

3- 5 years on cost

3- 5 years on cost

6.5 years on cost

                       

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less.

 

Restricted cash

The restricted cash does not meet the definition of cash and cash equivalents and is therefore separately disclosed in the Group's statement of financial position and not part of the cash and cash equivalents for cash flow purposes. These cash amounts are restricted as to withdrawal or use under the terms of certain contractual agreements.

 

Financial assets

 

The Group's financial assets mainly comprise cash, trade and other receivables. 

 

Trade and other receivables are not interest bearing and are stated at their amortised cost as reduced by appropriate allowances for irrecoverable amounts or additional costs required to effect recovery.

 

The Group reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions. The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. Trade and other payables are not interest bearing and are stated at their amortised cost.

 

Financial liabilities

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. The Group's financial liabilities are categorised as loans and payables or derivative financial instruments.

 

At initial recognition,

·   Financial liabilities (trade and other payables, excluding other taxes and social security costs and deferred income), are measured at their fair value plus, if appropriate, any transaction costs that are directly attributable to the issue of the financial liability. These financial liabilities are subsequently carried at amortised cost.

 

·   Bank borrowings which are initially recognised at fair value net any of transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost ensuring the interest element of the borrowing is expensed over the repayment period at a constant rate.

 

Derivative financial instruments

Hedge accounting is applied to financial assets and liabilities only where all the following criteria are met:

 

·    At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge.

 

·    For cash flow hedges, the hedged item in a forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss.

 

·    The cumulative change in the fair value of the hedging instrument is expected to be between 80-125% of the cumulative change in the fair value or cash flows of the hedged item attributable to the risk hedged (i.e. it is expected to be highly effective).

 

·    The effectiveness of the hedge can be reliably measured.

 

·    The hedge remains highly effective on each date tested.


Cash flow hedges

The Group from time to time enters into derivative financial instruments such as forward foreign exchange contracts to reduce the potential impact of decreases in the value of the U.S. dollar on receipt payments from Aggregator and MNO.

The effective part of the gain or loss of these forward contracts designated as a hedge of the variability in cash flows of foreign currency risk arising from the above firm commitments are measured at fair value with changes in fair value recognised in other comprehensive income and accumulated in the cash flow hedge reserve. The ineffective portion of the gain or loss of these contracts is recognised in the Group's profit or loss. The associated gains or losses that were recognised in other comprehensive income shall be reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment in the same period during which the hedged forecast cash flows affect profit or loss.

 

The value of the forward contracts within one year is disclosed separately as derivatives under current assets or liabilities in the Group's statement of financial positions.

 

Fair Value Hierarchy

All financial instruments measured at fair value must be classified into one of the levels below:

•          Level 1: Quoted prices, in active markets.

•          Level 2: Fair Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•          Level 3: Inputs that are not based on observable market data.

 

Share Capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary share capital and preference shares are classified as equity instruments.

 

Operating leases: lessee

Rentals paid under operating leases are charged to the profit or loss on a straight-line basis over the period of the lease.

 

Leased assets: lessee

Where assets are financed by leasing agreements that give rights approximating to ownership (finance leases), the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable over the term of the lease. The corresponding leasing commitments are shown as amounts payable to the lessor. Depreciation on the relevant assets is charged to the income statement over the shorter of estimated useful economic life and the term of the lease.

 

Lease payments are analysed between capital and interest components so that the interest element of the payment is charged to the income statement over the term of the lease and is calculated on an effective interest rate basis. The capital part reduces the amounts payable to the lessor.

 

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

·    the initial recognition of goodwill;

·    the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

·    investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

 

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

 

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

 

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

 

·    the same taxable group company; or

·    different company entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered.

 

Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

(a)     Goodwill, Intangible assets acquired in a business combination

As set in the accounting policies above, intangible assets acquired in a business combination are capitalised and amortised over their useful lives. Both initial valuations and valuations for subsequent impairment tests are based on risk adjusted future cash flows discounted using appropriate discount rates. These future cash flows will be based on forecasts which are inherently judgemental. Future events could cause the assumptions to change which could have an adverse effect on the future results of the Group. Refer to note 11 for a description of the specific estimates and judgements used and the net book values of intangible assets.

 

(b)      Share-based payments (see note 20)

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. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them.

 

(c)      Taxation

In recognising income tax assets and liabilities, management makes estimates of the likely outcome of decisions by tax authorities on transactions and events whose treatment for tax purposes is uncertain. Where the final outcome of such matters is different, or expected to be different, from previous assessments made by management, a change to the carrying value of income tax assets and liabilities will be recorded in the period in which such a determination is made. In recognising deferred tax assets and liabilities management also makes judgements about likely future taxable profits. The carrying values of current tax and deferred tax assets and liabilities are disclosed separately in the consolidated statement of financial position.

 

d)      Acquisition of entities

The group determines the acquisition date for when a business acquisition is consummated, to be when it is deemed unconditional. This involves the group considering all pertinent facts and circumstances, which include the date on which it obtains control of the acquiree and acts of law that are required to be fully executed.

 

3.Financial instruments - Risk Management

 

The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. The Group reports in US$. All funding requirements and financial risks are managed based on policies and procedures adopted by the Board of Directors. The Group does not issue or use financial instruments of a speculative nature.

The Group is exposed to the following financial risks:

·    Market risk

·    Credit risk

·    Liquidity risk

 

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

·    Trade and other receivables

·    Cash and cash equivalents and restricted cash

·    Trade and other payables

·    Bank loans

 

To the extent financial instruments are not carried at fair value in the consolidated statement of financial position, book value approximates to fair value at 31 December 2018 and December 2017.

 

Trade and other receivables are measured at book value and amortised cost. Book values and expected cash flows are reviewed by the Board and any impairment charged to the consolidated statement of comprehensive income in the relevant period.

 

Trade and other payables are measured at book value and amortised cost.

Financial instruments by category

 

 

Financial assets

 

 

 

31 December 2018

31 December 2017

 

 

$'000

$'000

 

 

 

 

Cash and cash equivalents

 

31,073

18,741

Restricted cash

 

1,251

1,439

Total Cash

 

32,324

20,180

 

Accounts receivable (net)

 

48,979

56,360

Other receivables

 

300

199

Note receivable from shareholder

 

793

793

Total other financial assets classified as loans and receivables

 

50,072

57,352

Loans and receivables

 

 

 

82,397

 

77,532

Derivative financial assets designated as hedging instrument

 

3

-

 

 

 

 

Financial liabilities

 

 

31 December 2018

31 December 2017

 

 

$'000

$'000

 

 

 

 

Trade payables

 

69,064

64,275

Accruals

 

6,402

7,641

Total other financial liabilities

 

75,466

71,916

Bank loans (secured)

 

2,150

2,400

Finance lease payables

 

43

125

Loans and borrowings

 

2,193

2,525

Financial liabilities at amortised cost

 

77,659

74,441

Derivative financial liabilities designated as hedging instrument

 

-

24

 

The management of risk is a fundamental concern of the Group's management. This note summarises the key risks to the Group and the policies and procedures put in place by management to manage them.

 

a)   Market risk

 

Market risk arises from the Group's use of interest bearing and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign exchange rates (currency risk).

 

 

Interest rate risk

The Group is exposed to cash flow interest rate risk from bank borrowings at variable rates. The Group's bank borrowings and other borrowings are disclosed in note 17. The Group's exposure to interest rate risk on the finance leases is considered low as the outstanding balance at year-end is not significant. The Group manages the interest rate risk centrally.

 

The following table demonstrates the sensitivity to a 1 percent change (lower/higher) to the interest rates of the following borrowings at 31 December 2018 to the profit before tax and net assets for the period:                                   

 

 

31 December 2018

31 December 2017

 

 

Increase/(decrease) of loss before tax and net assets

Increase/(decrease) of loss before tax and net assets

 

 

$'000

$'000

 

 

 

 

Bank loans

 

+/-22

+/-24

 

 

 

Foreign exchange risk

 

Foreign exchange risk is the risk that movements in exchange rates affect the profitability of the business. The company manages this risk through natural hedging and forward contracts.

