RNS Number : 5927N
tinyBuild, Inc.
26 September 2023
 

26 September 2023

 

tinyBuild, Inc

 

("tinyBuild" or the "Company")

 

2023 Half Year Results

 

tinyBuild (AIM:TBLD), a premium video games publisher and developer with global operations, is pleased to announce its unaudited results for the 6 months ended 30 June 2023.

 

Financial highlights:

·      Revenue of $23.3m (H1 2022: $28.8m), 19% lower primarily due to a sharp drop in development service revenues and underperformance of Versus Evil

·      Adj EBITDA¹ loss of $1.2m (H1 2022: $9.9m), due to lower proportion of revenues from first party titles and higher development cost amortisation

·      Adj. Operating Loss2 of $4.7m (H1 2022: $6.8m), reflecting higher G&A costs

·      Cash Flow from operating activities dropped to $6.6m (H1 2022: $8.8m), reflecting lower cash profit partly offset by positive net working capital contribution

·      One-off impairment of development costs ($18.3m) and of intangible assets ($8.9m) reflecting the cancellation of some titles and lower revenue prospects for other titles

·      Net cash position of $14.3m (Dec 2022: $26.5m), after $16.9m investment in game development costs (H1 2022: $14.2m). Cash position at the end of December 2023 expected to be between $10-20m, as previously announced


1
Includes amortisation of Development costs. Excludes one-off impairment of Development costs ($18.3m), goodwill ($6.1m) and other intangibles ($2.8m), and share-based compensation expenses (see note 6).

2 Includes amortisation of Development costs. Excludes one-off impairment of Development costs ($18.3m), goodwill ($6.1m) and other intangibles ($2.8m).

 

 

Operational highlights:

·      Release of new titles such as Rhythm Sprout, Farworld Pioneers and The Bookwalker, plus expansion of catalogue with the launch of VR titles for Kill It With Fire, Not For Broadcast and Hello Neighbor: Search and Rescue, alongside platform launches.

·      Contribution from own-IP decreased to 65% of group revenue (H1 2022: 83%), due to stronger performance of third-party titles, both from back catalogue and new releases.

·      Strong back catalogue sales representing 93% of total revenues (H1 2022: 99%), demonstrating the Company's ability to extend games' life cycles and support investments in new titles.

·      Acquisition of NotGames, a UK-based studio, for an upfront cash consideration of $1.5m plus max contingent consideration of $4.2m, subject to stretched financial targets. NotGames is the developer studio of Not For Broadcast, a critically acclaimed full motion propaganda simulator.

 

Directorate change:

·      On 29 March Luke Burtis, Chief Operating Officer (COO) and Board Member, resigned from his board position and management role to spend more time with his family. As the Company continues to move towards the more decentralised structure set out at the Capital Markets Day in June 2022, the responsibilities of the COO role have been distributed among a wider group of decision-makers, giving individuals and teams more autonomy and accountability for their areas of responsibility.

·      On 29 June Tony Assenza, Chief Financial Officer (CFO) and Board Member, resigned from the Company and the Board. On the same date, tinyBuild announced that Giasone (Jaz) Salati was appointed CFO and Michael Schauble Chief Commercial Officer. Jaz joined the Board of Directors on 3 August 2023.

 

Employee Benefit Trust:

●     The Employee Benefit Trust continued to purchase ordinary shares on the market and now holds a total of 1,520,864 ordinary shares as at 25 September 2023. The EBT was set up in 2022 for the benefit of current and future employees and will continue to act independently of the Company to satisfy potential future option exercises of vested options granted. The maximum amount of the loan made available to the EBT at any time will be capped at $10m.

 

 

 

Post-Period End highlights:

●   Released new titles Punch Club 2: Fast Forward and I Am Future, plus platform launches for Hello Engineer, Black Skylands and Potion Craft.

●     New episodes of the Hello Neighbor animated series are planned to release in the second half of the year, in conjunction with important console updates to Hello Neighbor 2, which continues to enjoy an improvement in the review score on PC.

 

Outlook

●     The combination of a weak macroeconomic environment, geopolitical instability and shifts in the industry dynamics, dampens the Company's growth potential in the near-term.

●     The pipeline for coming months includes a number of new titles (e.g. Critter Cove, Kill It With Fire 2) and further expansion of the catalogue (e.g. Cartel Tycoon launch on consoles), but headwinds observed in the first half of the year will likely continue to weigh on profitability.  

●    Management is hard at work on two main fronts: 1) to accelerate the operational transition to the 1000-hour game model, and 2) to provide greater visibility on financial progress of each project on a continuous basis

●     In this context, the Board remains confident the Company has adopted the right strategy and is on track to deliver results in line with recently-reset expectations.

 

Alex Nichiporchik, Chief Executive Officer of tinyBuild, commented:

"The first half of 2023 was a story of two halves, with strong underlying direct sales to consumers, offset by a sudden drop in development service revenues. The speed of change in the video games industry is insane and we know we have to adapt quickly if we want to grow above peers. For this reason, we have been gradually shifting towards what we call the 1000-hour game."

 

"In a difficult environment we continue to invest cautiously in higher-budget games that have the potential to become very large franchises. We are setting new Company records in terms of wishlists on our new IP and leveraging our decentralised structure to fit the different reality of each development team, wherever they are in the world."

 

"Our core strategy hasn't changed: we are building a diversified portfolio of own-IP, which gives us the best upside with the minimum risk. Once again, I want to thank our exceptional people for their enthusiasm and dedication - we have achieved a lot so far and we can look to the future with cautious optimism."

