Quote from parmenides on October 17, 2023, 11:09 am

The Organisational & Financial Review report for everyone’s reference and records.

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This review was motivated by concerns from the Founders about poor communication and collaboration within the leadership team and the need to improve business operations. The initial scope was to assess the operational efficiency of e-Mersion Media (e-M) through interviews with the leadership group and consultants, as well as a desk- top review of customer contracts and financial data. The objective was to identify factors affecting operational efficiency and develop strategies for improvement, including optimizing financial resources.

About the author

Rick T. Papadopoulos is a Professor of Economics and became an e-M shareholder in September 2022. In November 2023 Rick was asked to join e-M as a consultant to assist with business operations and strategy, commencing this role in December 2022. In February 2023 he was asked to take on the role of interim Chief Operating Officer (COO) during the transition to a merger with Gooroo and following the resignation of one of the co-founders from this position (and from the board as agreed with Gooroo representatives).

(Postscript: This version of the report was completed ahead of his resignation as Interim COO. The financial data was extracted from e-M company accounts (Xero) in early March 2023, and could not be updated to include figures for full financial year to June 30 as access to Xero was blocked following the release of some of this financial and expenditure data.)

Summary of Key Findings

Context & Preamble

Rick T. Papadopoulos was appointed as an e-M consultant on December 1, 2022, having invested in e-M in Sep 2022, with a further investment in early Nov 2022 (ahead of the FIFA World Cup). This investment was founded on significant revenue forecasts presented in an e- M Investor Deck, including revenue from the FIFA contract of around $4 million in the December 2022 quarter, and a further $10 million for the March 2023 quarter.

Rick’s scope of work was to provide advice and direction on:

• revenue models and pricing
• business strategy
• operational efficiency
• budgeting and financial management
• industry trends and market segments

On 2nd Dec 2022, Rick travelled to Doha (at this own expense) with two other (major) shareholders and saw first-hand the “e-M team” in action at the InterContinental Doha Beach & Spa Resort, where they were all staying in a 4-bedroom Villa. Occupants included:

• John Iliopoulos (Managing Director)
• Chris Iliopoulos (the, Chief Operating Officer)
• Chris Gourlias (Shareholder)
• Ben Copley (Chief Marketing Officer — based in UK)
• Walter De Gregorio (Consultant — based in Zurich)
• Bernd Fisa (Consultant — based in Vienna)

In late December the Founders approached several shareholders requesting a short-term loan to pay wages due to a cashflow problem, promising to personally guarantee to repay the money in February 2023 (following settlement on the sale of a property). $100,000 was deposited into the e-M account on 31st December 2022.

In early January 2023, it became evident that there were significant operational and cultural issues within e-M, and the Co-founders asked Rick to conduct a comprehensive Organisational Review and report findings to the Board and to shareholders.

To facilitate this review, the e-M board provided the author access to the following:

• Client contracts (F1, FIFA, LFC, The Red Bulletin, Newsweek, RiM)
• Company accounts for both e-M Australia and e-M UK (Xero)
• Board minutes dating back to 2019

Review of e-Mersion Media Accounts

The review commenced in early January 2023, with interviews of key senior staff and consultants. Within a couple of weeks, it became evident that e-M was facing a severe liquidity crisis, with considerable operating expenses and minimal revenue.

Repeated requests for a statement of company liabilities, to get a clear picture of the e-Ms financial position, went unanswered for over six weeks.

On 28th February Chris Iliopoulos finally gave Rick permission to contact the company accountant and be provided access to the accounts (Xero), and a review e-M revenues and expenditures was conducted.