 

The effect of fluctuations in exchange rates on the Euro and GBP denominated trade receivables is partially offset through the use of foreign exchange contracts to the extent that any remaining impact on profit after tax is not material.

 

At December 31, 2018, the Company had entered into 1 (2017: 31) foreign currency forward contracts totalling a notional amount of $141,783 (2016: $1,004,306). These instruments were used to hedge the variable cash flows predominantly associated with monthly Aggregator payments. All the Company's hedges are designated as cash flow hedges.

 

The Company's objective in using derivatives is to add stability to Aggregator payments and to manage its exposure to foreign currency movements or other identified risks. To accomplish this objective, the Company primarily uses foreign currency forward contracts as part of its cash flow hedging strategy which is managed centrally. The Group aims to fund expenses and investments in the respective currency and to manage foreign exchange risk at a local level by matching the currency in which revenue is generated and expenses are incurred.

 

As of 31 December, the Group's gross exposure to foreign exchange risk was as follows:

 

GBP

Euro

Other

Total

31 December 2018

$'000

$'000

$'000

$'000

 

 

 

 

 

Trade and other receivables

12,818

20,808

16,120

49,746

Cash and cash equivalents and restricted cash

11,052

9,402

8,102

28,556

Trade and other payables

(22,906)

(26,118)

(19,760)

(68,784)

Financial assets/(liabilities)

964

4,092

4,462

9,518

 

 

 

 

 

10% impact - +/-

107

455

496

1,058

 

 

 

 

 

 

 

 

GBP

Euro

Other

Total

31 December 2017

$'000

$'000

$'000

$'000

 

 

 

 

 

Trade and other receivables

17,305

24,578

15,046

56,929

Cash and cash equivalents and restricted cash

10,926

2,002

4,088

17,016

Trade and other payables

(23,283)

(26,694)

(17,459)

(67,436)

Financial assets/(liabilities)

4,948

(114)

1,675

6,509

 

 

 

 

 

10% impact - +/-

551

(13)

185

723

 

The impact of 10% movement in foreign exchange rate of US$ will result in an increase/decrease of total comprehensive loss after tax and financial assets/(liabilities) by $1,057,518 for December 2018 (2017: $723,151).

 

 

 

b)   Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. The Group's net trade receivables for the three reported periods are disclosed in the financial assets table above.

 

The Group is exposed to credit risk in respect of these balances such that, if one or more the aggregators or MNOs encounters financial difficulties, this could materially and adversely affect the Group's financial results. The Group attempts to mitigate credit risk by assessing the credit rating of new customers prior to entering into contracts and by entering contracts with customers with agreed credit terms.

 

To minimise this credit risk, the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk is the value of the outstanding amount.

 

The Company evaluates the collectability of its accounts receivable and provides an allowance for potential credit losses as necessary. The Company has factored accounts receivable as a means of financing until April 2018 and at 31 December 2018 the facility was completely closed factored (2017: 7% of group accounts receivable were factored). The Group can draw down to a maximum of 85% of the trade receivables and paid factoring, collection fee and interest on the drawdown. The fee charged during the year was $345,380 (2017: $542,989). This fee was charged to the profit and loss account, under finance expense and includes a penalty charge for terminating the agreement early of €160,00 ($197,315).

 

At the reporting date, the largest exposure was represented by the carrying value of trade and other receivables, against which $1.959m is provided at 31 December 2018 (2017: $1.410m). The provision represents an estimate of potential bad debt in respect of the year-end trade receivables, a review having been undertaken of each such year-end receivable. The Group's customers are spread across a broad range of sectors and consequently it is not otherwise exposed to significant concentrations of credit risk on its trade receivables.

 

A debt is considered to be bad when it is deemed irrecoverable, for example when the debtor goes into liquidation, or when a credit or partial credit is issued to the customer for goodwill or commercial reasons. The Group has applied the Simplified Approach applying a provision matrix based on number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions. The Group's provision matrix is as follows:

 

31-Dec-18

< 60 days

61-120 days

121-150 days

> 150 days

Total

 

 

 

 

 

 

Expected credit loss % range

0%

0%

0%

98%-100%

 

Gross debtors ($'000)

47,625

829

494

1,987

50,935

Expected credit loss rate ($'000)

 

 

 

-1,956

-1,956

 

 

 

 

 

48,979

 

At 31 December 2018 Group had a specific provision as well as the provision made in accordance with the credit loss matrix above. This provision was for two thousand dollars - which was considered to be 100% irrecoverable due to potential business closure. The total provision for trade and accrued receivable as at 31 December 2018 was $1,958.

 

 

< 60 days

61-120 days

121-150 days

> 150 days

Total

31-Dec-17

 

 

 

 

 

Expected credit loss % range

0%

0%

0%

85%-90%

 

Gross debtors ($'000)

51,838

1,437

2,861

1,599

57,734

Expected credit loss rate ('000)

 

 

 

-1,374

-1,374

 

 

 

 

 

56,360

 

At 31 December 2017 the Group had a specific provision for $37k of which $34k was fully written off during 2018. The total provision of trade and accrued receivables as at 31 December 2017 was $1,410.

 

Other receivables are considered to be low risk. The management do not consider that there is any concentration of risk within other receivables. No other receivables have been impaired.

 

Credit risk on cash and cash equivalents is considered to be small as the counterparties are all substantial banks with high credit ratings. At times, domestic deposits may be in excess of the amount of insurance provided on such deposits. At December 31 2018, cash and cash equivalents of $31,073,215 held in foreign institutions are not insured (2017: $18,740,583). The maximum exposure is the amount of the deposit. To date, the Group has not experienced any losses on its cash and cash equivalent deposits.

c)   Liquidity risk

 

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The Group also uses an invoice discounting facility to help manage this risk. The invoice discounting facility has been cancelled as at 30th April 2018. The table below analyses the Group's financial liabilities by contractual maturities and all amounts disclosed in the table are the undiscounted contractual cash flows:

 

 

31 December 2018

Within 1 year

1-2 years

2-5 years

More than 5 years

 

$'000

$'000

$'000

$'000

Trade and other payables

77,374

107

-

-

Bank loans (secured)

2,150

-

-

-

Finance leases

43

-

-

-

Total

79,567

107

-

-

 

 

 

 

 

 

 

 

 

 

31 December 2017

Within 1 year

1-2 years

2-5 years

More than 5 years

 

 

$'000

$'000

$'000

$'000

 

Trade and other payables

75,514

124

-

-

 

Bank loans (secured)

2,400

-

-

-

 

Derivative financial liabilities

24

-

-

-

 

Finance leases

82

43

-

-

 

Total

78,020

167

-

-

 

 

 

 

 

Capital Management

 

The Group's capital is made up of share capital, foreign exchange reserve and retained losses.

 

The Group's objectives when maintaining capital are:

·    To safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

·    To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

 

The capital structure of the Group consists of shareholders' equity as set out in the consolidated statement of changes in equity. All working capital requirements are financed from existing cash resources and borrowings.

 

 

4.    Segmental analysis

(a) Revenue from operations

 

 

2018

2017

 

 

$'000

$'000

Revenue arises from:

 

 

 

Provision of services

 

35,275

24,412

 

 

 

 

In 2018, there were 4 customers with revenue amounting to $28.4m and where three of these customers represent more than 10% of group revenues each (2017: 4 customers ($16.6m)).

 

 (b) Operating segment

 

For executive management purposes, the Group has one reportable segment - provision of a payment platform for the payment processing of virtual goods and digital goods purchases and categorizes all revenue from operations to this segment.