 

Enquiries:

 

tinyBuild, Inc

Alex Nichiporchik - Chief Executive Officer

Giasone (Jaz) Salati - Chief Financial Officer

Michael Schauble - Chief Commercial Officer

 

investorrelations@tinybuild.com

 

Berenberg (Nominated Advisor and Joint Broker)

Mark Whitmore, Ciaran Walsh, Milo Bonser

 

+44 (0)20 3207 7800

Numis (Joint Broker)

Hugo Rubinstein, Tejas Padalkar

 

+44 (0)20 7260 1000

SEC Newgate (Financial PR)

Robin Tozer, Bob Huxford, George Esmond

tinybuild@secnewgate.co.uk

+44 (0)7540 106366

 

About tinyBuild:

Founded in 2013, tinyBuild (AIM: TBLD) is a leading premium AA-rated and indie video games publisher and developer. tinyBuild has a strong portfolio of over 80 titles and it strategically secures access to IP and partners with developers to establish a stable platform on which to build multi-game and multimedia franchises.

 

Headquartered in Bellevue, Washington, USA, the Company has key operations worldwide, with employees, contractors or partners in multiple locations across five continents. tinyBuild's geographic diversity enables it to source high-potential IP, cost-effective development resources and a loyal customer base through innovative grassroots marketing.

 

tinyBuild was admitted to AIM, a market operated by the London Stock Exchange, in March 2021.

 

For further information, visit: www.tinybuildinvestors.com.

OPERATIONAL REVIEW

 

The first half of 2023 was dominated by macroeconomic issues with the trade-off between high inflation and slowing growth aggravating seemingly increased geopolitical tension between US and Europe on one side, and Russia and China on the other side. Central banks had no choice but to increase interest rates, which in turn increased pressure on consumers, via higher mortgage costs among others.

 

Against this difficult backdrop, global video games sales and the number of players are expected to grow in 2023, after a mild slowdown in 2022. More than offsetting this positive trend tinyBuild, alongside some industry peers, saw a sharp decline in development service revenues as many distribution partners reduced or paused their investments in content. It is too early to say if some of the lost revenues will return in the form of lower cannibalisation and increased sales direct to consumers, so the Company has quickly adopted a conservative cash management and capital allocation policy.

 

The Company already identified in 2022 the need to focus on relatively larger, more recognisable franchises that can command player's attention in a crowded environment, games with which players can spend over a thousand hours. There is a direct correlation between long-term sales and system-driven games where customers immerse themselves for several hours every day for months. We see this very clearly in our catalogue data. Alongside larger-budget titles we continue to scout work for indie developers and studios that can grow over time.

 

The pipeline of new titles has been realigned to maximise the long-term revenue potential, while maintaining a well-diversified portfolio. The progress of every project has also been reviewed and the investments resized where necessary.

 

tinyBuild operational model also continued to evolve reflecting industry trends such as multiplatform development and virtual reality (VR). AI may offer some productivity gains and in the long it may even improve videogames engagement, for example through more meaningful interactions with non-player characters (NPCs).

 

In the first half, back catalogue and own-IP titles contributed 93% and 65% of total revenue respectively, broadly in line with the average of the past five years. New records in terms of playlist count following the announcement of a new title have been set with a handful of promising higher-budget games under development, including the already announced Ferocious and SAND.

 

In an uncertain environment, the Board is pleased with the recent changes to the executive team and it is confident the company is progressing in line with expectations for the financial year 2023.

 

Current portfolio and pipeline

In 2023, tinyBuild release schedule is slightly skewed towards the second half of the year. New game launches in the first six months performed in line with expectations and some back-catalogue titles performed strongly as we continue to invest to strengthen existing franchises.

 

In the first six months of the year, tinyBuild published three new games and expanded the back catalogue with version 1.0, downloadable content ("DLC") and new platforms launches:

●    Rhythm Sprout (PC and consoles) - Step to the rhythm and fight to the beat. A handcrafted rhythm action game with original music and a wacky story mode

●    Farworld Pioneers (PC and consoles) - A vast colony-builder.  An open world, sci-fi sandbox in PVP, PVE, and co-op

●    The Bookwalker (PC and consoles) - A narrative adventure. You play as Etienne Quist, a writer-turned-thief with the ability to dive into books to steal Thor's Hammer, Excalibur and more.

●    Kill It With Fire, Not For Broadcast and Hello Neighbor (VR version)

 

And after the end of the period, tinyBuild published:

●     Punch Club 2 - A fighter management sim

●     I Am Future - a base-building game set on the ruins of a former civilisation

●     Hello Engineer, Black Skylands and Potion Craft (platform launches)

 

Looking at the rest of 2023 and beyond, we announced a number of new titles, including:

●    Critter Cove - a cozy life sim adventure that takes places across a string of islands in a colorful and mysterious open world

●    Tamarak Trail - A deck-building roguelike, with customisable dice as you battle through randomly generated trails

●    Lil' Gardsman - A deduction adventure. Lil - an unlikely 12-year-old hero - is tasked with deciding the fate of over 100 unique characters

●    Kill It With Fire 2 - An interdimensional action comedy game about murdering spiders. As The Exterminator, you'll travel across the multiverse

●    Slime 3K - a rogue-lite shooter starring a big blob of jelly

●    RAWMEN - a light hearted, third person, food fighter. Battle alongside or against your taste buds (2-8 players), pitting average cooks with a talent for hurling fiery feasts against one another

●    Streets of Rogue 2 - an immersive RPG sandbox set in a vast randomly generated open world that gives you maximum freedom to fight, sneak, hack, farm, build, steal, or talk your way to power

●    Stray Souls - an immersive action-horror game about terrifying creatures, mind-bending puzzles, and family secrets

●    Pigeon Simulator - a 'physics sandbox roguelite about the world's most notorious birds. and their quest for world domination

●    Broken Roads - a narrative-driven RPG set in Australia with a very distinct look

●    Ferocious - a survival shooter in which you will discover a lost prehistoric world full of deadly creatures under the control of hostile forces

●    SAND - A multiplayer sandbox shooter from the developers of Secret Neighbor

 

Investing and innovating for growth

In a period of uncertainty in the industry, the Company continuously reviews the quantum and allocation of investments into new higher-budget and higher-potential titles, with lower-risk investment in catalogue expansion. Since before the IPO, tinyBuild's mantra has been to build a well-diversified portfolio of own-IP that can be scaled into cross-media franchises, and we remain loyal to that.