An examination of the company accounts revealed the following:

• e-M has raised over $15 million in investor capital, and has received close to $1 million in cash payments from the ATO (as part of the Research Development Incentive Scheme)
• Operating costs for the 2022 period was around $2.2 million for e-M Australia, and around $2 million for e-M UK. This was a significant increase on previous years due largely to: (a) F1 license fee and associated editorial and writing team; (b) appointment of several consultants — each paid around $15,000 per month. As a result, combined operating costs exceeded $4 million annually.
• e-M had no notable revenue, so the only way it could continue operating was to be in a perpetual cycle of raising capital from existing or new investors.
• Accounting and record keeping is poor and unprofessional.
• Transactions are manually entered into Xero and descriptions often vague.
• Chart of Accounts: this is rudimentary and does not enable basic financial reporting.
• For example, you cannot run a report on costs and revenues associated with a specific client contract, so there is no way of knowing what each client contract costs to deliver/service, and what revenue is generated.
• Copies of invoices and receipts are not uploaded to Xero so individual transactions cannot be reviewed, and the precise nature of expenditure cannot be verified.
• There are numerous manual journal entries that offset large cash withdrawals (often labelled as repayment of Director Loans), that cannot be connected to specific deposits.

Company Liabilities revealed

The first review of the accounts was completed and circulated to the Directors and Company Accountant (the latter verifying the accuracy of the figures) on March 3rd 2023. The review revealed significant combined (AU & UK) liabilities of around $2.8 million, summarised as follows:

e-M Australia unpaid bills:

• ATO PAYG: $804,210.79
• (GST credit:-$163,000.00)
• Payroll tax: $147,281.34
• Superannuation Guarantee: $139,530.21
• Accounts payable: $15,895.00
• Lawyer invoices: $190,000.00
• Shareholder: $250,000.00 (cash loans to cover wages)

Total = $1,383,917.34

e-M UK unpaid bills and fees:

• F1 writers & other invoices: $478,683.44
• FIFA Invoice: $585,123.97
• F1 Invoices: $144,679.80
• Consultant fees: $173,379.15

Total = $1,394,134.74

An accumulated PAYG liability exceeding $800,000 reveals that e-M effectively did not pay taxes on staff salaries for around two years. A repayment plan was arranged with the ATO in early 2022 to pay $30,000 per month but e-M failed to make payments (and has continued to not pay PAYG up to June 2023).

It became evident at the time that not all outstanding invoices had been brought to account (entered into Xero) and the true liabilities were expected to be significantly higher.

Updated estimates of liabilities in June 2023 (to include previously undisclosed invoices, continuing to not pay staff superannuation, PAYG, etc.) reveals combined liabilities of around $4.5 million. Given the state of the company accounts it is difficult to know the exact number.

Estimated e-M liabilities as of June 2023:

• e-M Australia: $2.5 million
• e-M UK: $2 million

Total Estimate Liabilities: $4.5 million

Founder Absence

Chris Iliopoulos ceases to deal with creditor inquiries, referring them to the Chairman, Peter Stern (9th March). Peter tells Chris he is a Non-Executive Chairman and not involved in operational matters, reminding him he is still employed by e-M. Chris takes sick leave (14th March). Sick leave is then extended to end of April 2023.

John Iliopoulos takes personal leave from around mid-Feb to mid-April, leaving Peter Stern to deal with inquiries relating to unpaid invoices, while Rick continues in his role as interim COO.

Staff Resignations 2023

The pressure of accumulate liabilities, debtors chasing long overdue invoice payments, and no cash in the bank, resulted in repeated late payment of staff salaries. Directors and selected shareholders scrambled each fortnight to bundle together cash contributions (loans) to cover salaries.

The Chairman began conducting weekly video calls to explain the circumstances to e-M staff, who were under considerable personal financial pressure with overdue rents and ongoing living expenses. This anxiety and stress turned to anger and frustration when several staff checked their superannuation balances to find that their entitlements had not been paid.

Staff also noted the Managing Director, after returning from a long absence overseas, never attended any of the weekly video meetings in April, May and June, to address staff and provide a plan for the future.

Staff began resigning, adding further financial pressure on e-M, which does not have the cash to pay wages during the notice period, let alone accumulated annual and long service leave, and unpaid super.

For some staff, accusations of misconduct were made during their notice period and salary payments withheld. Other staff had salaries withheld during their notice period without explanation. This is consistent with past behaviour, having received emails from two former staff who resigned during 2022 (including the former Chief Commercial Officer) and are still chasing unpaid wages and annual leave.

There have now been several complaints registered with Fair Work, the Wages Inspectorate and the ATO. Apparently, e-M is now being investigated for wage theft, unpaid PAYG and superannuation.