 

 

Operating segment information under the primary reporting format is disclosed below:

 

 

 

Restated*

 

 

2018

2017

 

 

$'000

$'000

Revenue

 

35,275

24,412

 

 

 

 

Depreciation

 

(213)

(221)

Amortisation

 

(2,581)

(2,764)

Segment loss before exceptional items

 

(1,342)

(5,785)

Segment loss - exceptional items (note 5)

 

(1,074)

(2,644)

Segment loss

 

(2,416)

(8,429)

Finance income

 

53

18

Finance expense

 

(631)

(19,558)

Group loss before tax

 

(2,994)

(27,969)

 

*the restatement relates t to a change in accounting policy to employer taxes for share options (and RSUs). 

 

(c)  Geographic segment - secondary basis

 

The geographical analysis of the revenue by location of the users is presented below:

 

 

 

2018

2018

2017

2017

 Revenue by Market

 

$ '000

%

$ '000

%

Americas

 

2,655

7.5

2,187

9.0

APAC

 

14,021

39.7

7,520

30.8

EMEA

 

18,599

52.8

14,705

60.2

Total

 

35,275

 

24,412

 

 

 

An analysis of non-current assets by geographical market is given below:

 

 

 

2018

2017

 

 

$'000

$'000

United States of America

 

22,133

25,714

Germany

 

557

818

Other European countries (including UK)

 

165

162

Rest of the World

 

151

229

Total

 

23,006

26,923

 

 

5.  Administrative expenses (including exceptional items)

 

 

 

Restated*

 

 

2018

2017

 

 

$'000

$'000

Audit fees

 

277

502

Non-audit fees - taxation

 

516

161

Accounting services

 

108

145

Consultancy and compliance services

 

898

529

Staff costs (excluding stock option expense - note 6)

 

18,117

17,264

Travel & entertainment

 

1,072

910

Rent and occupancy costs

 

2,030

1,869

Total IT, development and hosting

 

1,777

1,531

Total banking costs

 

254

273

Legal fees

 

688

651

Other costs including marketing, support & testing and other administration expenses

 

701

632

Adj. Operating Expenses

 

26,438

24,466

Depreciation of property, plant and equipment

 

213

221

Amortisation of intangible assets

 

2,581

2,764

Loss on disposal of property, plant and equipment

 

1

-

Foreign exchange gains/(losses)

 

279

(428)

Exceptional items - impairment of investments

 

164

-

Exceptional items - restructuring costs

 

910

478

Exceptional items - IPO costs

 

-

2,166

Share - based expenses

 

4,593

1,480

 

    

    35,179

    31,147

           

6.  Staff costs

Total staff costs

 

2018

2017

 

 

$'000

$'000

Wages and salaries

 

14,730

13,782

Short-term benefits

 

774

785

Social security costs

 

                   1,398

             1,467

Pension costs

 

164

140

Other staff costs

 

1,051

1,090

Total staff costs

 

18,117

17,264

 

Other staff costs include contractor costs, relocation, recruiting and training costs for the group.

 

* the restatement relates to a change in accounting policy to employer taxes for share options (and RSUs). 

 

 

 

Key management personnel compensation was made up as follows:

 

 

2018

2017

 

 

$'000

$'000

Salaries

 

1,849

1,545

Short-term benefits

 

39

51

Social security costs

 

160

113

Pension costs

 

6

1

Total

 

2,054

1,710

 

Directors' remuneration included in staff costs:

 

 

2018

2017

 

 

$'000

$'000

Salaries including bonuses

 

989

706

Short-term benefits

 

4

28

Total

 

993

734

 

Information regarding the highest paid director is as follows:

 

 

2018

2017

 

 

$'000

$'000

Total remuneration paid

 

459

388

 

The average monthly number of employees during the period was as follows:

 

 

 

 

 

 

2018

2017

 

 

 

 

Management

 

4

4

Operations & administration

 

148

140

Total 

 

152

144

 

 

 

 

 

         

7.  Finance income and expenses

 

 

2018

2017

 

 

$'000

$'000

Finance income

 

 

 

Interest income from bank deposits

 

53

18

Total

 

53

18

 

 

 

 

Finance expenses

 

 

 

Interest on bank loans & overdrafts

 

234

394

Interest on finance leases and hire purchase contracts

 

9

21

Other interest payable (including interest paid for factoring)

 

380

543

Amortisation of debt discount

 

-

89

Interest on convertible loan notes (note 17)

 

                     8

18,511

Total

 

631

19,558

 

 

 

 

Net finance expenses

 

578

19,540

 

8.  Income tax

 

 

 

 

 

 

2018

2017

 

 

$'000

$'000

Current tax

 

 

 

US tax

 

4

28

Foreign tax

 

349

125

Total current tax

 

353

153

Deferred tax expense

 

1,064

-

Origination and reversal of temporary differences

 

(78)

(24)

Total tax expense

 

1,339

129

 

The reasons for the difference between the actual tax charge for the period and the applicable rate of income tax of the US reporting entity applied to the result for the period are as follows:

 

 

 

Restated*

 

 

2018

2017

 

 

$'000

$'000

Loss before tax

 

(2,994)

(28,540)

Tax rate

 

21%

34%

Loss before tax multiplied by the applicable rate of tax:

 

(629)

(9,703)

 

 

 

 

US state tax

 

4

28

Overseas tax

 

1,129

22

Expenses not deductible for tax purposes

 

326

7,278

Withholding taxes

 

150

34

Tax losses

 

336

2,470

Others

 

23

-

Total tax expense

 

1,339

129

 

 

Deferred Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Details of the deferred tax liability, amounts recognized in profit or loss and amounts recognized in other 

comprehensive income are as follows:

 

 

 

 

 

 

2018

2017

 

 

$'000

$'000

Net opening position

 

714

647

     Arising from business combinations

 

310

310

     (de-recognition) / recognition in the year

 

(1,296)

(334)

     Foreign exchange revaluation

 

(145)

91

 

 

 

 

Net closing position

 

(417)

714

                 

 

The year end net closing position is made up of:

o   A deferred tax liability of $671k. This constitutes tax positions connected with the Group's German subsidiary in relation to available losses and the deferred tax liability associated with intangible assets acquired as part of the legacy business combination with the group's now German business.

o   The deferred asset of $254k: This relates to certain non-US and non-German subsidiaries which will be realised as management is expecting these subsidiaries to be profitable as a result of intercompany transfer pricing agreements.

A deferred tax asset (liability) has not been recognized for the following:

 

 

 

 

 

 

 

2018           '000

2017           '000

 

Non- deductible Reserves

 

 

 

103

55

 

Accrued Compensation

 

 

 

68

75

 

Stock Based Compensation

 

 

 

1,144

1,375

 

Other temporary and deductible differences

 

 

 

852

298

 

Accelerated Capital Allowances

 

 

 

(22)

(201)

 

Unused tax credits

 

 

 

189

189

 

Unused tax losses

 

 

 

24,497

27,316

 

 

 

 

 

 

 

Total deferred tax assets offset by valuation allowance

 

26,831

29,107

                     

 

The Group has carried forward losses and accelerated timing differences at the reporting date as shown below. In respect of its UK subsidiary, these can be carried forward and offset against UK taxable income indefinitely. In respect of its US entities, net operating loss carryforwards can be carried forward and offset against taxable income for 20 years for losses incurred up to and including 31 December 2018. Utilisation of net operating loss or tax credit carryforwards may be subject to annual limitations if an ownership change had occurred pursuant to the section 382 Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of net operating loss and tax credit carryforwards before utilisation. As the timing and extent of taxable profits are uncertain, the deferred tax asset arising on these losses and accelerated timing differences below has not been recognised in the financial statements.

 

 

 

2018

2017

 

 

$'000

$'000

US losses and tax credit - federal and states

 

134,947

135,811

Non-US losses

 

2,867

15,972

Total

 

137,814

151,783

 

 

The unused tax losses, as of 31 December 2018, must be utilised by various dates. U.S. Federal tax losses of $107,069k and US state tax losses of $27,878k expire in various dates through 2027. German tax losses of $1,499k must be used before 2022 and other unused losses of $1,368k do not expire.

