Engage:BDR is talking down its latest acquisition after the ASX asked whether it could afford the deal.

The ad agency (ASX:EN1) was at pains on Friday to say revenue targets for acquisition target AdCel were “not realistically achievable” and therefore a $US1 million cash incentive was “extremely unlikely to ever be required to be payable”.

In May, the agency said it was buying US startup AdCel for $US4.5 million ($6.3 million).

Of this sum, $US1 million was to be paid in cash and the rest in stock priced at 22c — a figure Engage:BDR’s shares last reached in January.

The company was trading flat at 6c on Friday morning.

Engage:BDR said AdCel would bring in $2 million in revenue immediately and up to $5 million in extra revenue on top of that in the year after the deal was done.

But after auditing AdCel’s accounts to the end of June, Engage:BDR had to backtrack: the startup’s turnover wasn’t as good as they expected.

Engage:BDR shares since listing in late December 2017.

AdCel would not be making $2.4 million in 2018. It was now expected to make $1.2-1.4 million.

The deal closed in July.

Engage:BDR said the $1 million payment was provisional on AdCell making $US1.75 million by the end of calendar 2018, and included two more incentive payouts for milestones in 2019 and 2020.

Now the ASX is asking how Engage:BDR, which reported cash of $1.5 million at the end of June, can afford that $1 million bonus if it were to come up.

Engage:BDR says if the unthinkable happens, it’ll do another capital raising.

The company has already run through the majority of the $10 million IPO funds raised in December last year and $2 million raised from institutions in May.

It only managed $204,350 of a $2 million capital raising for retail investors that closed in June.

High tech, high spending

Engage:BDR trumpeted the fact that half year revenue “exceeded” projections for the first six months of calendar 2018.

But compared to the same period in 2017, revenue plunged 19 per cent and the half year loss blew out by 569 per cent to $5 million.

The company had to book a $1.2 million write down on an acquisition in 2016.

The agency burned $6.4 million in cash in the six months to June and had $1.5 million in debt.

In the half year report its auditor, EY, said there was a “a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern”.

Stockhead is seeking comment from Engage:BDR.