Staff resignations have added hundreds of thousands in additional cash requirements (not part of the estimated $4.5 million liabilities detailed above).

Expenditure

The unexpected and incredibly high liabilities triggered the obvious question: How was $15 million of investor money spent?

Given the inadequate record keeping it is difficult to get a precise picture, but it was possible to isolate certain categories of expenditure such as “National Travel” and “International Travel”, although it was clear that many expenses categorised as national were indeed international. The following is a sample of some notable expenditure, including examples of individual expenditure items.

Travel
$830,000 spent on travel from 2021 to 2022

Over $1 million expenditure on travel related expenses in past 3 years including:

• Businesses class airfares
• Luxury accommodation
• Fine dining and alcohol
• Spas and Balinese massages

Doha: FIFA World Cup

• 4-bedroom villa at the InterContinental Spa & Beach Resort (with private beach)
• $160,000 12-month lease signed in May 2022 (for a 28-day tournament)
• 6 people stayed at the villa for the duration of the tournament: John and Chris Iliopoulos, Chris Gourlias, and three consultants from the UK and Europe
• Room service charges included pool side drinks, spas and Balinese massages.
• Fine dining: one example, $2,000 dinner at an exclusive hotel resort in Doha

The FIFA contract is reviewed below, but the following points are worth noting here:

• FIFA contract signed day prior to the tournament commencing.
• Contract required e-M to pay USD $1 million (AUD $1.47 million) in license and marketing fees.
• With the tournament starting the following day, it was impossible to sell ads and generate any ad sales revenue once the tournament started.
• e-M did not have the cash to pay these fees. Instead, a cap raise of around $1.2 million was secured from two existing shareholders just prior to FIFA tournament offering investors one option for each share purchased (effectively halving the share price and company valuation). Only the $200,000 license fee was paid from these funds, and amounts were also used to pay airfares, accommodation and dining.

e-M has created a digital magazine publishing platform. Having travelled to Doha and observed the e-M team over 10 days, it is difficult to understand why six (6) people needed to be physically in Doha during the event. The key consultant that coordinated the FIFA deal was already in Doha at the invitation of FIFA, and the only contract related activity that required a physical presence was the printing of the Final Matchday Program. The editorial and writing teams worked remotely, and the digital and tech teams producing the digital and print magazines were in Australia.

Original Receipts and Invoices Required

There are many transactions that appear in the bank statements that required clarification and explanation. As no receipts or invoices are provided in Xero (and there is nothing stored on the e-M shared drive) it is not possible to determinate the exact nature or purpose of these expenditures. Samples of transaction that warrant further examination and explanation include:

• $1,650 monthly car parking fee in Melbourne CBD from Mar to Nov 2021 (during Covid lockdowns) S&K CAR PARK MANAGEMENT PTY LTD- VIC SECURE PARKING
• “Staff Amenity — Dentistry John Medical” $1,973.61
• Large number of Uber Eats transactions following the World Cup, including several days with multiple purchases. Examples: Dec 28 2022 — four order; Jan 3–2 orders, Jan 14–4 orders (amounting to hundreds of dollars on a single day)

There are too many to list here and a longer list can be provided on request.

Director Bonuses & Shares

A review of the Board of Director minutes meetings reveals that the Directors voted to issue themselves a substantial quantity of shares as bonuses or employee share options. These bonuses were not put to a shareholder vote nor advised to shareholders.

The approximate value of the shares, based on the share price at the time the bonus/options were issued, are as follows:

• John Iliopoulos: $2,400,000 (bonuses)
• Chris Iliopoulos: $1,400,000 (bonuses)
• Peter Stern: $1,400,000 (share options)

This is a total of $5.4 million dollars of bonuses and share options paid to three Directors.

The most recent example of this was total bonuses of $450,000 paid on 23/11/2022:

• $300,000 to John Iliopoulos
• $150,000 to Chris Iliopoulos

The justification noted in the board minutes was e-M being awarded the FIFA contract.

• “This extraordinary outcome has come about solely by reason of extraordinary effort put in by both John Iliopoulos and Chris Iliopoulos.” (emphasis added)

In fact, the FIFA deal was initiated and coordinated by two external consultants (ex FIFA, Red Bull and F1). These consultants had worked for e-M as “introducers” for the previous 15 months for a fee of €10,000 per month each; a total of €300,000 (around $500,000 AUD).