 

Our increasingly nimble and decentralised structure is capable of handling larger projects, delivering them across platforms, on time, quality and budget. Recent launches like Punch Club 2 and I am Future are good examples of how our sophisticated marketing strategy can attract a large audience for a well-known franchise and for a new IP alike.

 

In the first half of 2023, the executive team has become even more selective about signing up new titles, while we continue to take advantage of opportunities created by an uncertain macroeconomic environment. We adopted the same cautious approach to develop our first animated series, which will see new episodes launching in October.

 

In 2023, M&A multiples still appear anchored to unrealistic expectations, so we stepped away from some potential acquisitions and preferred to invest more directly in studios we already have a good working relationship with (e.g. Not Games), and in titles spawned from our internal studios.

 

People

After enjoying an extended paternity leave during the first part of the year, on 29 March, Luke Burtis (COO) announced his resignation from the post of COO and the Board of tinyBuild to spend more time with his family and work on exciting new projects. Luke has been with the Company since the beginning and his contribution to strategy and operations has been invaluable.

 

On 29 June, after a short period of leave for personal reasons, Tony Assenza, CFO, resigned from the Company and the Board. Following a Board process, tinyBuild appointed Giasone (Jaz) Salati as CFO. On the same day, completing tinyBuild's transition to a more focused management team, Michael Schauble, previously senior VP of Business Development, was appointed Chief Commercial Officer. On 3 August, Jaz joined the Board of Directors.

 

Company-wise, tinyBuild continues to support all its staff (employees and independent contractors) and their families affected by the war in Ukraine and it continues to carefully monitor the situation. Having helped staff move out of the riskiest areas, the Company is now focusing on mental health and administrative support so everybody can settle in their preferred location across Europe.

 

Position and strategy

tinyBuild is well-positioned with a strong pipeline of new titles and a proven ability to attract, screen and market high-quality game franchises. Our balanced investment strategy aims at building a diversified portfolio of high-potential own-IP, and our multimedia franchise model allows us to extend the life of our IP, maximising our return on investment.

 

Our medium-term strategy is to expand our position as a leading global video games developer and publisher, focussing on IP ownership while creating long-term scalable franchises across multiple media formats. 2023 has seen significant progress towards that ambition, and I would like to thank all of our shareholders for their support.

 

Alex Nichiporchik

Chief Executive Officer

26 September 2023

 

 

FINANCIAL REVIEW

 

Results for the six months ended June 2023 were in line with recently-reset expectations, and the Company closed one acquisition in the period. 

 

Revenue

In the six months to June 2023, tinyBuild revenues were $23.3m, a 19% decrease compared to the previous year (H1 2022: $28.8m), primarily attributable to the $5.9m drop in development services revenues and to continued underperformance of Versus Evil, only partly offset by the resilient performance of direct-to-consumer sales. Excluding development services and events, revenues were flat at $17.5m, highlighting a stronger underlying performance. Back catalogue performed strongly in the first half, supported by over 80 titles and by well-established franchises such as Graveyard Keeper. Revenue from events, primarily DevGAMM, increased to $0.6m from $0.2m as a result of events reboot in Central and Western Europe.

 

Adjusted EBITDA and Operating Profit

Adjusted EBITDA is presented net of amortisation of development costs, excluding impairment of development costs, share-based compensation expenses and exceptional costs (e.g. legal costs related to M&A), giving a clear, yet conservative, picture of the business progression. Adjusted EBITDA was negative $1.2m ($9.9m in H1 of 2022), reflecting a significantly lower revenue base, a less favourable revenue mix (higher share of third and second party titles) and an increase in amortisation of development costs ($5.0m in H1 2023 vs $3.8m in H1 2022).

 

Operating profit for H1 2023 was negative $31.9m (H1 2022: positive $6.8m), after accounting for the $18.8m impairment of development costs, $2.8m impairment of intangibles, and $6.1m impairment of goodwill. Excluding the $27.7m one-off impairment charges, Adjusted Operating Profit was negative $4.7m, reflecting a lower EBITDA and higher general and administrative expenses ($13.6m in H1 2023 vs $12.0m in H1 2022), only partly offset by lower share-based compensation ($0.4m in H1 2023 vs $0.9m in H1 2022).

 

Finance costs and taxation

Finance costs were immaterial in H1 2023, and taxation credit was $6.4m (H1 2022: $2.3m charge) reflecting the lower taxable income.

 

Impairment

In H1 2023, tinyBuild incurred substantial charges relating to the impairment of development costs ($18.8m in H1 2023 vs $0m in H1 2022), M&A-related intangibles ($2.8m in H1 2023 vs $0m in H1 2022) and goodwill ($6.1m in H1 2023 vs $0m in H1 2022). These non-cash charges reflect the adjustment of expectations for future revenues of some titles due to the industry-wide changes and therefore are not expected to recur.

 

Cash Flow

Cash flows from operating activities was $6.6m ($8.8m in H1 2022), a relatively modest drop despite the sharper decline in revenues and increase in costs thanks to more careful cash management and also due to a normalisation of timing differences that impacted results in the second half of 2022. Software development costs, mainly consisting of developer salaries, advances, localisation and porting, was at $16.9m ($14.2m in H1 2022), reflecting a stabilisation in investment for upcoming pipeline releases.

 

Financial Position

The net cash position at the end of June 2023 was $14.3m ($26.5m at the end of December 2022), with the majority of the variation driven by lower revenues and higher organic investments. tinyBuild has zero debt and a completely undrawn revolving credit facility of up to $35m.

 

Events after the reporting date

Giasone (Jaz) Salati was appointed to the Board of Directors on 3 August 2023.

