tinyBuild, Inc. - Regulatory Filings 2021

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RNS Number : 0993B

tinyBuild, Inc.

08 June 2021

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.

8 June 2021

tinyBuild, Inc

("tinyBuild" or the "Company")

Audited Final Results for the year ended 31 December 2020

Following its successful listing on AIM on 9 March 2021, tinyBuild, a leading video games publisher and developer with global operations, is pleased to announce its full year results for the 12 months ended 31 December 2020.

Financial Summary (12 months ended December, audited):


	2020	2019	change
Revenue	$ 37,648	$ 27,972	35%
Operating profit	$ 7,664	$ (2,741)	nmf
Profit/ (loss) before tax	$ 7,700	$ (2,623)	nmf
Earnings per share	$ 0.028	$ (0.033)	nmf
Diluted earnings per share	$ 0.027	$ (0.033)	nmf
Operating cash flow	$ 16,470	$ 11,732	40%
Net cash/ (debt), at 30 December	$ 26,313	$ 17,009	55%

Adj. EBITDA1	$ 15,275	$ 7,672	99%
Adj. EBITDA margin	40.6%	27.4%

1 Excludes share based compensation expenses, includes amortisation of Development costs

Highlights for the year ended December 2020

● Strong revenue growth of 35% to $37.6m generating a 99% increase in Adj EBITDA to $15.3m (40.6% margin, compared to 27.4% in 2019), both slightly ahead of expectations.

● Five new games published including the first-party title Totally Reliable Delivery Service

and the second-party title Kill it with Fire, growing tinyBuild's portfolio to a total of 40 games.

● Robust back catalogue sales representing 75% of total revenues, demonstrating the Company's ability to extend games' life cycles, while adding new titles.

● Contribution to revenues from first-/second-party games increased slightly to 70% of Group revenues (69% in 2019), supporting long-term margin expansion.

● Three game studio acquihires completed (HakJak Productions, Hologryph and Moon Moose) for a total consideration of $1.3m.

Post Period End

● Successful, significantly oversubscribed admission to AIM, raising £36.2m ($50m) of gross proceeds to accelerate organic growth and support M&A strategy.

● Henrique Olifiers appointed Non-Executive Chairman, plus Nick Van Dyk (please see separate press release issued today) and Neil Catto appointed Non-Executive Directors.

● Two studio acquihires announced in January and February 2021 (We're Five Games and Hungry Couch), plus the acquihire of DogHelm Studios announced today (please see separate press release).

● Two new releases: Cartel Tycoon (early access) and Mayhem in a Single Valley. Two launches on new platforms: Totally Reliable Delivery Service (Steam) and Secret Neighbor (PS4).

Outlook

● The successful IPO in March provided additional funds to accelerate the Company's low-risk M&A strategy focused on new IP, additional service providers, development studios and expansion into new geographies.

● Pipeline for the coming months includes: Potion Craft, Despot's Game, Undungeon, Black Skylands, Hello Engineer and Trash Sailors.

● While tinyBuild continues to carefully review the impact of the pandemic and the fluid macroeconomic situation, early indicators of traction across our pipeline, including KPIs for Hello Neighbor 2, are very encouraging.

● The Board remains confident the company is on track to deliver results at least in line with expectations, plus accretive acquisitions.

Alex Nichiporchik, Chief Executive Officer of tinyBuild, commented:

"Our successful listing on AIM earlier this year provides a platform from which we can deliver on our organic and M&A growth ambitions. Our back catalogue has performed strongly, and we now have a highly diverse revenue mix. Our strategy to accumulate owned-IP has resulted in a strong financial performance and has translated into underlying gross margin improvement.

"With a strong pipeline of high-quality titles set for release in the next two years, the majority of which are first and second-party titles, we have the potential to build more multimedia franchises and emulate the success of Hello Neighbor. Hello Neighbor was one of our first own-IP franchises and has gone from strength to strength. It is great to now see the fanbase engaging with Hello Neighbor 2 and actively contributing to the game's progress by playing the alpha release. With books, graphic novels, and early talks for a potential animated TV series, Hello Neighbor provides a template for many of our future games.

"Our goal is to expand our position as a leading global developer and publisher, focusing on IP ownership while creating long-term scalable franchises across multiple media formats. 2020 has seen significant progress towards that ambition, and we look to the future with confidence."

Enquiries:


tinyBuild, Inc Alex Nichiporchik - Chief Executive Officer and co-founder Luke Burtis - Chief Operating Officer and co-founder Antonio Jose Assenza - Chief Financial Officer Giasone (Jaz) Salati - Head of M&A and IR	[email protected]
Zeus Capital (Nominated Adviser and Joint Broker) Nick Cowles, Richard Darlington, Daniel Harris (Corporate Finance) Benjamin Robertson (Equity Capital Markets)	+44 (0)20 3829 5000
Berenberg (Joint Broker) Ben Wright, Mark Whitmore, James White, Alix Mecklenburg-Solodkoff, Milo Bonser	+44 (0)20 3207 7800
Yellow Jersey PR (Financial PR) Charles Goodwin, Joseph Burgess, Annabel Atkins	[email protected] +44 (0)774 778 8221

About tinyBuild:

Founded in 2013, tinyBuild (AIM: TBLD) is a leading premium AA-rated and indie video games publisher and developer. tinyBuild strategically secures access to IP and partners with developers to establish a stable platform on which to build multi-game and multimedia franchises. tinyBuild has a strong portfolio of over 40 titles, and its upcoming pipeline includes over 20 new titles currently in development.

Headquartered in Seattle, 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 the AIM index of the London Stock Exchange in March 2021.

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

CHAIR AND CHIEF EXECUTIVE'S REVIEW

Games are the only medium where you say "I did this". Not Ethan Hunt saved the world. Not Iron Man Beat Thanos. I saved the world. I beat the villain. It is a very personal medium, where stories become an integral part of our lives. We fall in love with characters or create our own.

Consumers' response to the pandemic in 2020 helped to expand this understanding, that video games have the opportunity to offer a very unique, personal experience to many more new gamers. It is our firm belief that when you start playing video games, you do not stop. You are a gamer for life. This is why going into 2021, we are focused on creating long-term, ever-green franchises in a medium we love and thrive in - with the goal of taking them across multiple media formats.

We are pleased the full year results of tinyBuild in 2020 ended slightly ahead of our ambitious targets. Now our focus is on the strategic initiatives we are working on, both organically and through M&A.

Financial performance

tinyBuild delivered revenue of $37.6m, a 35% increase on the $28.0m achieved in 2019. This level of growth is testament to the strength and depth of our team, which has remained focused throughout 2020 on the Company's targets, despite a global pandemic.

