REG - tinyBuild, Inc. - Trading Update and Litigation Settlement

tinyBuildAnnouncement

05/12/2023 07:15

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RNS Number : 6430V  tinyBuild, Inc.  05 December 2023

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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
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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
million(1)

●     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 million(1) 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:

 

 tinyBuild, Inc                                   investorrelations@tinybuild.com (mailto:investorrelations@tinybuild.com)

 Alex Nichiporchik - Chief Executive Officer

 Giasone (Jaz) Salati - Chief Financial Officer

 Michael Schauble - Chief Commercial Officer
 Berenberg (Nominated Adviser and Sole Broker)    +44 (0)20 3207 7800

 Mark Whitmore, Ciaran Walsh, Milo Bonser
 SEC Newgate (Financial PR)                       tinybuild@secnewgate.co.uk

 Robin Tozer, Harry Handyside, Molly Gretton      +44 (0)7540 106366

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
(http://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.

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