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017

At 31st December 2017, the Group made adjustments to reduce its deferred tax assets and liabilities, based on the reduction of the U.S. federal corporate tax rate from 34% to 21% and assessed the realizability of its deferred tax assets. As of 31st December 2018, the Group completed its assessment of the impact of the Act and determined no additional adjustments are required. In addition, during the year, the deferred tax assets in other territories have been re-assessed based on country specific tax legislation developments

 

 

9.  Loss per share

 

 

 

Restated*

 

 

2018

2017

Loss attributable to shareholders on the Company ($'000)

 

(4,333)

(28,669)

Weighted average number of common shares

 

217,069,055

150,316,262

Basic loss per share

 

(0.02)

(0.19)

 

Loss per share is calculated based on the share capital of Boku, Inc. and the earnings of the Group.

 

Due to the loss reporting period the effect of the share options was considered anti-dilutive and hence diluted loss per share is the same as the basic loss per share in 2017 and 2018.

 

* the restatement relates to a change in accounting policy to employer taxes for share options (and RSUs). 

 

10.       Property, plant and equipment

 

 

Computer equipment & software

Office equipment and fixtures and fittings

Leasehold improvement

Total

 

$'000

$'000

$'000

$'000

COST

 

 

 

 

 665

 530

 93

 1,288

148

75

-

223

(36)

(1)

-

(37)

Exchange adjustment

-

1

2

3

At 31 December 2017

777

605

95

1,477

84

2

5

91

(2)

(61)

-

(63)

Exchange Adjustment

(17)

(12)

(2)

(31)

As at December 2018

842

534

98

1,474

 

 

 

 

 

DEPRECIATION

 

 

 

 

 511

 221

 41

 773

110

98

13

221

(37)

                                 -

-

(37)

Exchange adjustment

33

75

2

110

At 31 December 2017

617

394

56

1,067

104

93

16

213

(1)

(61)

-

(62)

Exchange adjustment

(13)

(15)

(2)

(31)

At 31 December 2018

707

411

70

1,188

 

 

 

 

 

NET BOOK VALUE

 

 

 

 

 154

 309

 52

 515

160

211

39

410

At 31 December 2018

135

123

28

286

 

The net book value of assets held under finance leases or hire purchase contracts, included above, are as follows:

 

 

2018

2017

Cost

 

$'000

$'000

Furniture

 

134

192

Computer Hardware

 

17

37

Total

 

151

229

 

Depreciation charge

 

 

Furniture

 

57

57

Computer Hardware

 

17

20

Total

 

74

77

 

Net book Value

 

 

Furniture

 

78

134

Computer Hardware

 

0

17

Total

 

78

151

         

 

11.       Intangible assets

 

Domain name

Developed technology

 

Merchant relationships

 

Trade marks

 

 

Goodwill

Internally developed software

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

COST

 

 

 

 

 

 

 

At 1 January 2017

 140

 1,906

 8,504

 110

 16,602

 4,973

 32,235

Additions

-

-

-

-

-

97

97

Exchange adjustment

-

(37)

1,101

-

2,013

133

3,210

At 31 December 2017

140

1,869

9,605

110

18,615

5,203

35,542

Additions

-

-

-

-

-

238

238

Exchange adjustment

-

(13)

(417)

-

(762)

(53)

(1,245)

 

140

1,856

9,188

110

17,853

5,388

34,535

 

 

 

 

 

 

 

 

AMORTISATION

 

 

 

 

 

 

 

At 1 January 2017

 140

 1,890

 2,908

 -

 -  

 1,636

 6,574

Charge for period

-

27

1,252

-

-

1,485

2,764

Exchange adjustment

-

(48)

409

-

-

44

405

At 31 December 2017

140

1,869

4,569

-

-

3,165

9,743

Charge for the period

-

30

1,280

-

-

1,271

2,581

Exchange adjustment

-

(43)

(194)

-

-

(18)

(255)

At 31 December 2018

140

1,856

5,655

-

-

4,418

12,069

 

 

 

 

 

 

 

 

NET BOOK VALUE

 

 

 

 

 

 

 

At 1 January 2017

-

 16

 5,596

 110

 16,602

 3,337

 25,661

At 31 December 2017

-

                    -

5,036

110

18,615

2,038

25,799

At 31 December 2018

-

          -

3,533

110

17,853

970

22,466

 

While there are separate geographical locations for contractual or legal purposes, all of the operations are centralized, and assets and resources cannot be separately distinguished from the group's single operations and cash inflows are not largely independent from other assets or group of assets. Therefore, the carrying value of the goodwill and other intangibles are assessed in total as part of the overall Boku group (one CGU). At the year-end date an impairment test has been undertaken by comparing the carrying values of goodwill with the recoverable amount of the Group's one cash generating unit (CGU) which is the provision of a mobile payment platform for the payment processing of virtual goods and digital goods purchases to which the goodwill has been allocated. The recoverable amount of the cash generating unit is based on value-in-use calculations. These calculations use cash flow projections covering a two-year period based on financial budgets and a calculation of the terminal value, for the period following these formal projections. Furthermore, the carrying amount of the CGU has been compared to the recoverable amount of the CGU which indicated no impairment losses.

 

The key assumptions used for value-in-use calculations are those regarding growth rates, increases in costs and discount rates. The discount rate is reviewed annually to take into account the current market assessment of the time value of money and the risks specific to the cash generating units and rates used by comparable companies. The discount rate has been calculated as the weighted average cost of capital. The pre-tax discount rate used to calculate value-in-use is 27% (2017: 28.1%). Growth rates for forecasts take into account historic experience and current market trends. Costs are reviewed and increased for inflation and other cost pressures. The terminal value calculation for 2018 was based on growth rate of post-tax free cashflow of 2% (2016:2%) for the CGU.

 

The impairment test resulted in a decision not to impair the intangible assets at 31 December 2018 nor at 2017 year end.

 

Sensitivity to changes in assumptions

 

Management has identified two key assumptions for which if any of the following changes were made to these key assumptions individually, this would cause the carrying amount to equal to the recoverable amount of the goodwill for the CGU for the year ended 31 December 2018:

 

 

 

 

2018

2017

 

 

Projected post tax free cashflow used for terminal value reduced   by

 

 

 

92%

 

96%

             

 

 

Terminal growth rate reduced from

 

 

2% to -175.7%

 

2% to -344%

 

 

 

 

12.       Subsidiaries

The principal subsidiaries of the Company, all of which have been included in the consolidated financial information, are as follows:

The proportion of share capital directly held by the parent company in each subsidiary is 100%.

 

Name

Principal activity

Parent

Location

Boku Payments Inc.

Holding Company

Boku Inc.

USA

Boku Network Services Inc.

Holding Company

Boku Inc.

Delaware, USA

Boku Account Services Inc.

Holding Company

Boku Inc.

Virginia, USA

Boku Network Services AG

Holding Company

Boku Inc.

Germany

Paymo Brazil Servicios de Pagamentos Ltd

Mobile payment solutions

Boku Network Services Inc.(Delaware)

Brazil

Boku Network Services UK, Ltd

Mobile payment solutions

Boku Network Services Inc.(Delaware)

UK

Boku Network Services AU Pty Ltd

Mobile payment solutions

Boku Network Services Inc.(Delaware)

Australia

Boku Network Services IN Privates Limited

Mobile payment solutions

Boku Network Services Inc.(Delaware)

India

Boku Network Services Japan Branch Office

Mobile payment solutions

Boku Network Services Inc.(Delaware)

Japan

Boku Network Services Taiwan Branch Office

Mobile payment solutions

Boku Network Services Inc.(Delaware)

Taiwan

Boku Account Services UK, Ltd.