Adjusted EBITDA was $15.3m, almost double the previous year (2019: $7.7m), driven by the shift to own IP and the success of new releases, such as Totally Reliable Delivery Service. Our development hubs in Eastern Europe, including Latvia and Ukraine, also provide us with a competitive advantage, while helping small studios in developing regions to fully realise their potential.

We had US$26.3 million net cash as of 31 December 2020 (US$17 million in 2019), and our operating cash flow rose to $16.5m (2019: $11.7m), while we invested to accelerate growth and experiment with new formats and technologies. Our cash generation, combined with the $50 million raised at IPO, will enable us to accelerate organic growth and support our M&A strategy.

Current portfolio and pipeline

tinyBuild published five games in 2020 bringing the total games portfolio to 40 released titles at the end of the year. In April 2020 we released Totally Reliable Delivery Service, a first-party title which has been eminently successful, generating $4.9m in revenues over the remainder of 2020. We also launched two second-party titles in 2020 (Kill it With Fire and Startup Panic), two third-party titles (Waking and Hellpoint), and the early access version of Not for Broadcast.

The fourth and fifth Hello Neighbor books were published, bringing the total to over 1.6m copies sold across the franchise. The Hello Neighbor graphic novels sold 120,000 copies and an animated TV pilot has, to date, received over 40 million views on YouTube.

So far in 2021, we have already released a number of new titles and new platform versions:

● Cartel Tycoon (early access) - a survival business sim inspired by the '80s narco trade. Expand and conquer, fight off rival cartels and evade the authorities

● Totally Reliable Delivery Service (Steam) - a ragdoll physics simulation about terrible package delivery couriers

● Secret Neighbor (PS4) - a Multiplayer Social Suspense Game where a group of intruders try to rescue their friend from the Neighbor's creepy basement

● Mayhem in Single Valley (PC only) - a puzzle-loaded action adventure where you have to prevent the end of the world while keeping everyone from finding out it was all your fault

We have recently announced, or we are close to announcing a release date for:

● Black Skylands - a skypunk Open World action adventure. Build your skyship and explore the open world, fight factions of pirates and monsters, and claim territories.

● Potion Craft - an alchemist simulator which was the number one trending game in the February Steam Game Festival

● Undungeon - an Action/RPG game driven by intense real-time combat and an immensely rich science fiction story.

● Despot's Game - a rogue-like game with turbocharged battles, and a top 10 trending game in the February Steam Game Festival

● Trash Sailors - a hand-drawn sailing simulator with co-op up to 4 players. Create the trashiest sailing team in history, fight with monsters and trash

In the next few months we will also expand the Hello Neighbor franchise adding:

● Secret Neighbor (iOS and Switch) - the multiplayer social game set in the Hello Neighbor universe was recently added to PS4

● Hello Engineer (Stadia) - a multiplayer machinery-building construction game set in the sandbox world of a mysterious amusement park, but beware of the Neighbor

In 2021 we will publish new Hello Neighbor books and graphic novels, and we are in early talks to produce an animated TV series on the back of the success of the pilot. This strategy is a key differentiator for tinyBuild and results not only in additional revenue streams from our most popular franchises but sustains interest between product releases and broadens audiences into new demographics. We plan to mirror the success of the franchise model across all of our most popular first party titles.

Acquisitions

Over the course of 2020 we made three acquisitions, in April we acquihired HakJak Productions, the Idaho based developer of Guts and Glory (published by tinyBuild in 2018), in October, Hologryph LLC, the Ukrainian developer of Secret Neighbor which is part of our Hello Neighbor franchise, and in November, Moon Moose, the Russian developer of Cartel Tycoon, which is currently in early access.

The momentum we built in 2020 has already rolled into 2021, with tinyBuild acquiring a further two studios in January and February 2021: We're Five Games, the Minneapolis developer of Totally Reliable Delivery Service and the Russia based developer of Black Skylands (due for release this year), Hungry Couch.

Today I am pleased to announce the acquihire of DogHelm (please see separate press release): we welcome Matt Dabrowski, the developer of Streets of Rogue into the tinyBuild family. We have been working with Matt for half a decade now on his title - which is the highest rated title in tinyBuild's portfolio according to Steam users. By bringing the studio in-house, we are gearing up for the highly anticipated sequel to Streets of Rogue. This is a really exciting development which we will update on in the near future.

People

As part of our AIM listing, we were delighted to welcome Henrique Olifiers to our Board as Non-Executive Chairman. Nick Van Dyk and Neil Catto also joined our Board as Non-Executive Directors. Henrique brings a huge amount to the role, he has decades of experience in the sector and is the co-founder and CEO of Bossa Studios, a London-based video games developer. Prior to founding Bossa, Henrique worked at several other companies in the sector including: Finalboss.com, Globo.com, Jagex and Playfish.

Nick van Dyk (please see separate press release issued today) was Co-President of Activision Blizzard Studios from 2015 - 2019, and previously Senior VP at The Walt Disney Company. Nick has over 20 years' experience in the entertainment industry

Neil Catto has been the CFO of AIM listed Boohoo Group for the past ten years. He was previously Finance Director of dabs.com plc and has held senior financial positions in BT plc and The Carphone Warehouse Group plc. Neil qualified as a chartered accountant with Ernst & Young.

Position and strategy

tinyBuild is now well-positioned with a strong pipeline of new titles and a proven ability to attract, screen and market high-quality game franchises. Our low-risk M&A strategy continues to help us increase our IP portfolio, and our multimedia franchise model allows us to extend the life of our IP, maximising 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. 2020 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

Henrique Olifiers - Non-Executive Chairman

FINANCIAL REVIEW

tinyBuild performed strongly in 2020, slightly ahead of the ambitious targets set by management, both in terms of games released and in terms of development of new games. Five new titles were released, including Totally Reliable Delivery Service and the Company closed the year with 23 games in its pipeline.

Revenue

tinyBuild saw total revenues increase from $27.9m to $37.6m, a growth of 35 % (2019: 13%). tinyBuild's revenue is generated mainly from game's sales on various platforms and licensing deals from a platform's subscription programs (i.e. Xbox Gamepass). tinyBuild also generates revenue from development partnerships on owned IP. Events include primarily revenues from DevGAMM, our Eastern Europe game developers conference, which was held online in 2020.

Back catalogue sales represented 75% of total revenues, less compared with the previous year, due to the success of new titles released during 2020. Contribution to revenues from first-/second-party games increased slightly to 70% of Group revenues (69% in 2019), supporting long-term margin expansion.

Adjusted EBITDA and operating profit

Adjusted EBITDA is presented net of amortisation of development costs, and excluding share-based compensation expenses, giving a clear picture of the business progression. It increased from $7.7m to $15.3m in 2020, a growth of 99%, largely driven by strong 2020 revenue and relatively stable operating expenses.