 

Giasone (Jaz) Salati

Chief Financial Officer

26 September 2023

TINYBUILD INC.                                                                                              

 

CONSOLIDATED CONDENSED INCOME STATEMENT

 

 

 

    

Note

6 months ended 30 June 2023

 

6 months ended 30 June 2022

 

Year ended 31 December 2022

 

Unaudited

Unaudited

Audited

 

$'000

$'000

$'000

    

    

 

 

 

Revenue

4    

23,295

         28,750

     63,295

Cost of sales:

    




 - Cost of sales


(13,832)

(9,058)

(20,592)

 - Impairment of development costs

7

(18,288)

-

(95)



                  

                  

                  

Total cost of sales

    

(32,120)

(9,058)

(20,687)


    

                  

                  

                  

Gross (loss)/profit

    

(8,825)

19,692

42,608


    




Administrative expenses:

    




 - General administrative expenses

    

(13,561)

(12,000)

 (23,328)

 - Impairment of intangible assets

7

(8,908)

-

(11,075)

 - Share-based payment expenses


(367)

(887)

 (1,726)

 - Ukraine/Russia conflict related costs

    

(281)

-

 (1,678)



                  

                  

                  

Total administrative expenses


(23,117)

(12,887)

 (37,807)






Other operating income

    

-

-

11,122



                  

                  

                  

Operating (loss)/profit


(31,942)

6,805

15,923

    





Finance costs


(16)

(24)

 (73)

Finance income


261

8

80

    


                  

                  

                  

Profit before tax


(31,697)

6,789

15,930

    





Income tax credit/(expense) 


6,414

(2,306)

 (4,417)

    

    

                  

                  

                  

(Loss)/profit for the year

    

(25,283)

4,483

11,513


    

                  

                  

                  






Attributable to:





Owners of the parent company


(25,523)

4,457

11,545

Non-controlling interests


240

26

(32)



                  

                  

                  



(25,283)

4,483

11,513



                  

                  

                  





    

Basic earnings/(loss) per share ($)

5

(0.126)

0.022

0.057

Diluted earnings/(loss) per share ($)

5

(0.126)

0.022

0.056

Adjusted EBITDA

6

(1,249)

9,882

24,355

Adjusted total comprehensive income attributable to the owners per share ($)

6

0.010

0.023

0.066

 

 



TINYBUILD INC.                                                                                              

 

CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

6 months ended 30 June 2023

 

6 months ended 30 June 2022

 

Year ended 31 December 2022

 

Unaudited

Unaudited

Audited

 

$'000

$'000

$'000

    

 

 

 

(Loss)/Profit for the year

(25,283)

4,483

11,513





Other comprehensive income net of taxation




Exchange differences on translation of foreign operations - may be reclassified to profit and loss

94

-

7

 

                  

                  

                  

Total comprehensive (loss)/income for the year

(25,189)

4,483

11,520

 

                  

                  

                  





Attributable to:



    

Owners of the parent company

(25,429)

4,457

11,552

Non-controlling interests

240

26

(32)

 

                  

                  

                  

 

(25,189)

4,483

11,520

 

                  

                  

                  

 



    

 



 

TINYBUILD INC.                                                                                              

 

CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION

 

 

 

 

30 June

2023

31 December 2022

 

 

Unaudited

Audited

ASSETS

Note

$'000

$'000

Non-current assets




Goodwill

7

            29

3,746

Other intangible assets

7

            65,180

76,638

Property, plant and equipment:




    - owned assets


                  846

                   794

    - right-of-use assets


                  282

                 342

Deferred tax assets


4,934

-

Trade and other receivables


                  405

                 406



                 

                 

Total non-current assets


             71,676

            81,926

 

Current assets




Trade and other receivables


     16,173

            25,382

Cash and cash equivalents


14,338

            26,496



                 

                 

Total current assets


30,511

            51,878



                 

                 

TOTAL ASSETS


           102,187

          133,804



                 

                 

EQUITY AND LIABILITIES

Equity




Share capital

10

204

                 204

Share premium


             65,593

            65,593

Warrant reserve


               1,920

              1,920

Translation reserve


101

7

Retained earnings


             18,754

            43,910



                 

                 

Equity attributable to owners of the parent company


           86,572

            111,634

Non-controlling interest


                   197

                 (43)



                 

                 

Total equity


86,769

            111,591



                 

                 

LIABILITIES




Non-current liabilities




Lease liabilities


                  47

                 97

Contingent consideration


705

-

Deferred tax liabilities


               -

              1,800



                 

                 

Total non-current liabilities


752

1,897



                 

                 

Current liabilities




Trade and other payables


             13,862

              20,046

Contingent consideration


               531

-

Lease liabilities


                  273

270



                 

                 

Total current liabilities


             14,666

            20,316



                 

                 

Total liabilities


             15,418

            22,213



                 

                 

TOTAL EQUITY AND LIABILITIES


         102,187

133,804

 


                 

                 

 




TINYBUILD INC.                                                                                              

 

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

Share capital

Share premium

Warrant reserve

Translation reserve

Retained

earnings

Total equity attributable to owners of the parent

Non-controlling interest

Total

 equity

 

Note

 $'000

 $'000

 $'000

 $'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2022

 

203

63,546

1,920

-

30,639

96,308

137

96,445

 

 

 

 

 

 

 

 

 

 

Profit and total comprehensive income for the year

 

-  

-  

-  

-  

4,457  

4,457  

26  

4,483  

 

 

 

 

 

 

 

 

 

 

Transactions with owners in their capacity as owners:










Issue of shares, net of transaction costs


1  

1,569  

-  

-  

-  

1,570  

-  

1,570  

Issue of shares on exercise of options


-

28

-  

-  

-  

28

                   -  

              28

Dividends paid


-  

-

-

-

-  

-  

(148)  

(148)  

Share-based payments


-  

-  

-  

-  

887

887

-  

887

 

 

           

           

           

           

             

              

             

             

