NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, TO OR FOR THE ACCOUNT OR BENEFIT OF US PERSONS, AS DEFINED IN REGULATION S PROMULGATED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE "US SECURITIES ACT"), OR IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 as it forms part of domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018, as amended (together, "MAR"). Upon the publication of this announcement, this inside information is now considered to be in the public domain.

5 December 2023

tinyBuild, Inc

("tinyBuild" or the "Company")

Trading Update and Litigation Settlement

Near-term options to strengthen the balance sheet under active consideration

tinyBuild (AIM:TBLD), a premium video games publisher and developer with global operations, provides an update on trading and a litigation settlement.

Highlights

?    Current trading below expectations in Q4, after unusually weak trading in October and FY23 revenues are now likely to be between $40-50 million¹

?     Versus Evil continues to underperform with the delay of three out of four games into 2024

?  Cash position of $5.7 million at the end of November, with no debt, and expected to be below previous expectations of $10-20 million at end of December 2023

?    $3.5 million Global Settlement Agreement (in addition to legal costs) in respect of claims made by the Founder of Versus Evil

?     Accelerated cost action to re-align investments with expected revenues

?  Company is exploring near-term options to strengthen the balance sheet. CEO and founder Alex Nichiporchik confirming support for the Company and willingness to underwrite, subject to shareholder approval, a future equity fundraise of up to $10 million

?   Company intends to offer shareholders and other investors the opportunity to participate in any such potential equity fundraise and will provide a further announcement as and when appropriate

Current Trading and Cost Action

Since the publication of the Company's interim results in September 2023 ("2023 Half Year Results"), the market has deteriorated further and negotiations of certain large contracts have extended into the final month of the year. These remain under negotiation and may not be signed by year end, or at all. The continued underperformance of Versus Evil which delayed into 2024 three out of four games originally planned for release in H2 2023, including the widely anticipated Broken Roads, also weighed on group performance. As a result, FY23 revenues are now likely to be between $40-50 million¹ with the top end of this range dependent on the aforementioned large contracts being signed and anticipated December trading before the year end.   

The mix of revenues remains tilted towards lower-margin third-party games, which has a negative impact on gross profit margin, when compared to FY22. In an effort to mitigate the impact of lower expected cash inflows just before the end of the year, the Company has promptly accelerated its cost reduction plan. Further reduction of studio cash burn, the refocus on lower risk and higher than expected return projects and the optimisation of the publishing units are expected to contribute to a cash outflow reduction by $5-10 million per annum, starting from FY24. One-off severance charges and further impairments may be booked in FY 2023 as a result of further cost action.

Settlement Terms

On 4 December 2023, tinyBuild agreed to a binding summary of terms relating to a global settlement agreement (the "Settlement Terms") to be entered into with Steve Escalante, Lance James and Stall Proof, LLC (the "Claimants") relating to the following claims which have been made against tinyBuild following its acquisition of Versus Evil LLC ("Versus Evil") and Red Cerberus LLC ("Red Cerberus") in November 2021 (together, the "Claims"): 

(a)  MIPA Claim

As previously disclosed in tinyBuild's 2023 Half Year Results, in November 2021, tinyBuild acquired Versus Evil and Red Cerberus from the 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 (together, the "MIPA Claim"). 

(b)  Escalante Claim

In connection with the aforementioned acquisitions, tinyBuild entered into an employment agreement with Steve Escalante providing for his employment as General Manager of Versus Evil and Red Cerberus (the "Employment Agreement"). Among other things, the Employment Agreement provided for a retention package worth $3 million in shares and options over three years. Mr. Escalante commenced legal proceedings against tinyBuild and tinyBuild's directors alleging that tinyBuild breached the Employment Agreement by failing to pay him in a timely manner and sought to assert his right to terminate the Employment Agreement.

As part of the Settlement Terms and in full and final settlement of the Claims (including the MIPA Claim), tinyBuild has agreed to pay to the Claimants $3.5 million in cash (in addition to legal costs). The Settlement Terms cover the claims disclosed in the 2023 Half Year Results note on contingent liabilities and will also relinquish the Company from any future obligation relating to earnouts, which allows tinyBuild to consider all strategic options for both Versus Evil and Red Cerberus.

The payment will be divided in two tranches: (i) $1.5 million on signing of the Settlement Terms and (ii) the remaining funds due within 60 days (the "Deferred Payment"). tinyBuild's obligation to make the Deferred Payment has been secured by founder and CEO Alex Nichiporchik with a personal guarantee, should tinyBuild fail to satisfy its obligations under the Settlement Terms.

Cash position

At the end of November, the Company had $5.7 million of cash, which is expected to decline further due to limited cash inflow from October sales, one-off charges as part of the cost reduction plan and underlying software development investments due in December. As a result, the Company's cash position at the end of the year is expected to be in the low single digit millions, assuming no large contracts are signed before the year end and including the $1.5 million upfront cash payment related to the Settlement Terms. The undrawn revolving credit facility with Bank of America originally set up to fund potential M&A activity was terminated and the Company continues to have no debt or undrawn facilities.