Operating profit increased to $7.6m (2019: negative $2.7m) mostly as a result of strong sales growth. Share-based compensation charges of $5,8m (2019: $10.0m) were unusually high in both years due to mark-up adjustment to fair value and a change in accounting policies in 2019, and accelerated vesting of options held by management in 2020.

Interest income and taxation

Interest income was $0.1m (the Company is debt free) and taxation $2.7m, after subtracting $0.9m deferred taxes.

Financial Position

In 2020, the net cash position increased from $17m to $26.3m, while the company accelerated investments in new titles. Capitalised software development costs, mainly consisting of porting, localization and developer salaries, increased from $8.0m to $10.1m, reflecting the increase in spend for upcoming pipeline releases.

Cash Flow

Cash flows from operating activities increased from $11.7m to $16.5m mostly as a result of strong revenue growth. Trade and other payables saw an increase in 2020 to $3.5m (2019: $2.5m). It's important to note that said timing issues can cause fluctuations year over year and variability here is to be expected.

Acquisitions

In 2020 tinyBuild made three acquisitions for a cash consideration of $0.6m, net of transaction fees. in April tinyBuild acquihired HakJak Productions, in October Hologryph LLC, and in November Moon Moose,

Events after the reporting date

Early in 2021 tinyBuild acquired We're Five Games and Hungry Couch for a total $1.8m consideration. On 9 March 2021, tinyBuild raised $50m (£36.2m) in gross proceeds, which is being used to accelerate organic growth and support the M&A strategy. Today we are announcing the acquihire of DogHelm for a total consideration of up to $6.5m (please see separate press release).

TINYBUILD INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2020


	Note	2020 $'000	2019 $'000

Revenue	5	37,648	27,972
Cost of sales		(15,120)	(13,645)

Gross profit		22,528	14,327

Administrative expenses:
- General administrative expenses		(8,714)	(7,106)
- Share-based payment expenses		(5,845)	(9,962)

Total administrative expenses		(14,559)	(17,068)

Exceptional costs	6	(467)	-
Other operating income	7	162	-

Operating profit/(loss)	9	7,664	(2,741)

Finance costs	10	(21)	(16)
Finance income	11	57	134

Profit/(loss) before tax		7,700	(2,623)

Income tax expense	12	(2,752)	(1,882)

Profit/(loss) and total comprehensive income for the year		4,948	(4,505)


Attributable to:
Owners of the parent company		4,942	(4,525)
Non-controlling interests		6	20

		4,948	(4,505)


Earnings per share ($)	13	0.028	(0.033)
Diluted earnings per share ($)	13	0.027	(0.033)
Adjusted EBITDA	14	15,275	7,672

TINYBUILD INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2020


		2020	2019
ASSETS	Note	$'000	$'000
Non-current assets
Intangible assets	15	15,141	13,343
Property, plant and equipment:
- owned assets	16	87	101
- right-of-use assets	16	673	874
Trade and other receivables	18	16	16

Total non-current assets		15,917	14,334
Current assets
Trade and other receivables	18	4,999	3,701
Cash and cash equivalents		26,313	17,009

Total current assets		31,312	20,710

TOTAL ASSETS		47,229	35,044

EQUITY AND LIABILITIES Equity
Share capital	26	1	1
Share premium	26	18,674	18,674
Retained earnings		19,919	9,132

Equity attributable to owners of the parent company		38,594	27,807
Non-controlling interest		162	156

Total equity		38,756	27,963

LIABILITIES
Non-current liabilities
Lease liabilities	22	442	621
Deferred tax liabilities	24	1,663	2,542

Total non-current liabilities		2,105	3,163

Current liabilities
Borrowings	21	13	-
Trade and other payables	19	3,496	2,516
Contract liabilities	20	2,675	1,225
Lease liabilities	22	184	177

Total current liabilities		6,368	3,918

Total liabilities		8,473	7,081

TOTAL EQUITY AND LIABILITIES		47,229	35,044

The Financial Statements were approved by the Board of Directors and authorised for issue on 8 June 2021 and are signed on its behalf by:

…………………………………

Alex Nichiporchik

TINYBUILD INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2020


	Note	Share capital	Share premium	Retained earnings	Total equity attributable to owners of the parent company	Non-controlling interest	Total equity
		$'000	$'000	$'000	$'000	$'000	$'000

Balance at 1 January 2019		1	3,750	5,695	9,446	136	9,582

(Loss)/profit and total comprehensive income for the year		-	-	(4,525)	(4,525)	20	(4,505)

Transactions with owners in their capacity as owners:
Issuance of Series A preferred stock	26	-	15,000	-	15,000	-	15,000
Direct costs of issuance	26	-	(76)	-	(76)	-	(76)
Repurchase of common stock	26	-	-	(2,000)	(2,000)	-	(2,000)
Share-based payments	25	-	-	9,962	9,962	-	9,962

Total transactions with owners		-	14,924	7,962	22,886	-	22,886

Balance at 31 December 2019		1	18,674	9,132	27,807	156	27,963

Profit and total comprehensive income for the year		-	-	4,942	4,942	6	4,948

Transactions with owners in their capacity as owners:
Share-based payments	25	-	-	5,845	5,845	-	5,845

Total transactions with owners		-	-	5,845	5,845	-	5,845

Balance at 31 December 2020		1	18,674	19,919	38,594	162	38,756

TINYBUILD INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2020


		2020	2019
	Note	$'000	$'000
Cash flows from operating activities
Cash generated from operations	27	16,470	11,732

Net cash generated by operating activities		16,470	11,732

Cash flows from investing activities
Software development	15	(6,549)	(5,821)
Purchase of intellectual property	15	(570)	(5,600)
Purchase of property, plant and equipment	16	(24)	(9)

Net cash used in investing activities		(7,143)	(11,430)

Cash flows from financing activities
Proceeds from borrowings	21	175	-
Proceeds from issuance of preferred stock, net of transaction costs		-	14,924
Repurchase of ordinary shares		-	(2,000)
Payment of principal portion of lease liabilities		(198)	(150)

Net cash generated by/(used in) financing activities		(23)	12,774


Cash and cash equivalents
Net increase in the year		9,304	13,076
At 1 January		17,009	3,933

At 31 December		26,313	17,009

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2020

1 GENERAL INFORMATION

TinyBuild Inc. ("the Company") is a private company limited by shares, and is registered, domiciled and incorporated in Delaware, USA. On 9 March 2021 the Company became a public company. The address of the registered office is 127 Bellevue Way SE, Suite 200, Bellevue, WA 98004, United States.

The Group ("the Group") consists of TinyBuild Inc. and all of its subsidiaries as listed in note 17. The Group's principal activity is that of an indie video game publisher and developer.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

The financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ('IFRS")as issued by the International Accounting Standards Board (IASB) .

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 and all entities within the Group. Monetary amounts in these financial statements are rounded to the nearest thousand US Dollars (US$'000).