When interviewed, these consultants made it clear that while they introduced potential clients, they were not involved in negotiating the commercial terms of the FIFA contract. Indeed, the ex-FIFA consultant advised it was too late to sign the contract at such a late stage and recommended pivoting to the Women’s World Cup (to be hosting in Australia in July 2023). This would provide sufficient time to negotiate advertising deals to help cover costs.

“Loan Account”, Cash Withdrawals & Manual Journal Entries.

Several requests have been submitted to the Company Accountant to explain transactions that appear in the Xero accounts, including many manual journal entries that offset large cash withdrawals. The following is a list of questions posed with reference to Xero tables (Xero tables available on request):

“There are many manual entries that offset cash withdrawals. Some examples are presented below, with manual entries highlighted. These entries and the lack of details explaining each manual adjustment reflects poor accounting/bookkeeping practices and opens e-M up to accusations of deliberate obfuscation.

1. $25,000 manual entry on 30 June 2019 to offset cash withdrawal in Feb 2019 by Chris Iliopoulos. What does “close off loan” mean? If this is a reimbursement of a loan then the deposit should be recorded and not require a manual journal entry?
2. a. $44,000 and $15,000 manual entries to offset cash withdrawals by John Iliopoulos for “reimburse loans”. Again, loans should appear as deposits and not require manual journal entries.
   b. $170,000 cash withdrawn March 2021 (“Loan to John for 25 e-M shares”) with manual entry in Oct 2021 to offset this withdrawal. (Loan Agreement between e-M and John Iliopoulos dated 19 March 2021; Principal Sum: $17,000, Term: 2 years; Security: 25 share in the capital of e-M. Loan document executed by: Chris Iliopoulos on behalf of e-M, John Iliopoulos as borrower, and Christopher Gourlias as witness).
3. Opening manual entry of $597,674.74 (director loan deposit) with no explanatory notes. Please provide PDF files or other records confirming deposit into origin account and amount deposited (refer item 11 below)
4. Several manual adjustments dated 20 June 2019 — worth several hundred thousand dollars ($420,000 and $443,000). Please explain the entry notes: “write off shares”; reallocate loans; close off loans; move loan interest and provide original deposits/withdrawals that these manual adjustments relate to.
5. This table requires detailed explanation as there are several manual adjustments that have no explanatory notes.
   a. Please provide details of manual entry $167,000 and original deposit
   b. “deposit shares” 19th,20th, 25th Sept and 14 Dec 2018.
   c. Manual share JE 17/6/2019: $750,000
   d. Manual entry — close off loans: $379,000
   e. There are several deposits for e-M shares, including from Xander super fund, and corresponding cash withdrawals on the same day as “reimbursements” to either Sir James P/L or John Iliopoulos directly
6. There appears to be a payout of $294,000 to PB Life without any explanatory note.
7. Loans — TASA: withdrawals exceed deposits by $27,500
8. Several withdrawals by J. Iliopoulos correspond to deposits from Xander Super fund.
   a. It appears that deposits are made for e-M shares and then immediately withdrawn as repayments of loans on the same day. Please show loan deposits upon which these repayments are drawn (see other examples at bottom of page)
9. $525,000 cash withdrawals in Jan 2020, offset by manual entries:
   a. Please explain $200,000 “reversal of contra entries” and original entry that this relates to b.
   b. A manual entry of $294,400 as recent as Dec 2022 to offset withdrawals made in 2020 (adjustments made 2 years later).
10. Please explain the basis upon which $1.2 million of shares in listed company owned by e-M are transferred to Sir James P/L. Minutes of the Board Meeting dated 8 May 2019, provide a table showing the following loan balances:
    a. Sir James P/L: $167,000 (see item 5 above for corresponding manual entry)
    b. Chris & John Iliopoulos of $597,674.70. (The latter is equal to the manual journal entry detailed in item 3. above)
    If the $1.2 million transfer of shares to Sir James was for repayment of Director loans (as noted in the Board minutes) please provide details of these loans and corresponding entries/deposits. The $167,000 owed to Sir James P/L falls far short of $1.2 million, and as per item 5 above, has other withdrawals/cash payments against this loan.
    I note that the combined sum of these two Director loans (around $765,000) is significantly less than the value of the $1.2 million shares transferred. Please explain how this balances out.
    This raises a further question, if the combined director loans from the Co- founders and their company (Sir James P/L) is $765,000 and was used to offset the $1.2m share transfer, which Director loans were used to for the manual journal entries that offset all the above cash withdrawals?