Mobile payment solutions

Boku Account Services Inc. (Virginia)

UK

Mindmatics Labs SRL*

Mobile payment solutions

Boku Network Services AG (Germany)

 

 

  Romania

Mopay AG Beijing Representative Branch

Mobile payment solutions

Boku Network Services AG (Germany)

China

Mobileview Italia S.r.l

Mobile payment solutions

Boku Network Services AG (Germany)

Italy

 

 

* Closed in February 2018

 

In March 2018 the Company acquired 5% of Phronesis for an amount of $164,000 which has been accounted as a cost method investment. As at 31 December 2018 this investment was fully impaired.

 

Trade and other receivables

 

 

31 December

31 December

 

 

2018

2017

 

 

$'000

$'000

 

 

 

 

Trade receivables - gross

 

17,612

36,710

Accrued income

 

33,325

21,060

Accounts receivable - gross

 

50,937

57,770

Less: provision for impairment

 

(1,958)

(1,410)

Accounts receivable - net

 

48,979

56,360

Other receivables

 

45

48

Deposits held

 

255

151

Taxes receivable

 

972

1,117

Note receivable from a shareholder

 

793

793

Total financial assets classified as loans and receivables

 

51,044

58,469

Prepayments

 

614

646

Total

 

51,658

59,115

 

 

 

 

 

** both trade receivables and accrued income

 

 

 

 

Provision for impairment

 

 

 

 

31 December

31 December

 

 

 

2018

2017

 

 

 

$'000

$'000

 

 

 

 

 

Opening balance

 

 

1,410

715

Utilised during the period

 

 

(34)

(111)

Increase during the period

 

 

619

806

Foreign exchange movement

 

 

(37)

-

Closing balance

 

 

1,958

1,410

 

 

In adopting IFRS9, the Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account and forecast credit conditions as opposed to relaying on past default rates. In adopting IFRS 9, the Group has applied the Simplified Approach, applying a provision matrix based on the number of days past due to measure lifetime expected credit losses and after taking into account customer sectors with different credit risk profiles and current and forecast trading conditions.

 

14.  Cash and cash equivalents and restricted cash

 

 

31 December

31 December

 

 

2018

2017

 

 

$'000

$'000

 

 

 

 

Cash and cash equivalents

 

31,073

18,741

 

 

 

 

Restricted cash

 

1,251

1,439

 

The restricted cash primarily includes e-money received but not yet paid to merchants (in transit), cash held in the form of a letter of credit to secure a lease agreement for the Company's San Francisco office facility and a certificate of deposit held at a financial institution to collateralise Company credit cards.

 

 

15.  Derivative financial instruments

 

 

31 December

31 December

 

 

2018

2017

 

 

$'000

$'000

Derivative financial assets (liabilities)

 

 

 

Derivatives designated as hedging instruments

 

 

 

Forward foreign exchange swaps

 

3

(24)

 

 

 

 

The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the consolidated statement of financial position

 

The Group's objective in using derivatives is to hedge the variability of cash flows associated with monthly Aggregator payments and to manage its exposure to foreign currency movements or other identified risks. To accomplish this objective, the Company primarily uses foreign currency contracts as part of its cash flow hedging strategy.

 

The notional principal amounts of outstanding forward foreign exchange rate swaps at 31 December 2018 were $141,783 (2017: $1,004,306). Their fair value in 2018 is $2,646 asset (2017: $23,865 liability).

 

The hedged transactions denominated in various foreign currencies are expected to occur at various dates within the next 12 months. The change in net un-realised gains and losses on the fair value of these forward foreign exchange swaps are recognised in the hedging reserve in equity at year ended December 2018 of $27,000 gain (2017: loss $38,000). The realised gains of these swaps re-cycled from the hedging reserve to profit or loss were 2018: $150,515 (2017: $56,641).

 

16. Trade and other payables

 

 

 

Restated*

 

 

31 December

31 December

 

 

2018

2017

Current

 

$'000

$'000

Trade payables

 

69,064

64,275

Accruals

 

6,402

7,641

Total financial liabilities classified as financial liabilities

measured at amortised cost

 

75,466

71,916

Other taxes and social security costs

 

350

2,203

Accrued tax on issued stock options

 

811

533

Deferred revenue

 

747

862

Total

 

77,374

75,514

 

 

 

 

Non-current

 

 

 

Deferred rent

 

86

86

Accrued taxes on issued stock options

 

21

38

Total

 

107

124

 

* the restatement relates t to a change in accounting policy to employer taxes for share options (and RSUs). 

 

Contract liabilities are included within 'trade payables' and 'accruals' depending if the merchant payable is just accrued or already invoiced. The carrying values of trade and other payables approximate to fair values.

 

17. Loans and borrowings

 

 

31 December

31 December

 

 

2018

2017

 

 

$'000

$'000

Current

 

 

 

 

 

 

 

Bank loans (secured)

 

2,150

2,400

Obligations under finance lease and hire purchase contracts

 

43

82

Total

 

2,193

2,482

 

 

 

 

Non-current

 

 

 

Obligations under finance lease and hire purchase

 

-

43

Total

 

-

43

 

Principal terms and the debt repayment schedule of the Group's loan and borrowings are as follows:

 

In November 2013, the Company entered into a Loan and Security Agreement (the Agreement) with a financial institution that allows for borrowings of up to $15,000,000 under a revolving line of credit through to February 2015. This was extended first, through to March 2017 and subsequently through to March 2019. However, the amounts borrowed under this Agreement were partially repaid after the IPO and a further $0.25m during 2018; the balance outstanding at year end was $2.2m (2017: $2.4m).

 

The line of credit is secured by the Company's trade receivables and allows for borrowings of up to (a) 80% of outstanding eligible trade receivables from United States or Western Europe debtors plus (b) sixty-five percent (65.0%) of outstanding eligible trade receivables from debtors other than those from the United States or Western Europe plus (ii) 50% of outstanding eligible accrued income provided that (a) aggregate advances secured by trade receivables due from Aggregators does not exceed $7,500,000 at any time and (b) aggregate advances secured by eligible accrued receivables does not exceed $7,500,000 at any time. The Agreement requires a minimum monthly interest payment of $12,500 should interest paid on outstanding borrowings be less than $12,500 in any given month. Advances under the line of credit bear interest at prime plus 3.25% or prime plus 1.75%, depending on the net cash balances held with the financial institution (2018: 7.50%; 2017: 6.50%). Outstanding borrowings under the line of credit at each year-end are as disclosed in the above table.

 

Reconciliation of liabilities arising from financing activities

 

 

 

 

 

2017

Cash flows

Non-cash changes

2018

 

 

 

Converted to shares

Foreign Exchange Movement

Fair Value Changes

 

 

 

 

 

 

 

 

Short-term borrowings

2,400

(250)

 -

 

 

2,150

Lease liabilities

125

(82)

 

 

 

43

Total liabilities from financial activities

2,525

(332)

-

-

-

2,193

 

18. Share capital

 

The Company's issued share capital is summarised in the table below:

 

 

 

31 December

31 December

 

 

2018

2017

 

 

 

Number of shares issued and fully paid

'000

$'000

Number of shares issued and fully paid

'000

$'000

Common stock of $0.0001 each

 

 

 

 

 

 

Opening balance

 

 

213,582

21

27,559

3

Preference shares converted to common shares

 

 

-

-

112,596

11

New shares issued on IPO

 

 

-

-

25,424

3

Shares issued for conversion of loan notes

 

 

-

-

44,052

4

Shares issued for warrants

 

 

544

-

594

-

Exercised stock options

 

 

9,650

1

3,357

-

Re-purchase of shares

 

 

-

-

-

-

Closing balance

 

 

223,776

22

213,582

21

 

Common Stock

 

At December 31, 2018, the Company had 223,775,735 (2017: 213,582,467) common shares issued and outstanding, of which 1,150,000 (2017: 1,150,000) where unpaid.

 

Convertible preferred shares

 

At December 31, 2018, the Company had no (2017: Nil) convertible preferred shares issued or outstanding as they have all been converted into common stock pari-passu upon the admission to AIM.