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving judgement or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.

Basis of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date control ceases. Inter-company transactions, balances and unrealised gains and losses on transactions between group companies are eliminated.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. The Group elected to recognise the non-controlling interests at its proportionate share of the acquired net identifiable assets. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder's share of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Adoption of new and revised standards

With effect from 1 January 2020, the Group has adopted the following new IFRSs (including amendments thereto) and International Financial Reporting Interpretations Committee ("IFRIC") interpretations, that became effective for the first time. None of the new standards adopted have had any material impact on the Group.


Standard/amendment	Effective date
Conceptual Framework and amendments to references to the Conceptual Framework in IFRS Standards	1 January 2020
Amendments to IFRS 3 Business Combinations	1 January 2020
Amendments to IAS 1 and IAS 8: Definition of Material	1 January 2020
Interest Rate Benchmark Reform: amendments to IFRS 9, IAS 39 and IFRS 7	1 January 2020

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New and revised standards in issue but not yet effective

The following standards and interpretations relevant to the Group are in issue but are not yet effective and have not been applied in the preparation of the financial statements.


Standard/amendment	Effective date
Interest Rate Benchmark Reform: amendments to IFRS 9, IAS 39 and IFRS 7 - Phase 2	1 January 2021

The above standards are not expected to materially impact the Group.

Revenue recognition

IFRS 15 Revenue from Contracts with Customers has been applied for all periods presented within the financial statements.

Revenue is recognised when control of a service or product provided by the Group is transferred to the customer, in line with the Group's performance obligations in the contract, and at an amount reflecting the consideration the Group expects to receive in exchange for the provision of services.

The Group recognised revenue from the following activities:

Game and Merchandise Royalties

The Group develops and publishes video games based on its own and third-party intellectual property. The Group grants third-party distributors licences to sell these video games, and these distributors are considered to be the Group's customers when assessing revenue recognition. The majority of the Group's revenue is in the form of royalties received from third-party distributors under the licence agreements. Generally, royalty revenue earned from third-party licensees is recorded in the period earned, being the point at which the distributor sells the content to the end user, in accordance with IFRS 15. The Group occasionally will enter contracts with a fixed amount of royalty revenue in exchange for making a game available to a third-party platform for their customers to download for an agreed period of time, with minimal future performance obligations required by the Group. These contracts are determined as right to use contracts in accordance with IFRS 15 and the fixed fee is recognised upon satisfying the performance obligation of providing the game licence for the specified subscription‐based platform, being the date the game is first made available on the third-party platform. Variable consideration in respect of some contracts is constrained, unable to be reliably estimated and is recognised when received.

Development Services

Development advances received from distribution partners to assist with the development of game titles are recognised as contract liabilities in the statement of financial position and subsequently recognised as income when distinct performance obligations set out in the contract are met. Performance obligations for development service contracts typically include the delivery of video game prototypes at various stages of completion. The transaction price for each performance obligation is generally a fixed amount which is specified in the contract. The Group allocates the transaction price to each performance obligation on the basis of the relative stand-alone selling price of each distinct good or service promised in the contract. The stand-alone selling price is determined to be the price at which the Group would sell the promised good or service separately to a customer. This is not presumed to be the contractually stated price in the contract, but management consider this to be an appropriate estimate as it is the agreed price the customer is willing to pay. Where the stand-alone selling price is not directly observable, the Group estimates it using an adjusted market assessment approach. The Group evaluates the video game market and estimates the price that a customer would be willing to pay for the goods and services.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue recognition (continued)

The Group recognises revenue over time for certain contracts where the Group transfers control of the product over time and one of the following criteria is met:

● the customer simultaneously receives and consumes the benefits provided by the Group's performance as the Group performs it;

● the Group's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or

● the Group's performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

The Group enters into contracts for the development of game titles on certain platforms. The Group's performance under these contracts does not create an asset with an alternative use to the Group due to its specific nature, and the Group has an enforceable right to payment for performance completed to date. Revenue is recognised based on time elapsed and milestones reached. Management consider that this output method is a faithful depiction of the Group's performance of satisfying the performance obligation as it is a direct measurement of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. Payment is typically due upon milestones specified in the contract. There is not considered to be a significant financing component in these contracts with customers as the period between the recognition of revenue and the milestone payment is always less than one year.

Event Revenue

Event revenue is recognised at the conclusion of each event.

In cases where the invoices raised exceed the services rendered, a contract liability representing advances or deferred revenue is recognised.

Going concern

After reviewing the Group's forecasts and projections and taking into account the proceeds of the Placing, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has therefore adopted the going concern basis in preparing the financial statements.

Foreign currencies

Transactions in currencies other than the functional currency (foreign currency) are initially recorded at the exchange rate prevailing on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies are translated at the rate ruling at the date of the transaction, or, if the asset or liability is measured at fair value, the rate when that fair value was determined.

All translation differences are taken to profit or loss, except to the extent that they relate to gains or losses on non-monetary items recognised in other comprehensive income, when the related translation gain or loss is also recognised in other comprehensive income.

Exceptional costs

IAS 1 requires material items to be disclosed separately in a way that enables users to assess the quality of a Group's profitability. In practice, these are commonly referred to as "exceptional" items, but this is not a concept defined by IFRS and therefore there is a level of judgement involved in determining what to include in underlying profit. We consider items which are non-recurring and significant in size or in nature to be suitable for separate presentation (see note 6).

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Research and development expenditure

Expenditure on research activities as defined in IFRS is recognised in the income statement as an expense as incurred.

Expenditure on internally developed software products and substantial enhancements to existing software product is recognised as intangible assets only when the following criteria are met:

1. It is technically feasible to develop the product to be used or sold;

2. There is an intention to complete and use or sell the product;

3. The Group is able to use or sell the product;

4. Use or sale of the product will generate future economic benefits;

5. Adequate resources are available to complete the development; and

6. Expenditure on the development of the product can be measured reliably.

The capitalised expenditure represents costs directly attributable to the development of the asset from the point at which the above criteria are met up to the point at which the product is ready for use. If the qualifying conditions are not met, such development expenditure is recognised as an expense in the period in which it is incurred. No research and development expenditure has been recognised as an expense.

Development costs largely relate to amounts paid to external developers, consultancy costs and the direct payroll costs of the internal development teams. Capitalised development expenditure is reviewed at the end of each accounting period for conditions set out above and indicators of impairment. Intangible assets that are not yet available for use are tested for impairment annually by comparing their carrying amount with their recoverable amount based on cash flow forecasts for the developed products.

Finance income and costs

Finance costs comprise interest charged on liabilities and finance costs accruing from lease liabilities.

Interest income and interest payable are recognised in the statement of comprehensive income as they accrue, using the effective interest method.