The above illustrates the poor state of accounting practices and record keeping. While the ambiguity relating to the above transactions may simply be poor record keeping and tracking, it is a cause for concern for shareholders who should be provided with an accurate account of all deposits and withdrawals from the company bank accounts, especially as the money withdrawn is from shareholder capital investment and not from revenue.

The Revenue Model

The e-M revenue model can be loosely summarised as follows:

• provide the digital magazine publishing platform for free (no license fee charged)
• customise and digitize the client-provided content for free (no cost recovery).
• Publish the digital magazine on the app store/google play for free (no subscription fee).
• Get millions of downloads, sell loads of advertising, and split the revenue with the client 50:50.

This model is risky for the following reasons:

• e-M does not earn a license fee for its digital magazine platform.
• e-M bares all the cost of producing the digital magazine.
• e-M bares all the risk in getting sufficient downloads (users) to attract advertisers.
• the client gets a digital magazine produced for free and bares no risk if there is no advertising revenue.

As detailed below, a review of client contracts reveals that this approach has created huge costs for e-M and in all but one contract, generated zero ad revenue.

e-M has operated as a technology-backed service company with customised products that are difficult to scale. This is time and labour intensive with a linear relationship between new clients and staff required to customise and curate the content. This model cannot scale quickly nor be disruptive.

Poor Commercial Contract Terms

If a product has value, clients will be willing to pay for it.

F1 and FIFA contracts require e-M to pay a license fee for the rights to produce and publish its own magazine (under license). This is backward, if the digital magazine platform has value, the client should pay e-M a license fee.

Rather than being a magazine publishing platform, e-M has become a publisher and required to hire editors, writers, art directors and so forth. These contracts also require e-M to provide print magazines — the very outdated technology that the digital magazine platform is supposed to disrupt.

Commercial terms heavily favour the client, to the detriment of e-M. A basic financial analysis of these commercial terms reveal it is difficult, and in most cases impossible for e-M to make a profit. The result is that most client contracts have created cost centres with zero revenue.

A brief overview of each client contract and commercial terms is now provided.

Formula 1

Commercial Terms:

• e-M pays F1 an annual licence fee: £225,000 (AUD $427,000)
• e-M pays editorial team in London to produce magazine content: £427,000 (AUD $800,000 per annum)
• F1 supplies up to 20 ads (F1 partners and sponsors) to be digitised and published in each magazine- free of charge
• e-M curates content and publishes 21 @ Race Day Programs (estimate staff cost of AUD $200,000)
• e-M must pay for marketing and promotion of the Race Day Program
• Ad revenue share 50:50 on first £1 million and 60:40 thereafter in favour of F1
• The digital Race Day Program must be made available for free

Key Findings:

• Annual cost to e-M: $1.4 million
• Break-even Sales Revenue: $2.7 million (amount of ad revenue required to cover costs)
• e-M Revenue: (Jan-June 2023): $63,000
• At e-M breakeven point, F1 profit is $2.14 million

Conclusion:

F1 is a cost centre and contributes no notable revenue. App Downloads and users are too low for advertisers to buy ads. Total losses for season 2021 and 2022 of around $2M.

Projected losses 2023–25 of around $2.5M (assuming total ad sales of $2m in 2023–25 and e- M share is $1 million — something not achieved to date).