 

The Company did not repurchase any shares in 2018 or 2017 which is related to the Company's right to repurchase shares that were issued following early exercise of options prior to vesting. There were no shares subject to repurchase in 2018 or 2017. 

 

19. Reserves

 

The share premium disclosed in the consolidated statement of financial position represents the difference between the issue price and nominal value of the shares issued by the Company.

 

Retained earnings are the cumulative net profits in the consolidated income statement.

 

Foreign exchange reserve is foreign exchange translation gains and losses on the translation of the financial statements from the functional to the presentation currency.

 

Cash flow hedging reserve is changes in unrealised gains or losses on the valuation of derivatives designated as cash flow hedges at year-end.

 

Movements on these reserves are set out in the consolidated statement of changes in equity.

 

20. Share-based payment

 

The Group operates the following equity-settled share-based remuneration schemes for employees, directors and non-employees:

 

1.   2009 equity incentive plan (2009 Plan) for the granting of stock options (incentive or non-qualified), restricted stock awards (RSA) and restricted stock units (RSU). No options are available to be issued under this plan as at 31 December 2018.

 

2.   2009 equity UK sub-plan (2009 UK plan) under the terms of the above plan for the granting of stock options and restricted stock units for qualifying participants who are resident in the United Kingdom. No options are available to be issued under this plan as at 31 December 2018.

 

3.   2009 non-plan (not part of the above 2009 plan) for the granting of share options to purchase 897,000 (2017: 897,000) common shares at $0.022(2016: $0.022) per share. These options vest with terms ranging from being fully vested at grant date to vesting over four years with a one-year cliff, where 25% of the options vest. The options expire in April 2019. The shares have been exercised in full during the year and there are no options outstanding as at 31 December 2018.

 

4.   2009 BNS options (not part of the above 2009 plan) for the granting of share options to purchase 182,000 (2017: 182,000) common shares at $0.207 (2016: $0.207) per share in connection with the acquisition of BNS in June 2009. The options expire in June 2019.

 

5.   2017 Equity Incentive Plan (new plan started on the 7th November 2017) for the granting of stock options and restricted stock units (RSUs). The Group has reserved ten million shares of common stock for issue under the plan. The activity under this plan will be presented separately from the rest of the plans. There are 5,567,552 options and RSUs outstanding as at 31 December 2018.

Options under the 2017 Plan

Options under the 2009 Plan and UK plan may be outstanding for periods of up to ten years following the grant date. Outstanding options generally vest over four years and may contain a one-year cliff, where 25% of the options vest. Stock options with graded vesting is based on the graded vesting attribution approach, whereby, each instalment of vesting is treated as a separate stock option grant, because each instalment has a different vesting period.

 

RSUs under the 2017 Plan

RSUs under the 2017 Plan may be outstanding for periods of up to ten years following the grant date. Outstanding RSU grants generally vest over three years in three equal portions.

 

Performance-based Restricted stock units (RSU)

Performance-based RSUs vest upon the earlier of the completion of a specified service period and the achievement of certain performance targets, which may include individual and Company measures, and are converted into common stock upon vesting.

Share-based expense for RSUs is based on the fair value of the shares underlying the awards on the grant date and reflects the estimated probability that the performance and service conditions will be met. The share-based expense is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions until the vesting date. Performance-based RSUs vest after three years of issue, in one event, only if the performance conditions are met.

 

Restricted stock awards (RSA)

RSAs are subject to repurchase based upon the terms of the individual restricted stock purchase agreements. These repurchase rights lapse over the vesting term of the individual award, generally over three to four years.

 

 

Options under the 2009 Plan and 2009 UK plan

Options under the 2009 Plan and UK plan may be outstanding for periods of up to ten years following the grant date. Outstanding options generally vest over four years and may contain a one-year cliff, where 25% of the options vest.

Stock options with graded vesting is based on the graded vesting attribution approach, whereby, each instalment of vesting is treated as a separate stock option grant, because each instalment has a different vesting period.

 

2009 non-plan options

The 2009 non-plan options vest with terms ranging from being fully vested at grant date to vesting over four years with a one-year cliff. The options expire in April 2019. Share-based expense in connection with the grant of Non-Plan options was not material in 2016 and 2017. In 2018 all options were exercised. The are no outstanding options at 31 December 2018.

 

BNS plan options

In connection with the acquisition of BNS in June 2009, the Company granted options to purchase 182,000 common shares at a weighted-average exercise price of $0.207 per share (BNS Options). These options granted were separate from the 2009 Plan. The options expire in June 2019.A small amount of options were cancelled in 2018. There was no stock option activity related to these options in 2017. At 31 December 2018 35,424 (2017: 37,029) options were outstanding at a weighted-average exercise price of $0.197 (2017: $0.203) per share. At December 31, 2017 and 2018 all BNS Options were fully vested and exercisable.

 

The options activity under the 2009 Plan (including RSA and RSU) are as follows:

 

 

Options available for grant - All plans

2009 Plan (including UK plan, (excluding RSA & RSU)

RSA

 

 

 

                      Non-Plan

     RSU*           Options

BNS plan options

 

 

 

Total

 

 

Number of options

Number of options

WAEP1

Number of options

WAEP1

Number of options

Number of options

WAEP1

Number of options

WAEP1

Number of options

 

'000

'000

 

'000

 

'000

'000

 

'000

 

'000

At 1 January 2016

2,677

18,312

$0.610

7,206

$0.30

4,649

196

37

$0.203

30,400

Authorised

8,206

-

-

-

-

-

-

-

-

-

Granted

(12,668)

7,599

$0.266

-

-

5,068

-

-

-

-

12,667

Exercised

-

(203)

$0.367

-

-

-

-

-

-

-

(203)

Cancelled

1,785

(1,619)

$0.537

-

-

(166)

(146)

$(0.022)

-

-

(1,931)

At 1 January 2017

-

24,089

$0.511

7,206

$0.30

9,551

50

37

$0.203

40,933

Authorised

10,000

-

-

-

-

-

-

-

-

 

Granted

-

4,052

$0.370

-

-

700

-

-

-

4,752

Exercised

-

(3,357)

$0.512

(7,206)

$0.30

-

-

-

-

(10,563)

Cancelled

-

(4,175)

$0.298

-

-

(712)

-

-

-

-

(4,887)

At 31 December 2017

10,000

20,609

$0.470

-

-

9,539

50

37

$0.203

30,235

Authorised

-

-

-

-

-

-

-

-

-

-

Granted

-

-

-

-

-

-

-

-

-

-

Exercised

-

(2,130)

$0.247

-

-

(7,580)

(50)

(2)

-

(9,762)

Cancelled

(10,000)

(728)

$0.269

-

-

-

-

-

-

$0.35

(728)

At 31 December 2018

-

17,751

$0.444

-

-

1,959

-

-

35

$0.202

19,745

 

 

 

 

 

 

 

 

 

 

 

 

                             

1WAEP - weighted average exercise price

*RSUs are always granted at zero exercise price

 

 

2009 Plan

 

December

2018

December

2017

Outstanding options at reporting end date:

 

 

 

-      total number of options (including RSA & RSU)

 

19,745

30,235

-      weighted average remaining contractual life (all except 2017 Plan)

(excluding RSU and RSA)

 

4.46

6.15

-      weighted average remaining contractual life - RSU

 

5.58

6.68

-      weighted average remaining contractual life - RSA

 

-

6.78

Vested and exercisable ('000):

 

15,106

12,856

-      weighted average exercise price

 

$0.369

$0.374

-      weighted average remaining contractual life - all plans

(excluding RSU and RSA)

 

5.71

5.56

Weighted average share price exercised during the period (excluding RSA and RSA)

 

$0.324

$0.349

Weighted average fair value of each option granted during the period (excluding RSA and RSU)

 

-

0.165

 

 

 

 

Vested and exercisable - RSU and RSA

 

7,154

8,880

Share-based expense for the period ('000)

 

$1,233

$1,481

 

In October 2016, the Company's Board of Directors repriced the exercise price of certain outstanding stock options. This repricing was accounted for as a modification of all outstanding options. The Company calculated the fair value of the original options immediately prior to the modification and again after the modification occurred using the Black-Scholes option pricing model. The fair value of the modified options, less the fair value of the original options immediately before the modification, will be recorded over the remaining vesting period. For options that were fully vested as of the modification date, the Company recorded all of the incremental share-based expense as of that date. A total of 14,254,000 options were modified in 2016 resulting in incremental value of $771,000, of which $665,000 was recognised and included in share-based expenses in 2016. The remainder will be recognised over a weighted-average requisite service period of 0.864 years.