EBITDA and adjusted EBITDA

Earnings before Interest, Taxation, Depreciation and Amortisation ("EBITDA") and Adjusted EBITDA are non-GAAP (Generally Accepted Accounting Principles) measures used by management to assess the operating performance of the Group. EBITDA is defined as profit before finance costs, tax, depreciation and amortisation (excluding amortisation of capitalised software development costs). Share-based payment costs, other non-recurring items, exceptional costs and other operating income are excluded from EBITDA to calculate adjusted EBITDA.

The Directors primarily use the Adjusted EBITDA measure when making decisions about the Group's activities. As these are non-IFRS measures, EBITDA and Adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable.

Segmental reporting

The Group reports its business activities in one area: video games development, which is reported in a manner consistent with the internal reporting to the Board of directors, which has been identified as the chief operating decision maker.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, plant and equipment

Property, plant and equipment are initially recognised at cost of purchase or construction, which includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

After initial recognition, items of property, plant and equipment are carried at cost less any accumulated depreciation and impairment losses.

Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over its useful economic life as follows:

Fixtures, fittings and equipment 5 - 7 years straight line

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Intangible assets

The Group has two categories of intangible assets:

Purchased intellectual property

The Group purchases intellectual property related to video games. As part of the acquihires, the Group selectively acquires relevant target intellectual property via an asset purchase, rather than a corporate acquisition. These acquihires are determined to meet the concentration test in IFRS 3, as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset. At the time of purchase, the Group estimates the useful life of the intellectual property for financial reporting purposes and recognises amortisation on a straight-line basis over the useful life of the asset, typically 7 years.

Purchased intellectual property is reviewed for impairment at each reporting date or when events and circumstances indicate an impairment. The Group determined that an impairment charge was not necessary during the periods covered by the financial statements.

Software development costs

The Group incurs software development costs through game studios within the Group's control pursuant to IAS 38. Costs are amortised upon release of the game on a straight line basis over its estimated useful life, typically one to two years.

The Group capitalises external costs for localisation and porting of games as software development costs pursuant to IAS 38. Costs are amortised upon release of the game using the straight‐line method over its estimated useful life, typically two years.

Development advances paid to external developers for the development of specified games are capitalised as incurred. Amortisation commences upon release of the specified games and at a rate equivalent to the costs being recovered from developers, reflecting the pattern in which the asset's future economic benefits are expected to be consumed. The period over which the advances are amortised varies due to its dependency on the success of the game.

Impairment of property, plant and equipment and of intangible assets, including right-of-use assets

At each reporting period end date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of property, plant and equipment and of intangible assets, including right-of-use assets (continued)

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Financial instruments

Financial assets and liabilities are recognised on the statement of financial position when the Group has become party to the contractual provisions of the instrument. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Trade and other receivables

Trade and other receivables that do not have a significant financing component are initially recognised at transaction price and thereafter are measured at amortised cost using the effective interest method. Other receivables are stated at their transaction price (discounted if material) less any impairment losses.

Platform receivables are stated at the estimated amount management expects to collect from each platform, net of the applicable fees. Management estimates this amount monthly based on preliminary sales reports provided by each platform. Credit terms are typically 30 to 45 days.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments maturing within 90 days from the date of acquisition that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Classification and subsequent measurement of financial liabilities

The Group's financial liabilities include borrowings, trade and other payables and lease liabilities.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities. Financial liabilities are measured subsequently at amortised cost using the effective interest rate method.

Trade and other payables

Trade and other payables and borrowings are initially recognised at fair value less transaction costs and subsequently measured at amortised cost using the effective interest rate method, with all movements being recognised in the statement of profit and loss. Cost approximates to fair value.

Equity

Equity instruments issued are recorded at fair value on initial recognition net of transaction costs.

Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of financial assets under IFRS 9

The Group assesses, on a forward-looking basis, the expected credit losses associated with its financial assets measured at amortised cost. The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which requires the use of the lifetime expected loss provision for all trade receivables. The Group recognises twelve month expected credit losses if there has not been a significant increase in credit risk and lifetime expected credit losses if there has been a significant increase in credit risk. Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or financial reorganisation default or delinquency in payments, and the unavailability of credit insurance at commercial rates are considered indicators that the receivable may be impaired.

Financial assets are written off when there is no reasonable expectation of recovery. Where receivables have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in the Statement of Comprehensive Income.

Platform receivables

To measure the expected credit losses, trade and other receivables, including platform receivables, have been grouped based on shared credit risk characteristics and the days past due. For other financial assets at amortised cost, the Group determines whether there has been a significant increase in credit risk since initial recognition.

Employee benefits

The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Share-based payments

The Group operates a number of equity-settled, share-based compensation plans, under which the Group receives services from employees as consideration for equity instruments (options) of the company. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. A credit is recognised directly in equity. The total amount to be expensed is determined by reference to the fair value of the options granted:

- including any market performance conditions (for example, an entity's share price);

- excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and

- including the impact of any non-vesting conditions (for example, the requirement for employees to save). Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest.

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. For share options which vest in instalments over the vesting period, each instalment is treated as a separate share option grant, each with a different vesting period.

At the end of each reporting period, the company revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except if it arises from transactions or events that are recognised in other comprehensive income or directly in equity. In this case, the tax is recognised in other comprehensive income or directly in equity, respectively. Where tax arises from the initial accounting for a business combination, it is included in the accounting for the business combination.

Current tax

Tax currently payable is based on the taxable profit for the year and is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profit differs from accounting profit either because some income and expenses are never taxable or deductible, or deductible in other years.

Deferred tax

Using the statement of financial position asset and liability method, deferred tax is recognised in respect of all temporary differences between the carrying value of assets and liabilities in the consolidated statement of financial position and the corresponding tax base, with the exception of temporary differences arising from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.

The measurement of deferred tax assets and liabilities reflect the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its asset and liabilities.

Deferred tax assets are recognised only to the extent that the Group considers that it is probable (ie more likely than not) that there will be sufficient taxable profits available for the asset to be utilised within the same tax jurisdiction. Deferred tax assets and liabilities are offset only when there is a legally enforceable right to offset current tax assets against current tax liabilities, they relate to the same tax authority and the Group's intention is to settle the amounts on a net basis.

Since the Group is able to control the timing of the reversal of the temporary difference associated with interests in subsidiaries, a deferred tax liability is recognised only when it is probable that the temporary difference will reverse in the foreseeable future mainly because of a dividend distribution.

At present, no provision is made for the additional tax that would be payable if the subsidiaries in certain countries remitted their profits because such remittances are not probable, as the Group intends to retain the funds to finance organic growth locally.

Leases

On commencement of a contract (or part of a contract) which gives the Company the right to use an asset for a period of time in exchange for consideration, the Company recognises a right-of-use asset and a lease liability unless the lease qualifies as a 'short-term' lease or a 'low-value' lease.