The Red Bulletin Magazine

Commercial Terms:

• No license fee paid by either party
• TRB provides content
• e-M digitizes and curates content, publishes digital magazine
• e-M and TRB responsible for marketing and promotion of magazine
• Ad revenue share 50:50
• Magazine is free to users

Key Findings:

• Contract is with The Red Bulletin UK and not Red Bull global
• TRB UK has around 56,000 social media followers
• Zero ad revenue for last two years. Negligible downloads (around 500) and no prospect of future ad revenue. TRB contract is a pure cost centre.
• 2023: coordinated with TRB UK to promote the Magazine app, TRB saying the magazine app was “central element of future digital fan engagement strategy”.
• Marketing and promotion efforts to increase users/readers was unsuccessful. Around 1,500 users in total to date. Insufficient users/readers to sell advertising.
• Revenue Generated: $0

e-M attempted to renegotiate the contract to cost-recovery but TRB refused and the contract terminated by mutual agreement in March 2023.

Conclusion:

Client’s valuation of the product is zero.
Red Bull is a marketing goliath and should be able drive downloads of the digital magazine app. This suggests the revenue model is flawed.

Newsweek

Commercial Terms:

• NW provides editorial content
• e-M digitised and curates content, and publishes 48 editions per year
• Ad revenue share 50:50
• Digital magazine available to download for free (no subscription revenue)

Key Findings:

• NW contract is with NW UK and not Newsweek USA.
• The US, where 90% of readership resides, is excluded from the contract (magazine app is geo-blocked for the USA).
• 48 editions take out the digital team for 2.5 days per week or 50% of the team.
• Revenue Generated: $0

In February 2023 discussions were held with Newsweek representative from the UK and USA offices, to explore marketing and promotion of the digital magazine to increase downloads. They acknowledged that the UK market will never achieve enough downloads to attract advertisers, so no prospect of any ad revenue.

Discussions regarding charging a minimum fee to cover e-M cost (cost-recovery with no profit margin) was rejected by NW.

NW magazine was suspended in February by mutual agreement, and contract effectively terminated.

Conclusion:

Client’s valuation of the product is zero.

Liverpool FC

Commercial Terms:

• LFC provides editorial content.
• e-M curates, builds and publishes a web-based version of the magazine.
• Ad revenue share 55:45 in favour of LFC
• Magazine provided for free, gated behind a fan login.

Key Findings:

• The Liverpool FC “Walk On” magazine sits behind a registration wall on the Liverpool FC website and is difficult to find.
• It is a webapp, and not a native app.
• There is no marketing and promotion of the app by either Liverpool or e-M.
• e-M does not have data on users
• No attempt to sell advertising space to date
• Revenue Generated: $0

Conclusion:

Neither LFC or e-M have done any marketing and promotion of the digital magazine so few fans are aware of its existence.

Australian Grand Prix (AGP)

Commercial terms:
As per F1 but no requirement for e-M to pay a license fee.

Contract Terminated
Australian Grand Prix and Motorcycle Grand Prix contract was recently terminated (and prior to the October 2023 Motorcycle event) where they expressed disappointment with:

“…the lack of communication, the failure to sell agreed upon advertising space and the failure to publish the digital program within agreed timeframes.”

Concern was expressed that e-M

“does not have the capacity to produce this final program in both print and digital format in the timeframes required due to the level of service provided by e-Mersion during the production of the two most recent programs (MotoGP in 2022 and Australian F1 in 2023)”.

This follows complaints directly to the AGP from e-M contractors and writers based in the UK for unpaid invoices relating to work performed on the AGP and other F1 races.

Retail in Motion (RiM)

Commercial Terms:

• Fees include build price, page rate and maintenance fee per airline
• Contract provided for RiM to negotiate deals with individual airlines they service
• *** This contract is incorrectly referred to in the e-M investor Deck as Lufthansa Airways. There is no contract with Lufthansa Airways, though both RiM and Lufthansa Airways are owned by LSG.

Key Findings:

• RiM has to date contracted with only one airline: Eurowings Discovery (a budget airline)
• This is the only contract that has a fee-for-service
• There is no relationship manager & no coordinated effort to market the e-M platform to other airlines
• Revenue: <$100,000 per annum

Conclusion:
The revenue model in this contract is the only one covering cost of production. It is unclear if this is profitable as the accounts do not enable reporting on a contract-by-contract basis. Estimates of staff resources required suggest that the fees provide for a model gross margin above cost.