Total transactions with owners

 

1

1,597

-

-

887

2,485

(148)  

2,337


 

           

           

           

           

             

              

             

             

Balance at 30 June 2022

 

204

65,143

1,920

-

35,983

103,250

15

103,265

 


           

           

           

           

             

               

             

             













Share capital

Share premium

Warrant reserve

Translation reserve

Retained

earnings

Total equity attributable to owners of the parent

Non-controlling interest

Total

 equity



 $'000

 $'000

 $'000

 $'000

$'000

$'000

$'000

$'000

 










Balance at 1 January 2023


204

65,593

1,920

7

43,910

111,634

(43)

111,591

 










Loss for the period


-

-

-

-

(25,523)

(25,523)

240

(25,283)











Other comprehensive income:










Foreign exchange differences on translation of foreign operations


-

-

-

94

-

94

-

94



           

           

           

           

             

              

             

             

Total comprehensive loss for the period


-

-

-

94

(25,523)

(25,429)

240

(25,189)











Transactions with owners in their capacity as owners:










Issue of shares, net of transaction costs

10

-

-

-

-

-

-

-

-

Share-based payments


-

-

-

-

367

367

-

367



           

           

           

           

             

              

             

             

Total transactions with owners


-

-

-

-

367

367

-

367

 


           

           

           

           

             

              

             

             

Balance at 30 June 2023


204

65,593

1,920

101

18,754

86,572

197

86,769

 


           

           

           

           

             

               

             

             

 










 




TINYBUILD INC.                                                                                              

 

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

 

 

 

 

6 months ended 30 June 2023

6 months ended 30 June 2022

Year ended 31 December 2022

 

 

Unaudited

Unaudited

Audited

 

Note

$'000

$'000

$'000

Cash flows from operating activities





Cash generated from operations

11

6,289

8,811

19,188

Interest received


261

-

80

 


                  

                  

                  

Net cash generated from operating activities

 

6,550

8,811

19,268

 


                  

                  

                  

Cash flows from investing activities





Acquisition of subsidiaries, net of cash acquired


(1,234)

-

 -

Software development


(16,925)

(14,245)

 (35,789)

Purchase of intellectual property


-

-

 (4,150)

Purchase of property, plant and equipment


(287)

(554)

(1,180)

Interest received


-

8

-

 


                  

                  

                  

Net cash used in investing activities

 

(18,446)

(14,791)

(41,119)

 


                  

                  

                  

Cash flows from financing activities





Proceeds on exercise of share options


-

-

28

Payment of principal portion of lease liabilities


(262)

(92)

 (365)

Dividends paid to non-controlling interests


-

(148)

(148)

 


                  

                  

                  

Net cash used in financing activities

 

(262)

(240)

 (485)

 

 

                  

                  

                  






Cash and cash equivalents





Net (decrease)/increase in the year

 

(12,158)

(6,220)

(22,336)

At beginning of period


26,496

48,832

48,832



                  

                  

                  

At end of period


14,338

42,612

26,496



                  

                  

                  






 

 



 

TINYBUILD INC.                                                                                              

 

NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

 

 

1         GENERAL INFORMATION

 

 

tinyBuild Inc. ("the Company") is a public company limited by shares, and is registered, domiciled and incorporated in Delaware, USA. The address of the registered office is 1100 Bellevue Way NE, STE 8A #317, Bellevue, WA 98004, United States.

 

The Group ("the Group") consists of tinyBuild Inc. and all of its subsidiaries. The Group's principal activity is that of an indie video game publisher and developer.

 

The Board of Directors approved this interim financial information on 26 September 2023.

 

2         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

These condensed, consolidated financial statements for the interim half-year reporting period ended 30 June 2023 have been prepared in accordance with IAS 34 'Interim Financial Reporting'. These interim financial statements do not constitute full financial statements and do not include all the notes of the type normally included in annual financial statements. Accordingly, these financial statements are to be read in conjunction with the annual report for the year ended 31 December 2022.

 

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The Annual Report and Financial Statements for 2022 have been issued and are available on the Group's investor relations' website: https://www.tinybuildinvestors.com/documents-and-presentations.

 

The Group has applied the same accounting policies and methods of computation in its interim consolidated

financial statements as in its 31 December 2022 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2023 and have been adopted in the 2023 financial statements. There are no new and amended standards and/or interpretations that will apply for the first time in the next annual financial statements that will have a material impact on the Group.

 

Tax charged within the 6 months ended 30 June 2023 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the year ending 31 December 2023 as required by IAS 34.

 

The financial statements have been prepared on the historical cost basis except for, where disclosed in the accounting policies, certain financial instruments that are measured at fair value. The financial statements are prepared in US Dollars, which is the functional currency and presentational currency of the Company. Monetary amounts in these financial statements are rounded to the nearest thousand US Dollars (US$'000).

 

Going concern

The Group has cash and cash equivalents of $14.3m, which is sufficient to cover its current trade and other payables balance of $13.9m. Furthermore, the Group has access to a currently undrawn loan facility of up to $35m. In light of this, the Directors confirm that they have a reasonable expectation that the Group will have adequate resources to continue in operational existence for at least twelve months beyond the issuance of these financial statements and accordingly these financial statements are prepared on a going concern basis, with no material uncertainty over going concern.

 

3        SEGMENTAL REPORTING

 

IFRS 8 'Operating Segments' requires that operating segments be identified on the basis of internal reporting and decision-making. The Group identifies operating segments based on internal management reporting that is regularly reported to and reviewed by the Chief Executive Officer, which is identified as the chief operating decision maker. Management information is reported as one operating segment, being revenue from self-published franchises and other revenue streams such as royalties, licensing, development and events.

 

Whilst the chief operating decision maker assessed there to be only one segment, the Company's portfolio of games is split between those based on IP owned by the Group and IP owned by a third party and hence to aid the readers' understanding of our results, the split of revenue from these two categories is shown below.