Short-term leases

Where the lease term is twelve months or less and the lease does not contain an option to purchase the leased asset, lease payments are recognised as an expense on a straight-line basis over the lease term.

Leases of low-value assets

For leases where the underlying asset is 'low-value', lease payments are recognised as an expense on a straight-line basis over the lease term.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Initial and subsequent measurement of the right-of-use asset

A right-of-use asset is recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group.

The right-of-use asset is subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. The depreciation methods applied are as follows:

Leased property on a straight-line basis over the shorter of the lease term and the useful life

The right-of-use asset is adjusted for any re-measurement of the lease liability and lease modifications.

Initial measurement of the lease liability

The lease liability is initially measured at the present value of the lease payments during the lease term discounted using the interest rate implicit in the lease, or the incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined.

The lease term is the non-cancellable period of the lease plus additional periods arising from extension options that the Group is reasonably certain to exercise and termination options that the Group is reasonably certain not to exercise.

Subsequent measurement of the lease liability

The lease liability is subsequently increased for a constant periodic rate of interest on the remaining balance of the lease liability and reduced for lease payments.

Interest on the lease liability is recognised in profit or loss, unless interest is directly attributable to qualifying assets, in which case it is capitalised in accordance with the Group's policy on borrowing costs.

Remeasurement of the lease liability

The lease liability is adjusted for changes arising from the original terms and conditions of the lease that change the lease term, the Group's assessment of its option to purchase the leased asset, the amount expected to be payable under a residual value guarantee and/or changes in lease payments due to a change in an index or rate. The adjustment to the lease liability is recognised when the change takes effect and is adjusted against the right-of-use asset, unless the carrying amount of the right-of-use asset is reduced to nil, when any further adjustment is recognised in profit or loss. On termination of leases, the right-of-use asset and lease liability are reduced, with any resulting gain or loss being recognised in profit or loss.

Adjustments to the lease payments arising from a change in the lease term or the lessee's assessment of its option to purchase the leased asset are discounted using a revised discount rate.

The revised discount rate is calculated as the interest rate implicit in the lease for the remainder of the lease term, or if that rate cannot be readily determined, the lessee's incremental borrowing rate at the date of reassessment.

Changes to the amounts expected to be payable under a residual value guarantee and changes to lease payments due to a change in an index or rate are recognised when the change takes effect and are discounted at the original discount rate unless the change is due to a change in floating interest rates, when the discount rate is revised to reflect the changes in interest rate.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Lease modifications

A lease modification is a change that was not part of the original terms and conditions of the lease and is accounted for as a separate lease if it increases the scope of the lease by adding the right to use one or more additional assets with a commensurate adjustment to the payments under the lease.

For a lease modification not accounted for as a separate lease, the lease liability is adjusted for the revised lease payments, discounted using a revised discount rate. The revised discount rate used is the interest rate implicit in the lease for the remainder of the lease term, or if that rate cannot be readily determined, the lessee company's incremental borrowing rate at the date of the modification.

Where the lease modification decreases the scope of the lease, the carrying amount of the right-of-use asset is reduced to reflect the partial or full termination of the lease. Any difference between the adjustment to the lease liability and the adjustment to the right-of-use asset is recognised in profit or loss.

For all other lease modifications, the adjustment to the lease liability is recognised as an adjustment to the right-of-use asset.

Government grants

Income from government grants is presented within other operating income. Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received. A forgivable loan from government is treated as a government grant when there is reasonable assurance that the Company will meet the terms for forgiveness of the loan. Grants are recognised as income when the associated performance conditions are met.

3 JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Judgements

In the course of preparing the financial statements, judgements have been made in the process of applying the accounting policies that have had a significant effect in the amounts recognised in the financial statements. The following are the areas requiring the use of judgements that may significantly impact the financial statements.

Capitalisation of development expenditure

Management has to make judgements as to whether development expenditure has met the criteria for capitalisation or whether it should be expensed in the year. Development expenditure is capitalised only after its reliable measurement, technical feasibility and commercial viability can be demonstrated.

Right-of-use assets and lease liabilities

In determining the lease term, the Group assesses whether it is reasonably certain to exercise, or not to exercise, options to extend or terminate a lease. This assessment is made at the start of the lease and is re-assessed if significant events of changes in circumstances occur that are within the lessee's control. Right-of-use assets and lease liabilities are remeasured where the termination of a lease is considered reasonably certain, and the value of the lease payments due are known.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

3 JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

Estimates

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods. Estimates include:

Share based payment charge

In relation to equity-settled remuneration schemes, employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant. The fair value of share options is estimated by using the Black-Scholes valuation model on the date of grant, based on certain assumptions. A movement of 1% in the grant-date fair value of the equity instruments would result in a charge/credit of $31,000 (2019: $28,000).

Measurement, useful lives and impairment of intangible assets

Purchased intellectual property is considered to have a useful economic life of seven years. Other intangible assets (except for goodwill) are also considered to have a finite useful economic life. They are amortised over their estimated useful lives that are reviewed at each reporting date. In the event of impairment, an estimate of the asset's recoverable amount is made. The value of the intangible assets are tested whenever there are indications of impairment and reviewed at each reporting date or more frequently should this be justified by internal or external events.

After assessing the carrying value of each intangible asset which is not yet ready for use at the reporting date, which is shown net of any impairment charge posted, the Directors are confident that the forecast cash generation is in excess of the intangible asset held. The forecast cash generation is taken from the Group's forecasts which cover the trading expectations for a minimum of two years after the reporting date. The forecast revenue and cash generation from each intangible asset are separately identifiable within the Group forecasts. The forecast cash generation represents significant assumptions regarding its commercial performance, should the assumptions prove to be significantly incorrect there would be a risk of material adjustment in the financial year following the release of that product.

4 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 Board of directors, 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 considers 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 are shown below.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

4 SEGMENTAL REPORTING (CONTINUED)


Game and merchandise royalties	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Owned IP	24,683	18,628
Third-party IP	9,239	7,350
	_	_
	33,922	25,978

Five customers were responsible for approximately 81% of the Group's revenues (2019: four - 75%).

The Group has one right-of-use asset located overseas with a carrying value of $49,084 (2019: $67,490). All other non-current assets are located in the US.


5 REVENUE
	Year ended 31 December 2020	Year ended 31 December 2019
An analysis of the Group's revenue is as follows:	$'000	$'000

Revenue analysed by class of business
Game and merchandise royalties	33,922	25,978
Development services	2,917	850
Events	809	1,144

	37,648	27,972


Revenue analysed by timing of revenue
Transferred at a point in time	34,731	26,805
Transferred over time	2,917	1,167

	37,648	27,972

For royalties receivable, the Group recognise royalty income in the period in which it is earned.