FIFA World Cup 2022

Commercial Terms:

• e-M pays license & marketing fee: USD $1 million (AUD $1.47 million)
• e-M pays for marketing and promotion of digital magazine app
• e-M pays to produce Magazine (writers, editors, art direction)
• Tournament Magazine (digital), Final Magazine (print & digital)
• e-M digitizes and curates content, publishes magazine online
• e-M produces and prints the Final Match Day Program (50,000 copies)
• e-M received all revenue from Advertising (100% to e-M)

Key Findings:

• Contract signed the day prior to tournament commencing, so no advertising revenue possible (100% of zero is zero)
• Only revenue stream possible: sale of printed Final Match Day Program
• 50,000 copies @ USD $13.20 wholesale price = USD $660,000 max revenue possible
• Total print magazine sales: 3,592 units
• Sales revenue of printed magazine: approx. AUD $68,000
• Subtracting cost of writing, editing, producing and printing: a significant loss on this element of the contract alone.

Conclusion:
The FIFA deal illustrates the absence of sound commercial principles.

Estimated economics loss on this single event: AUD $3 million

Consultants

Europe (two consultants)
Focus was “Business Development” which essentially means using their professional networks to introduce potential clients to e-M. While this is in theory a reasonable approach, it is evident that these contracts did not have any KPIs or minimum triggers for payment.

Around €150,000 each or €300,000 over 15 months (AUD $500,000)

Clients delivered: FIFA World Cup in Doha (a one-off event with no recurring revenue)

Doha
Consulting fees of around $15,000 per month for around 10 months to Dec 2022 ($150,000). The e-M September 2022 Investor Deck refers to multiple prospective Qatari clients as “imminent”: including, Qatar Duty Free, Aspire Academy, Qatar Airways, and Blue salon.

No apparent KPIs, and client contracts has been signed in this period.

UK
Chief Marketing Officer and paid £555 (AUD $1,000) per day. This equates to an annualised salary of $260,000 per year. Period of employment and total payments unclear. e-Mersion Media does not have a marketing budget.

Senior Staff Interviews

A total of six (6) senior staff (including those employed as consultants) were interviewed as part of the review. The Managing Director and then Chief Operating Officers, having initiated the review, declined to participate.

During the interview process it became evident that there were longstanding ill-feeling and animosity among the leadership group.

The following list summarised key feedback and statements:

• Decisions regarding product development, commercial terms, allocation and expenditure of investor funds are made by the founders, with little or no consultation with the board or senior leadership team.
• Lack of rigour and discipline, reflects little or no prior corporate experience.
• Company being run like a family business.
• There is a serious skills and capability gap.
• Need a Board and Executive team that has corporate experience and will listen to advice provided by experts in their field (marketing, technology, finance etc.)
• How we spend money is critical — need to be lean and strategic. No accountability for expenditure and no reporting to shareholders.
• Asked to fly to London (business class) but refused to go, as meetings can be conducted by video. No one should be flying business class in a startup that is pre-revenue and cannot justify using investor money in this way.
• Reference to a “toxic” work culture was common.
• Culture of blaming others and no responsibility taken for poor decision making.
• Consultants reported verbal abuse in response to requests for invoices to be paid.
• There has been no product development or innovation in the two years that I have been involved.
• Focus on animating images rather than the user experience. F1 magazine is “not readable” — 10-page article so readers drop out of app altogether after 5 pages. Not done a single focus group of users marketing and promotion to increase downloads.
• Ads look cool but content is not prioritised. Suggested product improvements are ignored.
• Ad hoc approach to developing product features — next best idea — rather than asking clients what they want or analysis of user experience.
• Chasing global brands with no proven revenue model in place or understanding of basic commercial principles.
• Presentation to potential clients on an iPad but lacks information that drives business decisions: namely, data that demonstrates the value proposition. What is the user experience? How does it drive new readers to the magazine? How many users do we need to trigger advertising expenditure?
• Ad hoc approach to data analytics with little or no analysis of the user experience or reporting back to clients.
• Client relationship management is lacking, and desperately need a product manager. But people are segregated into silos and there is lots of finger pointing.
• They do not understand the basics of technology — e.g., distinction between “app link clicks” and downloads.
• Racist and homophobic comments are very offensive and won’t be tolerated when dealing with large corporations and global brands. Exposure to litigation.
• No transparency with respect to the accounts.
• Horrified when learned of the company debt. Continued to take on contractors to perform work (e.g. writers, art directors) when they do not have money to pay them.
• Isn’t this insolvent trading?
• London team is essentially the F1 writing team. Norman is Director and Editor of the magazine, but it is run by the Art Director (James).
• There are essentially two businesses running parallel. There is the tech and digital division — that create and deliver the product, and then there is the “international roadshow” with no connection back to the core business.
• There is a lack of leadership, no strategic plan or direction.
• Need a COO that knows how to run a tech start-up; everything that is done is based on “vision” rather than a strategic plan informed by data.
• Knowledge and expertise not valued. Can’t see a strategic direction, and reasons for change of direction never explained. Have challenged “poor decisions” but get accused of being obstructionist, so you bite your tongue and do work on features and demos of questionable value.
• Top heavy with consultants with no deliverables or KPIs. Funds could have been allocated to marketing and building existing brands and generate some revenue.
• Re-alignment: strategy day or weekend to come to a group understanding (founders, CTO, CMO and consultants all have different versions of wat the direction is
• Need a clear revenue model. Never talked about cost of service. Ad revenue supposed to be the biggest revenue bucket — effectively non-existent.
• Weak contracts that do not provide a financial benefit to e-M.
• Need a case study: “before and after” tracking how the digital magazine adds value to the client’s digital engagement strategy, increases users/fans and revenues. Need an exemplar to showcase how e-M can add value.