 

 

 

The following information is relevant in the determination of the fair value of options (excluding RSA and RSU) granted during the period under the equity- settled share-based remuneration schemes operated by the Group.

 

2009 Plan

 

December 2017

Option pricing model used

 

Black-Scholes

Weighted average share price at grant date (dollar)

 

$0.370

Exercise price (options only)

 

$0.370

Weighted average contractual life (years)1

 

5.82(E*+ NE*)

Weighted expected volatility 2

 

45% (E*+ NE*)

Expected dividend growth rate

 

0%

Weighted average Risk-free interest rate3

 

1.9% (E*+ NE*)

 

1Weighted average contractual life represents the period of time options are expected to be outstanding and is estimated considering vesting terms and employees' historical exercise and post-vesting employment termination behavior.

2Expected volatility is based on historical volatilities of public companies operating in the Company's industry. 

3The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

*E - employees NE - non-employees

 

The fair value of each option has been estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: expected terms ranging from 4.99 to 6.89 years; risk-free interest rates ranging from 0.73% to 3.05%; expected volatility of 58%; and no dividends during the expected term (2017: expected terms ranging from 5.04 to 6.01 years; risk-free interest rates ranging from 1.87% to 1.92%; volatility of 45%; and no dividends during the expected term).

 

The options activity under the 2017 Plan (including options and RSU) are as follows:

 

 

Options available

Options

WAEP1

RSUs

    WAEP1

Total

 

'000

'000

 

'000

 

'000

At 1 January 2018

-

-

-

-

-

-

Authorised

10,000

-

-

-

-

-

Granted

 

1,459

$1.205

4,299

$2.24

5,758

Exercised

 

 

-

-

-

           -

Cancelled

 

(73)

$1.205

(117)

$2.24

(190)

At 31 December 2017

10,000

1,386

$1.205

(4,182)

$2.24

5,568

 

2017 Plan

 

December

2018

Outstanding options at reporting end date:

 

 

    - total number of options (including RSUs) ('000)

 

1,386

    - weighted average remaining contractual life

          (excluding RSUs) (years)

 

9.05

     - weighted average remaining contractual life - RSUs (years)

 

6.06

Vested and exercisable ('000):

 

113

    - weighted average exercise price

 

$1.205

    - weighted average remaining contractual life

          (excluding RSU) (years)

 

8.92

Weighted average share price exercised during the period (excluding RSUs)

 

-

Weighted average fair value of options granted during the period (excluding RSU)

 

$0.44

 

 

 

Vested and exercisable - RSUs

 

-

Share-based expense for the period ('000)

 

$2,103

 

The following information is relevant in the determination of the fair value of options (excluding RSU) granted during the period under the equity- settled share-based remuneration schemes operated by the Group.

 

 

2017 Plan

 

December

2018

Option pricing model used

 

Black-Scholes

Weighted average share price at grant date (dollar)

 

$1.205

Exercise price (options only)

 

$1.205

Weighted average contractual life (years)1

 

9.05 years

Weighted expected volatility 2

 

32.66%

Expected dividend growth rate

 

0%

Weighted average Risk-free interest rate3

 

2.49%

 

1Weighted average contractual life represents the period of time options are expected to be outstanding and is estimated considering vesting terms and employees' historical exercise and post-vesting employment termination behavior.

2Expected volatility is based on historical volatilities of public companies operating in the Company's industry. 

3The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

*E - employees NE - non-employees

 

Warrants for ordinary shares

 

February 2013 Warrant

In February 2013, in connection with a financing arrangement with SVB bank, the Company issued a warrant to purchase 872,093 common shares at an exercise price of $0.86 per share. The warrant was immediately exercisable and expires in February 2023. As the fair value of the warrant cannot be estimated reliably relating to the financing arrangement, the Company determined the fair value of the warrant to be $392,000 using the Black-Scholes option pricing model, assuming a contractual life of 10 years, risk free rate of 1.88%, volatility of 60% and no dividends. The fair value of the warrant was recorded within other receivables and the corresponding amount in share premium.  The fair value was amortized to interest expense over 2 years by 2015, which was the term of the agreement. This warrant was exercised in September 2018 when it was converted into 543,760 common shares. As at 31 December 2018 there is nothing outstanding under this warrant.

 

Reconciliation of share based payment expense

 

 

December 2018

$000's

December 2017

$000's

2009 Plan

 

 

Options

564

570

RSU's

683

339

 

 

 

2017 Plan

 

 

Options

310

-

RSU's

1,792

-

 

 

 

Total share-based expense (excluding national insurance)

3,349

909

National insurance (see Note 2)

1,244

572

Total share based payment charge

4,593

1,481

 

 

21. Commitments

 

Operating leases

The Company leases office facilities under several non-cancelable operating lease agreements, which expire at various dates through 2021. In addition to the base rent, the Company is responsible for certain maintenance expenses under the leases. Certain lease agreements contain scheduled net increases over the lease term. The related rent expenses for these leases are calculated on a straight-line basis with the difference recorded as deferred rent.  Rent expense was $1,268,564 in 2018 (2017: $1,494,593).

 

The total value of minimum lease payments due until the next lease break is payable as follows:

 

 

 

 

 

 

2018

2017

 

 

$'000

$'000

 

 

 

 

Not later than one year

 

1,811

872

Later than one year and not later than five years

 

2,497

2,093

Later than five years

 

-

-

Total

 

4,308

2,965

 

 

Finance leases

 

During 2015 the Company entered into several capital lease agreements with leasing companies for the financing of equipment purchases of $400,000. The lease payments expire at various dates through December 2019.

 

2018

Minimum lease payments

Interest

Present value

Within one year

45

2

43

Between one and five years

-

-

-

Total

45

2

43

 

2017

Minimum lease payments

Interest

Present value

Within one year

91

9

82

Between one and five years

45

2

43

Total

136

11

125

 

 

22. Dividends

 

No dividends were declared or paid in any of the periods.

 

23. Cash used in/generated from operations

 

 

 

Restated*

 

 

Year ended

31 December

Year ended

31 December

 

 

2018

2017

 

 

$'000

$'000

 

 

 

 

Loss after tax

 

 (4,333)

 (28,669)

Add back:

 

 

 

Tax expense

 

1,339

129

Amortisation of intangible assets

 

2,581

2,764

Depreciation of property, plant and equipment

 

213

221

Amortisation of prepaid warrants

 

-

-

Loss on disposal of property, plant and equipment

 

1

-

Finance income

 

(53)

(18)

Finance expense

 

631

19,558

Exchange (gain)\loss

 

2,376

(3,251)

Impairment of intangible assets

 

164

-

Share based payment expense

 

3,610

1,481

Operating loss before working capital changes

 

6,529

(7,785)

Decrease in trade and other receivables

 

4,336

(18,751)

Decrease in trade and other payables

 

2,877

19,717

 

 

 

 

Cash (used in) /generated from operations

 

13,742

(6,819)

 

 

*the restatement relates to the employee taxes accrued for all stock options issued to 31 Dec 2017 ($0.6m).