Management expects that contract liabilities recognised in respect of partially unsatisfied performance obligations for development contracts will be recognised as revenue within 12 months.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


6 EXCEPTIONAL COSTS	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

IPO related costs	467	-


7 OTHER OPERATING INCOME	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Government grant - PPP loan forgiveness (note 21)	162	-


8 EMPLOYEES	Year ended 31 December 2020	Year ended 31 December 2019
An analysis of the Group's staff costs is as follows:	$'000	$'000

Employee benefit expense	3,767	3,033
Equity-settled share-based payments	5,845	9,962

Total employee benefit expense	9,612	12,995

The directors are considered to be the only key management personnel of the group. An analysis of key management personnel remuneration is set out in note 28.


9 OPERATING PROFIT/(LOSS)	Year ended 31 December 2020	Year ended 31 December 2019
The operating profit/(loss) is arrived at after charging/(crediting):	$'000	$'000

Net foreign exchange loss/(gain)	5	(2)
Amortisation of intangible assets	5,321	2,493
Depreciation of property, plant and equipment - owned	38	39
Depreciation of property, plant and equipment - right-of-use assets	201	145
Operating lease rentals - short-term leases	31	46


10 FINANCE COSTS	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Lease finance costs	21	16

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


11 FINANCE INCOME	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Bank interest receivable	57	134


12 INCOME TAX EXPENSE	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000
Current tax:
US tax	3,631	1,400

Deferred tax:
Origination and reversal of timing differences	(879)	482

Total deferred tax	(879)	482

Total income tax expense	2,752	1,882


Factors affecting tax charge for the year The tax assessed on the profit on the ordinary activity for the year differs from the main rate of corporation tax in the US of 21%. The differences are reconciled below:
	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Profit/(loss) before taxation	7,700	(2,623)

Tax at the US corporation tax rate of 21%	1,617	(551)
Adjusted for the effects of:
Expenses not deductible for tax purposes	566	2,181
State income taxes	511	249
Other	58	3

Total income tax expense	2,752	1,882

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


13 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, adjusted for the post year end share split (note 30). Diluted earnings per share is determined by adjusting 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.
	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000
Total comprehensive income attributable to the owners of the company	4,942	(4,525)
Weighted average number of shares	179,602,538	137,878,670

Basic earnings per share ($)	0.028	(0.033)


Total comprehensive income attributable to the owners of the company	4,942	(4,525)
Weighted average number of shares	179,602,538	137,878,670
Dilutive effect of share options	2,739,413	-

Weighted average number of diluted shares	182,341,950	137,878,670

Diluted earnings per share ($)	0.027	(0.033)

Pursuant to IAS 33, 23,942,729 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.

Subsequent to the year end, the Company issued 21,438,985 new shares and 1,511,449 warrants to subscribe for shares which would have a dilutive effect.


14 ADJUSTED EBITDA	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Operating profit/(loss)	7,664	(2,741)
Share-based payment expenses	5,845	9,962
Amortisation of purchased intellectual property	1,222	267
Depreciation of property, plant and equipment	239	184
Exceptional costs - IPO expenses	467	-
Other operating income	(162)	-

Adjusted EBITDA	15,275	7,672

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


15 INTANGIBLE ASSETS	Purchased intellectual property	Software development costs	Total
	$'000	$'000	$'000
Cost:
As at 1 January 2019	-	4,757	4,757
Additions - internally generated	-	5,821	5,821
Additions - separately acquired	5,600	-	5,600

As at 31 December 2019	5,600	10,578	16,178
Additions - internally generated	-	6,549	6,549
Additions - separately acquired	570	-	570

As at 31 December 2020	6,170	17,127	23,297


Amortisation and impairment:
As at 1 January 2019	-	342	342
Amortisation charge for the year	267	2,226	2,493

As at 31 December 2019	267	2,568	2,835
Amortisation charge for the year	819	4,502	5,321

As at 31 December 2020	1,086	7,070	8,156


Carrying amount:
As at 31 December 2020	5,084	10,057	15,141

As at 31 December 2019	5,333	8,010	13,343

Purchased intellectual property relates to the intellectual property rights to the certain games and franchises. The intellectual property is considered to have a useful life of 7 years and is amortised on a straight-line basis over the useful life. The intellectual property is assessed for impairment at least annually, or more frequently if there are indicators of impairment. A formal impairment review is only undertaken if there are indicators of impairment. Any impairment is recognised immediately within the Statement of Comprehensive Income. During 2019, the Group purchased the intellectual property rights to the Hello Neighbor franchise and all associated rights for consideration totalling $5.6m. In the year ended 31 December 2020, the Group purchased the intellectual property rights to two video games for total consideration of $570,000. Amortisation of purchased intellectual property is recognised within general administrative expense in the Statement of Comprehensive Income.

Software development costs relate to costs incurred for the localisation and porting of games, advances paid to external developers under development agreements and the direct payroll and overhead costs of the internal development teams. Amortisation of software development costs commences upon release of the game and is recognised within cost of sales in the Statement of Comprehensive Income. Included within software development costs is $1,723,000 (2019: $468,000) relating to intangible assets under construction for which amortisation has not yet commenced.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


16 PROPERTY, PLANT AND EQUIPMENT	Right-of-use assets (note 22)	Fixtures, fittings and equipment	Total
	$'000	$'000	$'000
Cost:
As at 1 January 2019	231	206	437
Additions	913	9	922

As at 31 December 2019	1,144	215	1,359
Additions	-	24	24

As at 31 December 2020	1,144	239	1,383


Depreciation and impairment:
As at 1 January 2019	125	75	200
Charge for the year	145	39	184

As at 31 December 2019	270	114	384
Charge for the year	201	38	239

As at 31 December 2020	471	152	623


Carrying amount:
As at 31 December 2020	673	87	760

As at 31 December 2019	874	101	975

Depreciation and impairment of property, plant and equipment is recognised within general administrative expenses in the Statement of Comprehensive Income.


17 SUBSIDIARIES The principal subsidiaries of the Company, all of which have been included in the consolidated financial information, are as follows:
Name of subsidiary	Principal activity	Country of incorporation and registered office	Proportion of ownership interest and voting rights held

tinyBuild LLC	Video game development	3831 152nd Place SE, Bothell, WA 98012, USA	100%
tinyBuild BV	Video game development	Wandelpad 30, 1211 GN Gemeente Hilversum, Netherlands	100%
tinyBuild Studios, SIA	Video game development	Lacplesa 52-77, 1011 Riga, Latvia	100%
Pine Events Inc.	Gaming events	1100 Bellevue Way NE, Bellevue, WA 98004, USA	51%
DevGamm LLC	Gaming events	3831 152nd Place SE, Bothell, WA 98012, USA	60%
HakJak Studios LLC	Video game development	1100 Bellevue Way NE, Bellevue, WA 98004, USA	100%
Hologryph LLC	Video game development	127 Bellevue Way SE, Bellevue, WA 98004, USA	100%
Moon Moose LLC	Video game development	127 Bellevue Way SE, Bellevue, WA 98004, USA	80%
Hungry Couch LLC	Video game development	127 Bellevue Way SE, Bellevue, WA 98004, USA	100%

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

17 SUBSIDIARIES (CONTINUED)

No subsidiary undertakings have been excluded from the consolidation. A new subsidiary, tinyBuilding LLC was formed and subsequently dissolved in 2019. During the year, the Company's ownership interest in DevGamm LLC decreased from 70% to 60% (see note 28).