Senior Advisor to e-M addressed the Senior Leadership Group:

• e-M has substantial assets (F1, Newsweek, The Red Bulletin) — why have you not generated revenue in the past 12 to 18 months?
• Raising capital without a revenue stream is very difficult.
• Need to show what we are doing with Ad Space in products like Newsweek.
• Before you go to pitch for new business you need a story and a revenue model — which relies on existing assets (products).
• What is the revenue model? What are the commercial terms you want to take to Real Madrid?
• You can continue to accumulate these assets, but the question remains — why are you not generating revenue?
• Need to monetise the product to get investors to buy into that story and invest.
• John: “Eyeballs = revenue. Difficult to generate revenue if we have small number of downloads. It’s not our product — it’s our engine with shared revenue model. Does it require a bigger marketing budget?”
• Response: How can e-M market to Liverpool fans better than Liverpool? Investors will not invest if we must pay for users/conversions.
• Investor Deck has a valuation parameter of $89 for first party data. This model is out the window. Show me the value of this data? How can you monetise it?
• Product has the “WOW” factor. But in follow up meetings, clients/investors request data analytics. Data is poor and we need the proof of concept.

World Soccer Magazine

Entered an agreement with Kelsey Media to buy World Soccer magazine £850,000 ($1.54M AUD) with a £50,000 deposit. Not clear how this was going to be paid for as e-M had no revenue and millions in accumulating liabilities.

Kelsey Media Consultants was going to cancel the contract after settlement date passed, and the Founders convinced UK consultants to pay a further deposit of £50,000 pounds to extend settlement deadline, with a promise to repay by March 2023, offering e-M employee share options as an incentive. The deadline passed and the £50,000 was not repaid to the consultant.

At the time of writing, it is likely that the £100,000 deposit will be lost and the purchase will not proceed.

Final Remarks and Disclaimer

The financial information and accounting data presented in this report have been prepared based on data extracted from the e-M Xero accounting software. Every effort has been made to ensure the accuracy and completeness of the data, with progress reports referred to the Company Accountant for confirmation. The true financial position of the company can only be ascertained after a professional independent audit of the company accounts.

Every effort has been made to present the facts as they appeared at the time. Senior staff that volunteered to participate in the review did so on the understanding that comments would be anonymous.

This report is an abridged version of the original report, which contained further detail not included here. The report was to include detailed recommendations for organisational restructure, possible revenue models and commercial contract terms that would ensure profitability. Given the tumultuous events between March and June 2023, work on this report was discontinued with focus shifting to recapitalisation to stave off insolvency and save shareholder capital. At the time of writing there was no clear path to recapitalisation, with assurances of “imminent funding” made on a weekly basis since early January.