 

 

24. Related party transactions

 

In 2018, the Company has been remitted $168,713,114 (2016: $111,458,148 from 3 suppliers) in net payments from 4 suppliers who are shareholders of the Company. At December 31, 2018, the Company had receivables of $22,699,237 (2017: $20,899,203) due from these companies.

 

A director issued a full recourse promissory note in the amount of $793,000 for the purchase of 1,150,000 common shares at $0.69 per share in Dec 2013. This is disclosed as 'note receivable from a shareholder' in note 13 - trade and other receivables in 31 December 2018 and 2017.

 

25. Ultimate controlling party

            

There is no ultimate controlling party of the Company.

 

26. Contingent liabilities

 

In the normal course of business, the Group may receive inquiries or become involved in legal disputes regarding possible patent infringements. In the opinion of management, any potential liabilities resulting from such claims, if any, would not have a material adverse effect on the Group's consolidated statement of financial position or results of operations.

 

From time to time, in its normal course of business, the Group may indemnify other parties, with whom it enters into contractual relationships, including customers, Aggregators, MNOs, lessors and parties to other transactions with the Group. The Company has also indemnified its directors and executive officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or executive officer. The Group believes the estimated fair value of any obligation from these indemnification agreements is minimal; therefore, this consolidated financial information do not include a liability for any potential obligations at 31 December 2018 and 2017.

 

27. Post balance sheet events

 

Boku Inc completed the acquisition of 100% of the outstanding shares of Danal Inc on 1 January 2019 following the announcement of the deal on 6 December 2018.  Subsequent to the completion of the acquisition, Danal Inc was renamed Boku Identity Inc.

 

Headquartered in San Jose, California, Danal Inc is a provider of mobile identity and authentication solutions through real-time connections to mobile operator networks and data. It has employees in the US and Ireland. In Europe it operates through a subsidiary Danal Mobile Solutions Ireland Ltd (renamed to Boku Mobile Solutions Ireland Ltd).

 

The purchase consideration included the following: 26.7 million Boku shares (10.7% of the total Boku Inc shares) valued at 1 Jan 2019 share price, $1.0m in cash, a five year warrant exercisable at $1.8352 share price, and an additional deferred consideration of up to $64 million in shares payable in shares and warrants depending on Danal's future performance as follows (and only if the Danal's revenue exceeds $10 million in the audited 2019 results):

 

The Earn-Out may be paid in either shares or cash at Boku's discretion:

a.   If revenue is between $10 million and $14 million, the earn-out is (Revenue-$10 million) x 3=$12m maximum;

b.   If Revenue is greater than $14 million and less than or equal to $16 million, the earn-out is

(Revenue-$14 million) x 7+12 million=$26m maximum ;

c.   If Revenue is greater than $16 million and less than or equal to $18 million, the earn-out is

(Revenue-$16 million) x 8+$26 million=$42m maximum ;

d.   If Revenue is greater than $18 million, the earn-out is (Revenue-$18 million) x10+$42 million= 62m maximum;

 

If shares are used to settle the Earn-Out consideration, the value of the shares will be the Volume Weighted Average Share Price for the 30 trading days preceding the fifth trading day prior to the date that such consideration is finalised, provided that the shares are valued at no more than GBP 1.70 and no less than GBP 1.20.

Earn-out paid in warrants:

 

Earn-out warrants to purchase an additional number of Boku shares (calculated as follows) at an exercise price of $1.8352:

 

a.   If Revenue is between $10 million and $14 million, the number of warrants is

(Revenue-$10million) ÷ $4 million x $0.5 million ÷GBP1.45= $0.5 million (in shares at £1.45/$1.8352)

b.   If Revenue is greater than $14 million and less than or equal to $16 million, the number of shares is [(Revenue-$14million) ÷ $2 million x $0.5 million + $0.5 million] ÷GBP1.45= $1.0 million (in shares at £1.45/$1.8352)

c.   If Revenue is greater than $16 million and less than or equal to $18 million, the number of shares is

[(Revenue-$16million) ÷ $2 million x $0.5 million + $1.0 million] ÷GBP1.45= $1.5 million (in shares at £1.45/$1.8352)

d.   If Revenue is greater than $18 million, the number of shares is

[(Revenue-$18million) ÷ $2 million x $0.5 million + $1.5 million] ÷GBP1.45= $2.0 million (in shares at £1.45/$1.8352)

 

Total maximum number of shares that can be obtained under the warrant at £1.45 ($1.8352) are $2.0 million (in shares at £1.45/$1.8352)

 

Purchase consideration and valuation

 

1.  The 26.7m shares have been valued as at 1 January 2019, using the market value of Boku's shares (£0.7045/$0.8982) at $23.4m.

 

2.  The 5-year warrant has been valued at $1.5m. The valuation was done using the Binomial Lattice Model which employs a nominal tree to show different paths the price of the underlying asset may take over the derivative's life. The model takes into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of options prices than the Black Scholes model.

 

3.  The earn-out paid in shares has been provisionally valued at $37,544 using the Monte Carlo simulation with the following inputs and discounting back at the WACC of 17.5%:

a)  Term 1 year

b)  FY2018 revenue: $5,249,873

c)  Expected annual volatility: used 5-year comparable companies revenue volatilities from Capital IQ (27.3%)

d)  Forecasted revenue growth: one-year US risk free rate (2.63%)

For the Monte Carlo valuation a random value is selected for each of the tasks, based on the range of estimates. The model is calculated based on this random value. The result of the model is recorded, and the process is repeated. A typical Monte Carlo simulation calculates the model hundreds of thousands of times, each time using different randomly selected values. The results are used to describe the likelihood, or probability, of reaching various results in the model.

 

4.  The earn-out warrants have been provisionally valued at $2,009. The warrants have been valued in two steps: the first step was using the Monte Carlo simulation in order to determine the number of shares that can be purchased under the warrants using a price per share of $1.8482 equivalent with £1.45 at a USD/GBP exchange rate of 1.2746 determined in accordance with the Merger Agreement using Capital IQ rather than the Financial Times (the difference between the two sources was expected). The first step is determined with the same inputs at point 3 above. Using the results from the first step, we have performed a warrant valuation using a binomial lattice model using the following inputs:

a)   Term: 5 years

b)   Starting Stock price: we determine the 1 year forward stock price.

c)   Expected annual volatility: used 5-year comparable companies equity volatilities from Capital IQ (26.6%)

d)   Risk free rate: 1 year forward risk-free rate (2.63%)

e)   Strike price: $1.8352

 

Therefore, the total purchase consideration (including all deferred consideration) for the Danal Inc group has been provisionally valued at $26.5 million.

19,067,093 common shares have been issued for Danal Inc acquisition on 31st January 2019.

4,631,648 Common Shares and the Warrants to Danal Company Ltd. ("Danal Korea"), the parent company of Danal Inc prior to the Acquisition, have been withheld. Danal Company Ltd. is currently obligated to repay to Citibank (USA) a loan of US$8,500,000 and funds from Danal Korea to guarantee this loan are currently being held in escrow with Citibank Korea and will be transferred to Boku following receipt of the regulatory approvals required under Korean law, at which point the Common Shares and Warrants will be issued to Danal Korea. Boku expects this loan to be cleared and the shares and warrants to be payable to Danal Korea before the end of June 2019. Danal Korea is paying the interest costs on the loan until such date until the loan is repaid.

In addition, 2,724,499 Common Shares are currently subject to holdback for 12 months to satisfy any potential indemnification claims.

With the exception of 1,930,414 Common Shares which are subject to an Orderly Marketing Arrangement, fifty percent of the Common Shares issued as part of the Initial Consideration are subject to a lock-in until 30 June 2019 and fifty percent are subject to a lock-in until 31 December 2019. Following the Acquisition, Jon Prideaux, Mark Britto and Paul McGuire will also be subject to the same lock-in terms in respect of their entire Boku shareholdings with the exception of any share sale which may be required to meet income tax liabilities on the vesting of Restricted Stock Units.

 

 There are no other post balance sheet events to report.

 

 


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