 

Game and merchandise royalties

6 months ended 30 June 2023

6 months ended 30 June 2022

Year ended 31 December 2022

 

Unaudited

Unaudited

Audited

 

$'000

$'000

$'000





Owned IP

12,765

13,107

26,915

Third-party IP

4,690

4,359

13,105


               

               

               

 

17,455

17,466

40,020

 

               

               

               

 

Three customers were responsible for approximately 51% of the Group's revenues (30 June 2022: three - 70%, 31 December 2022: three - 67%).

 

The Group has nine right-of-use assets located overseas with a carrying value of $272,000 (30 June 2022: six - $374,000, 31 December 2022: seven - $342,000). The Group also has tangible fixed assets located overseas with a total carrying value of $687,000 (30 June 2022: $212,000, 31 December 2022: $623,000). All other non-current assets are located in the US.

 

4        REVENUE

6 months ended 30 June 2023

6 months ended 30 June 2022

Year ended 31 December 2022


Unaudited

Unaudited

Audited

An analysis of the Group's revenue is as follows:  

$'000

$'000

$'000


 

 

 

Revenue analysed by class of business




Game and merchandise royalties

17,455

17,466

40,020

Development services

5,224

11,134

22,744

Events

616

150

531


                  

                  

                  

 

23,295

28,750

63,295


                  

                  

                  





 

 

5       EARNINGS PER SHARE

 

 

 

 

 

 

The Group reports basic and diluted earnings per common share. Basic earnings per share is calculated by dividing the profit attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, which excludes any treasury shares held by the Group.

 

Diluted earnings per share is determined by dividing the profit attributable to common shareholders by the weighted average number of common shares outstanding, taking into account the effects of all potential dilutive common shares, including options.


6 months ended 30 June 2023

6 months ended 30 June 2022

Year ended

31 December 2022


Unaudited

Unaudited

Audited


$'000

$'000

$'000

Total comprehensive (loss)/income attributable to the owners of the company

 

(25,523)

 

4,457

 

11,545

Weighted average number of shares

203,284,429

203,119,680

 203,421,359


                    

                    

                    

Basic earnings/(loss) per share ($)

(0.126)

0.022

0.057


                    

                    

                    

 


6 months ended 30 June 2023

6 months ended 30 June 2022

Year ended

31 December 2022


Unaudited

Unaudited

Audited


$'000

$'000

$'000

Total comprehensive (loss)/income attributable to the owners of the company

 

(25,523)

 

4,457

 

11,545

Weighted average number of shares

203,284,429

203,119,680

 203,421,359

Dilutive effect of share options

-    

2,135,640    

    1,481,621

Dilutive effect of warrants

-

       149,130

       -

Dilutive effect of restricted stock awards

-      

954,654      

       954,654


                    

                    

                    

Weighted average number of diluted shares

203,284,429

206,359,104

205,857,634


                    

                    

                    

Diluted earnings/(loss) per share ($)

(0.126)

0.022

0.056


                    

                    

                    

 

Pursuant to IAS 33 'Earnings per Share', options whose exercise price is higher than the value of the Company's security were not taken into account in determining the effect of dilutive instruments. The calculation of diluted earnings per share does not assume conversion, exercise, or other issue of potential ordinary shares that would have an antidilutive effect on earnings per share.

 

6        ALTERNATIVE PERFORMANCE MEASURES

 

The Directors of the Group have presented the performance measures 'Adjusted EBITDA' and 'Adjusted total comprehensive income attributable to the owners per share' as they monitor these performance measures at a consolidated level and they believe this measure is relevant to an understanding of the Group's financial performance. The Group does not present a 'Diluted Adjusted total comprehensive income attributable to the owners per share'. Adjusted EBITDA is calculated by adjusting profit from continuing operations to exclude the impact of taxation, net finance costs, share-based payment expenses, depreciation, impairment of intangible assets, amortisation of purchased intellectual property, acquisition costs, legal and professional costs associated with the purchase of subsidiaries and intellectual property, Ukraine related expenses and fair value gains on contingent consideration liabilities. Adjusted total comprehensive income attributable to the owners per share is calculated by adjusting total comprehensive income attributable to the owners of the company to exclude the impact of impairment of intangible assets, legal and professional costs associated with the purchase of subsidiaries and intellectual property, Ukraine related expenses and fair value gains on contingent consideration liabilities. Adjusted EBITDA and Adjusted total comprehensive income attributable to the owners per share are not defined performance measures in IFRS. The Group's definition of Adjusted EBITDA and Adjusted total comprehensive income attributable to the owners per share may not be comparable with similarly titled performance measures and disclosures by other entities.

 

Amortisation of $5.0m (30 June 2022: $3.8m, 31 December 2022: $5.8m) of software development costs has been included in arriving at Adjusted EBITDA and Adjusted total comprehensive income attributable to the owners per share as they are a primary cost in the company's ordinary course of business.

 

 

6 months ended

30 June 2023

6 months ended

30 June 2022

Year ended

31 December 2022

 

Unaudited

Unaudited

Audited


$'000

$'000

$'000





Profit/(loss) for the period

(25,283)

4,483

11,513

Income tax expense

(6,414)

2,306

4,417

Finance costs

16

24

73

Finance income

(261)

(8)

(80)

Share-based payment expenses

367

887

1,726

Amortisation of purchased intellectual property, brands and customer relationships

 

2,327

            1,754

 

3,999

Depreciation of property, plant and equipment

496

224

747

Impairment of intangible assets

27,195

-

11,075

Ukraine/Russia conflict related costs

281

-

1,678

Acquisition costs

27

212

329

Other operating income

-

-

(11,122)


                 

                 

                 

Adjusted EBITDA

(1,249)

9,882

24,355


                 

                 

                 

 


6 months ended 30 June 2023

6 months ended 30 June 2022

Year ended

31 December 2022


Unaudited

Unaudited

Audited


$'000

$'000

$'000

Total comprehensive (loss)/income attributable to the owners of the company

 

