Engagement Labs Releases FY 2018 Audited Results, Launches Prospectus Offering of approximately $1,800,000 in Units Led by Gravitas Securities, Proposes Debt Reorganization for approval by Debentureholders and 2:1 Share Consolidation

Engagement Labs Inc. (TSXV: EL) (OTCQB: ELBSF) released results for its fiscal year ended December 31, 2018. Audited consolidated Financial Statements and Management Report are available on SEDAR’s website at www.sedar.com.

Fiscal Year 2018 Audited Results Released

• TotalSocial® revenue increased by 113% from year ended December 31, 2017 to year ended December 31, 2018.
• The number of brands using TotalSocial® increased to 20 during 2018, up from 9, and the number of industry sectors increased from 6 to 11. New sectors include Sports, Retail/Apparel, Beverage, Agency and Travel, to go along with Media, Beauty, Telecom, Software, Food and Financial.
• Total revenue, including both TotalSocial® and the Company’s legacy products, was $3,973,704 for the year ended December 31, 2018, an increase of 15% compared to $3,469,767 for the year ended December 31, 2017.  In the US, year-over-year growth was 26%, while the UK saw a decline for the year.
• Gross profit increased by 25%, from $1,457,485 for the year ended December 31, 2017 to $1,818,527 for the year ended December 31, 2018. As a percentage of revenue, the gross margin increased by 4%, from 42% for the year ended December 31, 2017 to 46% for the year ended December 31, 2018.
• Non-GAAP Adjusted EBITDA loss increased by 20%, from –$2,684,152 for the year ended December 31, 2017 to –$3,228,681 for the year ended December 31, 2018. Operating expenses before extraordinary items increased by 18%, from $5,514,535 for the year ended December 31, 2017 to $6,533,005 for the year ended December 31, 2018.
• The net loss before income taxes for the year ended December 31, 2018 increased to –$5,628,884, up 26% or –$1,170,877 from –$4,458,007 for the year ended December 31, 2017. Basic and diluted loss per share was –$0.03 for the year ended December 31, 2018, compared to –$0.05 for the year ended December 31, 2017.

Fourth Quarter Financial Highlights

• TotalSocial® Revenue of $1,109,923 for Q4 2018 represents a 137% increase vs Q4 2017 of $467,908, and a 34% increase vs Q3 2018 of $829,739.
• Total revenue, including both TotalSocial® and the Company’s legacy products was $1,139,156 for Q4 2018, an increase of 29% from $883,342 in Q3 2018, and an increased of 15%, from $989,553 for Q4 2017.
• Gross margin increased to 54% in Q4 2018, from 40% in Q3 2018 and from 39% in Q4 2017.
• Operating expenses, before extraordinary items, have increased to $1,774,244 in Q4 2018, up 21% or $301,912 from $1,472,332 in Q3 2018, and up 5% or $83,644 from $1,690,600 in Q4 2017. The increase from 2017 reflects management’s commitment to invest in sales and marketing to drive TotalSocial® technology sales growth, including the hiring of a Chief Revenue Officer in late December 2017.
• Excluding extraordinary items and future income taxes, the net loss has increased to –$1,411,297 in Q4 2018, up 5% or –$61,745 from –$1,349,552 in Q3 2018, and down 9% or –$138,746 from –$1,550,043 in Q4 2017.
• EBITDA loss of –$1,012,039 for Q4 2018, representing an increase of $30,190, from –$981,849 for Q3 2018, and an increase of –$465,427, from –$546,612 for Q4 2017.
• Non-GAAP Adjusted EBITDA loss of –$735,594 for Q4 2018, representing an improvement of $11,838, from –$747,432for Q3 2018, and an improvement of $313,613, from –$1,049,207 for Q4 2017.
• Operating expenses increased 17% or $212,074 from Q3 2017. The increase from 2017 reflects management’s commitment to invest in sales and marketing to drive TotalSocial® technology sales growth, including the hiring of a Chief Revenue Officer in late December.
• Basic and diluted income per share was –$0.01 for Q4 2018 compared to –$0.01 for Q4 2017 and Q3 2018.
• As at December 31, 2018, the Company had cash (excluding restricted cash) of $906,455, compared to $2,677,049as of December 31, 2017.