Including payments to be made pursuant to the Settlement Terms and assuming no large contracts are signed, the Company will require new funding by the end of January 2024. As a result of this, the Company is evaluating near-term options to strengthen its balance sheet. As part of this process, Alex Nichiporchik has expressed his support for the Company and willingness to underwrite an equity fundraise of new common shares of the Company to raise up to $10 million. The Company intends to offer shareholders and other investors the opportunity to participate in any such potential equity fundraise under the same terms and will provide a further announcement as and when appropriate. Any such equity fundraise would require shareholder approval with further details expected to be published before the end of 2023.

Whilst the Company is not subject to The City Code on Takeovers and Mergers as the Company is incorporated in Delaware, any subscription by Alex Nichiporchik that results in him holding more than his current percentage holding will be subject to a shareholder vote for him to purchase additional shares in order to waive the requirement for him to make a mandatory offer for the Company pursuant to the Company's bylaws. A subscription by Alex Nichiporchik will also be classified as a related party transaction pursuant to AIM Rule 13.  

Outlook

The outlook for FY24 remains cautious. The Company expects continued pressure on discounting in a crowded market for new releases. The planned launch of certain promising games in 2024 gives reason for optimism and this coupled with a leaner cost base could translate into strong operating leverage in the event of a recovery in video games sales.

For the purposes of MAR, the person responsible for arranging for the release of this announcement on behalf of the Company is Giasone Salati.

Alex Nichiporchik, Chief Executive Officer of tinyBuild, commented:

"2023 has been an incredibly challenging year. The whole team at tinyBuild worked tirelessly to release our best products, despite the impact of the war in Ukraine that deeply affected most of us. We couldn't overcome weak demand for video games and the sudden reversal of market dynamics that had favoured us over the previous years. We innovated in marketing, refocused our catalogue, and adjusted the cost base as quickly as possible, and, despite these actions, it wasn't enough in such a rapidly evolving market.

"It's physically painful to part ways with colleagues after all the good work they put into the Company. The only reason to justify this decision is that the Company has entered a pivotal stage and I am committed to do everything I can to ensure we get through this tough period. We owe it to all our stakeholders now to bounce back and deliver on what tinyBuild can achieve."

1.   Source: Bloomberg consensus market expectations for revenue in FY23 = $49.9m.

Enquiries:

About tinyBuild:

Founded in 2013, tinyBuild (AIM: TBLD) is a global video games publisher and developer, with a catalogue of more than 80 premium titles across different genres. tinyBuild's strategy is to focus on its own intellectual property (IP) to build multi-game and multimedia franchises, in partnership with developers.

tinyBuild is headquartered in the USA with operations stretching across the Americas and Europe. The Group's broad geographical footprint enables the Company to source high-potential IP, access cost-effective development resources, and build a loyal customer base through its 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.

Important Notices

The securities referred to herein have not been and will not be registered under the US Securities Act or under the securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, pledged or otherwise transferred in the United States absent registration under the US Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and applicable state securities law. The Company does not intend to register the securities or conduct a public offering in the United States. Any failure to comply with the foregoing restrictions may constitute a violation of US securities laws. This announcement (the "Announcement") does not constitute or form part of an offer or invitation to sell or a solicitation of an offer to buy or subscribe for or otherwise acquire any securities in any jurisdiction or an inducement to engage in investment activity. There shall be no offers or sales of shares or other securities in any jurisdiction in which such offer or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

This Announcement has been issued by the Company and is the sole responsibility of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Berenberg or its affiliates or agents as to, or in relation to, the accuracy or completeness of this Announcement or any other information made available to or publicly available to any interested party or its advisers, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available, and any liability therefore is expressly disclaimed.

Joh. Berenberg, Gossler & Co. KG, London Branch ("Berenberg") is authorised and regulated by the German Federal Financial Supervisory Authority and is authorised, and subject to limited regulation by, the FCA in the United Kingdom. Berenberg is acting exclusively for the Company and no one else in connection with the contents of this Announcement and other matters described in this Announcement and will not regard any other person as its client in relation to the content of this Announcement and other matters described in this Announcement and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice to any other person in relation to the content of this Announcement or any other matters referred to in this Announcement.

The distribution of this Announcement and the proposed equity issuance in certain jurisdictions may be restricted by law. No action has been taken by the Company or Berenberg that would permit an offering of such shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdiction. Persons into whose possession this Announcement comes are required by the Company and Berenberg to inform themselves about, and to observe, such restrictions.

This Announcement contains forward-looking statements. Forward-looking statements are not historical facts but are based on certain assumptions of management regarding our present and future business strategies and the environment in which we will operate, which the Company believes to be reasonable but are inherently uncertain, and describe the Company's future operations, plans, strategies, objectives, goals and targets and expectations and future developments in the markets. Forward-looking statements typically use terms such as "believes", "projects", "anticipates", "expects", "intends", "plans", "may", "will", "would", "could" or "should" or similar terminology. Any forward-looking statements in this Announcement are based on the Company's current expectations and, by their nature, forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control, that could cause the Company's actual results and performance to differ materially from any expected future results or performance expressed or implied by any forward-looking statements. As a result, you are cautioned not to place undue reliance on such forward-looking statements. Past performance should not be taken as an indication or guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance. Some of the information is still in draft form and will only be finalised, if legally verifiable, at a later date. The Company undertakes no obligation to release the results of any revisions to any forward-looking statements in this Announcement that may occur due to any change in its expectations or to reflect events or circumstances after the date of this Announcement and the parties named above disclaim any such obligation.