(25,523)

 

4,457

 

11,545

Impairment of intangible assets

27,195

-

11,075

Ukraine/Russia conflict related costs

281

-

1,678

Acquisition costs

27

212

329

Other operating income

-

-

(11,122)


                    

                    

                    

Adjusted total comprehensive income attributable to the owners of the company

1,980

4,669

13,505

Weighted average number of shares

203,284,429

203,119,680

 203,421,359


                    

                    

                    

Adjusted total comprehensive income attributable to the owners per share ($)

0.010

0.023

0.066


                    

                    

                    

 

 

 

 

7        INTANGIBLE ASSETS

 

 

 

Goodwill

 

 

Brands

 

 

Customer relationships

Purchased intellectual property

Software development costs

 

 

Total


$'000

$'000

$'000

$'000

$'000

$'000

Cost:

 

 

 

 

 

 

As at 1 January 2022

13,202

1,815

4,261

21,320

      30,160

70,758

Additions - internally generated

-  

-  

-  

-  

35,789

35,789

Additions - separately acquired

-  

-  

-  

8,395

-  

8,395

Transfers

-  

-  

-  

251

 (251)

-  


            

           

               

               

                 

             

As at 31 December 2022

13,202

1,815

4,261

29,966

      65,697

114,941

Additions - internally generated

-  

-  

-  

-  

16,926

16,926

Additions - business combinations

2,418

-

-

-

-

2,418


            

           

               

               

                 

             

As at 30 June 2023

15,620

1,815

4,261

29,966

      82,623

134,285


            

           

               

               

                 

             








Amortisation and impairment:

 

 

 

 

 

 

As at 1 January 2022

-  

10

51

2,687

      10,853

13,601

Amortisation charge for the year

-  

121

609

3,269

5,787

9,786

Impairment charge for the year

9,456

675  

-  

944  

95

11,170


            

           

               

               

                 

             

As at 31 December 2022

9,456  

806

660

6,900

16,735

34,557

Amortisation charge for the period

-

36

304

1,987

4,996

7,323

Impairment charge for the period

6,135

-

2,773  

-  

18,288

27,196


            

           

               

               

                 

             

As at 30 June 2023

15,591  

842

3,737

8,887

40,019

69,076


            

           

               

               

                 

             








Carrying amount:







As at 30 June 2023

29

973

524

21,079

42,604

65,209


            

           

               

               

                 

             

As at 31 December 2022

3,746

1,009

3,601

23,066

48,962

80,384


            

           

               

               

                 

             

 

 







 

Impairment of goodwill relates to acquisitions made in 2021 and 2023, and impairment of customer relationships relates to a 2021 acquisition. The impairment of software development costs reflects lower than expected sales and future projections, as well as a number of games for which development has ceased. The recoverable amounts of the consolidated entity's goodwill and intangible assets have been determined by a value-in-use calculation using a discounted cash flow model, based on an annual projection period approved by management and extrapolated for a further 4 years, together with a terminal value. Where the value in use recoverable amount of the cash-generating units (CGU's) was not sufficient to support the carrying value, the assets were impaired. The impairment recognised during the financial period was due to lower than expected sales and future projections. The following key assumptions were used in the discounted cash flow model:

●     13% pre-tax discount rate;

●     5.4% to 5.5% per annum projected revenue growth rate;

●     3.0% to 4.7% per annum increase in operating costs and overheads.

 

8        BUSINESS COMBINATIONS

 

On 6 April 2023, the Group acquired 100% of the issued share capital of NotGames Ltd, a private company domiciled and incorporated in the United Kingdom. NotGames is the development studio of Not For Broadcast, a critically acclaimed full motion propaganda simulator. The goodwill of $2,418,000 represents our bolstered development capabilities in propaganda genres. Consideration for the acquisition comprised $1,500,000 initial cash consideration and a further $1,236,000 of contingent consideration has been recognised in respect of cash and a variable number of equity instruments which will be issued in the event of the acquired company meeting certain financial targets in the future. The fair value of the contingent consideration has been calculated by estimating the probability of targets being met and discounting the corresponding liability to its present value. The potential outcome of the undiscounted contingent consideration ranges between $Nil and $4,200,000. Acquisition related costs totalling $27,000 have been recognised in profit or loss within general administrative expenses. The acquired business contributed revenues of $nil and losses after tax of $207,000 to the Group. If the business combination took place on 1 January 2023, the contribution would have been $nil revenue and $187,000 losses after tax.

 

The fair values of the identifiable assets acquired, and liabilities assumed at the date of acquisition were:

 

 

Book value

Fair value adjustments

Total


$'000

$'000

$'000


 

 

 

Property, plant and equipment

40

-

40

Trade and other receivables

42

-

42

Cash and cash equivalents

266

-

266

Trade and other payables

(30)

-

(30)

                  

                  

                  

 

318

-

318


                  

                  


Goodwill



2,418




                  




2,736




                  

Consideration:




Cash



1,500

Fair value of contingent consideration liability



1,236




                  

Total consideration



2,736




                  





 

As disclosed in note 7, intangible assets including goodwill have been subject to impairment testing due to lower than expected sales and future projections. Impairments recognised are disclosed in note 7. The contingent consideration liability is categorised within level 3 of the fair value hierarchy as one or more inputs are not based on observable market data, including forecasts. There has been no change in the fair value of the contingent consideration from the date of initial recognition up to the reporting date which requires adjustment, therefore there is no impact on the income statement for the period. The key unobservable input in the valuation of the contingent consideration and the recoverable amount of the goodwill is the discount rate, which management have estimated to be 13%.