“I said a year ago that 2018 is shaping up to be a transformative year for Engagement Labs as TotalSocial is now resonating with clients and prospects,” said Ed Keller, CEO.  “Our year end results show the amount of progress we have made.  We grew our number of clients and our range of sectors served.”

Corporate Restructuring

Proposed Share Consolidation and Amendment to Terms of Outstanding Debentures
Engagement Labs has mailed a Notice of Special Meeting of Shareholders providing for the proposed consolidation of the common shares of the Company on a two-for-one basis effective on or about May 27, 2019.  The Meeting Materials also contemplate the approval of the issue of approximately 6,000,000 common shares on a post-consolidation basis at a price of $0.06 per share for fees owing to directors for 14 months of services for the period ended December 31, 2018.  The payment in shares is to conserve cash of Engagement Labs and is subject to approval of the TSX Venture Exchange.

Engagement Labs has mailed a Notice of Meeting and Management Information Circulars (“Meeting Materials”) to holders of the 1% Debentures, and separate Meeting Materials to 2% Debentures, both of which series are due September 28, 2020.  Engagement Labs is proposing to holders of 1% Debentures, of which there are approximately $4.23 million outstanding, and holders of 2% Debentures, of which there are approximately $1.6 million outstanding, to amend the terms of their debentures, subject to approval of 90% of the debentures outstanding of each series of debentures at a meeting or in writing, providing for the conversion of all of their outstanding debentures at a price of $0.11 per share for the 1% Debentures and $0.06 per share for the 2% Debentures, effective on or about May 27, 2019. These amendments, if approved, would cause all outstanding debentures to be cancelled and would substantially improve the Company’s financial position.  The pricing of the conversion of the debentures is subject to final approval of the TSX Venture Exchange.

Prospectus Offering 
The Company has entered into an agreement with Gravitas Securities Inc. (the “Agent”), pursuant to which the Agent has agreed to  sell on a commercially reasonable efforts basis by short form prospectus, up to 30,000,000 units of the Company (the “Units”) at a price of $0.06 per Unit for aggregate gross proceeds to the Company of up to $1,800,000. Each Unit will be comprised of one common share of the Company, one-half of one common share purchase warrant (each such whole common share purchase warrant, a “$0.10 Warrant”) and a second one-half of one common share purchase warrant (each such whole common share purchase warrant, a “$0.12 Warrant”). Each $0.10 Warrant will be exercisable into one common share at an exercise price of $0.10 per share for a period of 6 months after the Closing Date (as defined herein). Each $0.12 Warrant will be exercisable into one common share at an exercise price of $0.12 per share for a period of 2 years after the Closing Date. The offering is subject to a minimum offering amount of $1,500,000.

The Company has also agreed to grant the Agent an over-allotment option to purchase up to an additional 4,500,000 Units at the offering price, exercisable in whole or in part, for a period ending 30 days from and including the Closing Date. In the event the over-allotment option is exercised in full, the aggregate gross proceeds of the offering will be $2,070,000.

The Units will be offered in each of the provinces of British Columbia, Alberta, Manitoba and Ontario by short form prospectus.

The offering is expected to close on or about May 27, 2019 (the “Closing Date”) and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the TSX Venture Exchange, the consolidation of the common shares of the Company on a two-for-one basis having occurred, the conversion of certain outstanding debentures of the Company in accordance with their terms and the issuance of a receipt for a final short form prospectus.

The Company intends to use the net proceeds from the offering for working capital and general corporate purposes.

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES.

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities of Engagement Labs Inc. in the United States, nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities offered have not been and will not be registered under the United States Securities Act of 1933, as amended, or any U.S. state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons unless registered under the United States Securities Act of 1933, as amended, and applicable state securities laws or unless an exemption from such registration is available.

SOURCE Engagement Labs