 

9        SHARE-BASED PAYMENTS

 

The Group operates two share-based payment plans, the Equity Incentive Plan and a Stock Restriction Agreement, which are detailed as follows:

 

The Stock Restriction Agreement is a plan that provides for grants of Restricted Stock Awards (RSA) for the founders of the company and acquired employees. The awarded shares are made in the Company's ordinary share capital. The fair value of the RSAs is estimated by using the Black-Scholes valuation model on the date of grant, based on certain assumptions, and is charged on a straight-line basis over the required service period, normally two to three years. The fair value of the 2021 grant is $2.095 per share. The 2021 RSAs vest over 3 years in a 50:25:25 ratio. Each instalment has been treated as a separate share option grant because each instalment has a different vesting period. This plan is equity-settled. A reconciliation of RSAs is as follows:

 





30 June 2023

31 December

2022

 

 

 

 

 

 

 

Opening RSA outstanding





477,327

954,654

RSA granted





-

-

RSA vested





-

(477,327)






                 

                 

Closing RSA outstanding





477,327

477,327






                 

                 








Weighted average remaining contractual life in years





0.92

1.42






                 

                 

 

The company has an Equity Incentive Plan that provides for the issuance of non-qualified stock options to officers and other employees that have a contracted term of 10 years and generally vest over four years. The stock options are granted on shares issued by the company. A reconciliation of share option movements is shown below:

 

 

Number of options outstanding

 

Weighted average exercise price ($)

Number of options exercisable

Weighted average exercise price ($)

Weighted average remaining contractual life (years)

At 1 January 2023

3,547,217

1.02

1,812,394

0.94

7.58

Exercised during the period

-

-




Forfeited during the period

(403,685)

0.80





                 

                 




At 30 June 2023

3,143,531

1.06

1,728,204

1.11

7.17


                 

                 

                 

                 

                 

 

During the period covered by the financial statements, no options were granted or exercised and no options expired. A total of 403,685 options were forfeited.

 

10      SHARE CAPITAL

 

 

30 June

2023

31 December 2022

 

 

 

Unaudited

Audited


 

 

Number

Number

Class of share

 

 

 

 

Ordinary shares of $0.001 each



203,878,238

203,848,987




                    

                    









30 June

2023

31 December 2022




Unaudited

Audited




$'000

$'000

Class of share


 

 

 

Ordinary shares of $0.001 each



204

 204




                  

                  




204

204




                  

                  

 

On 17 January 2023, 29,251 Ordinary shares of $0.001 each were issued to employees for nil consideration. The shares are subject to a 12 month lock-up period.

 

11      CASH GENERATED FROM OPERATIONS

 

6 months ended

30 June 2023

6 months ended

30 June 2022

Year ended

31 December 2022

 

 

Unaudited

Unaudited

Audited


 

$'000

$'000

$'000






Profit/(loss) for the year


(25,283)

4,483

11,513

Adjustments for:





Share-based payments


367

887

1,726

Amortisation of intangible assets


7,323

5,577

9,777

Impairment of goodwill


6,135

-

9,456

Impairment of intangible assets


21,061

-  

1,714

Gain on contingent consideration


-

-

(11,129)

Depreciation of tangible fixed assets


496

224

747

Loss on disposal of tangible fixed assets


39

-

-

Finance costs


16

24

73

Finance income


(261)

(8)

(80)

Income tax (credit)/expense


(6,414)

            2,306

4,962

(Decrease)/increase in deferred tax liability


-

371

(545)






Movements in working capital:





Decrease/(increase) in receivables


9,250

(737)

(13,778)

(Decrease)/increase in payables


(5,075)

(3,914)

5,887






Income tax paid


(1,365)

(402)

(1,135)



                  

                  

                  

Cash generated from/(used in) operations


 6,289

 8,811

19,188



                  

                  

                  

 

12      RELATED PARTY TRANSACTIONS

 

An analysis of key management personnel remuneration is set out below:

 

Key management personnel remuneration

6 months ended

30 June 2023

6 months ended

30 June 2022

Year ended

31 December 2022


Unaudited

Unaudited

Audited


$'000

$'000

$'000


 

 

 

Aggregate emoluments

1,559

802

2,217

Equity-settled share-based payments

15

61

88

                  

                  

                  

 

1,574

863

2,305


                  

                  

                  

 

Transactions with other related parties

The wife of the Company's CEO is a member and manager of DevGAMM LLC. During the period, DevGAMM LLC paid dividends totalling $Nil (30 June 2022: $148,000, 31 December 2022: $148,000) to this related party. There were no other related party transactions during the period which require disclosure.

 

13      CONTINGENT LIABILITIES

 

In November 2021, tinyBuild acquired Versus Evil LLC ("Versus Evil") and Red Cerberus LLC ("Red Cerberus") from third parties ("claimants"). The claimants allege that tinyBuild breached three material obligations under the relevant Membership Interest Purchase Agreement (the "MIPA"). First, the claimants allege that tinyBuild was obligated and failed to make timely capital contributions to Versus Evil during fiscal years 2022 and 2023. Second, the claimants allege that tinyBuild was obligated and failed to release to the claimants certain funds that were held back under the terms of the MIPA. Third, the claimants allege that tinyBuild was obligated and failed to provide material support to Versus Evil that was promised under the MIPA.

 

In May 2020, a third party contracted with Red Cerberus to provide consulting services. tinyBuild acquired Red Cerberus in November 2021 along with the rights and obligations under the relevant Consulting Agreement and Nondisclosure Agreement with the third party. The third party alleges that in 2022, a Red Cerberus employee misappropriated the claimant's confidential information while employed by Red Cerberus and asserts potential losses in both the United States and Brazil. The third party has submitted a demand for indemnification against such losses to Red Cerberus.

 

The Group has obtained professional legal advice and considers that it had strong and convincing arguments for disputing the claims. At 30 June 2023, management considered probability of payment to be remote and no provision had been recognised.

 

14      SUBSEQUENT EVENTS

 

Subsequent events have been reviewed and evaluated up to the date that these financial statements were approved and authorised for issue by the Directors, and there are no material events to be disclosed or adjusted for in these financial statements.

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