DevGamm LLC contributed $526,000 to the Group's revenue in the year ended 31 December 2020 (2019: $1,132,000). Other than DevGamm LLC's revenue, the revenue, net assets and cash flows of all non-controlling interests are not considered to be material to the group.


18 TRADE AND OTHER RECEIVABLES	As at 31 December 2020	As at 31 December 2019
	$'000	$'000
Non-current assets
Other receivables	16	16

Current assets
Platform receivables	4,431	3,195
Prepaid expenses and other current assets	568	506

	4,999	3,701

Total trade and other receivables	5,015	3,717

All of the platform receivables were non-interest bearing, receivable under normal commercial terms. The Directors consider that the carrying value of trade and other receivables approximates to their fair value. The Group has assessed the credit risk of its financial assets measured at amortised cost and has determined that the loss allowance for expected credit losses of those assets is immaterial to the financial statements.


19 TRADE AND OTHER PAYABLES		As at 31 December 2020		As at 31 December 2019
		$'000		$'000

Trade payables		3,057		2,513
Accrued expenses and other current liabilities	439		3

		3,496		2,516

The Directors consider that the carrying value of trade and other payables approximates to their fair value.


20 CONTRACT LIABILITIES	As at 31 December 2020	As at 31 December 2019
	$'000	$'000

Contract liabilities	2,675	1,225

Contract liabilities are development advances received from distribution partners to aid in the development of video games. In accordance with the Group's revenue recognition accounting policy, the revenue amounting to the transaction price allocated to each distinct performance obligation is deferred and subsequently recognised when those distinct performance obligations are satisfied. Revenue of $1,225,000 was recognised during 2020 in respect of contract liabilities as at 31 December 2019.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


21 BORROWINGS	As at 31 December 2020	As at 31 December 2019
	$'000	$'000

Payroll protection program loan	13	-

On 5 May 2020, the Group received a loan of $174,696 guaranteed by the Small Business Administration under the Payroll Protection Program as part of US government measures in response to the outbreak of COVID-19. The loan accrues interest at 1%. Upon meeting certain criteria of the program, all or part of the loan proceeds may be forgiven. On 17 December 2020, $162,174 of the loan balance was forgiven. The remaining balance of $12,522 was repaid by the Group to the lender in monthly instalments finishing in May 2021.


22 LEASES
The maturity of the gross contractual undiscounted cash flows due on the Group's lease liabilities is set out below based on the period between the reporting date and the contractual maturity date.
	As at 31 December 2020	As at 31 December 2019
	$'000	$'000
Maturity analysis:
Within 1 year	200	198
Between 1 and 5 years	457	652

	657	850
Less unearned interest	(31)	(52)

Lease liability	626	798


Analysed as:
Non-current	442	621
Current	184	177

	626	798

As disclosed in more detail in note 16, the carrying value of right-of-use assets in respect of the above lease liabilities is $673,202 (2019: $874,277).

The Group's lease arrangements are in relation to 3 property leases. The leases have termination dates ranging from 2020 to 2024. The Group terminated one lease early in March 2019 with no penalty and is reasonably certain that it will not activate any early termination clauses in the remaining leases.

The rates of interest implicit in the Group's lease arrangements are not readily determinable and management have determined that the incremental borrowing rate to be applied in calculating the lease liability is 3.0%. The fair value of the Group's lease obligations is approximately equal to their carrying amount.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

22 LEASES (CONTINUED)


	As at 31 December 2020	As at 31 December 2019
Effects of leases on financial performance:	$'000	$'000
Depreciation charge on right-of-use assets included within 'general administrative expenses'	201	145
Interest expense on lease liabilities included within 'finance costs'	21	16
Expense relating to short-term leases included within 'general administrative expenses'	31	11

	253	172


	As at 31 December 2020	As at 31 December 2019
Effects of leases on cash flows:	$'000	$'000

Total cash outflow for leases	(229)	(162)

The Group has one property lease which has a term of 12 months and has elected to treat the lease as a short-term lease in accordance with IFRS 16. The Group is committed to minimum lease payments in respect of this lease as follows:


	As at 31 December 2020	As at 31 December 2019
	$'000	$'000

Short-term lease commitment	27	33


23 FINANCIAL RISK MANAGEMENT

The Group's financial instruments at the reporting dates mainly comprise cash and various items arising directly from its operations, such as trade and other receivables and trade and other payables.

(a) Risk management policies

The Group's Directors are responsible for overviewing capital resources and maintaining efficient capital flow, together with managing the Group's market, liquidity, foreign exchange, interest and credit risk exposures.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


23 FINANCIAL RISK MANAGEMENT (CONTINUED)

(b) Financial assets and liabilities

Financial assets and liabilities analysed by the categories were as follows:


	As at 31 December 2020	As at 31 December 2019
Financial assets at amortised cost:	$'000	$'000

Trade and other receivables	5,015	3,717
Cash and cash equivalents	26,313	17,009

	30,760	20,220


Financial liabilities at amortised cost:
Borrowings	13	-
Trade and other payables	3,496	2,516
Lease liabilities	626	798

	4,135	3,314

The carrying value of all financial instruments is not materially different from their fair value. Cash and cash equivalents attract floating interest rates. Accordingly, their carrying amounts are considered to approximate to fair value.

Credit risk is the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. Maximum credit risk at the reporting dates was as follows:


	As at 31 December 2020	As at 31 December 2019
	$'000	$'000

Current trade and other receivables	4,999	3,701
Non-current trade and other receivables	16	16
Cash and cash equivalents	26,313	17,009

	31,328	20,726

Before accepting a new customer, the Group assesses both the potential customer's credit quality and risk. Customer contracts are drafted to reduce any potential credit risk to the Group. Where appropriate the customer's recent financial statements are reviewed. The Group advances royalties to developers, giving rise to an asset. The Group is generally shielded from credit risk because it deducts repayments of those advances from the income received from the distributors, therefore any liquidity or other constraint the developer faces does not impact the recoverability of the developer advance.

The Group has assessed the credit risk of its financial assets measured at amortised cost and has determined that the loss allowance for expected credit losses of those assets is immaterial to the financial statements.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


23 FINANCIAL RISK MANAGEMENT (CONTINUED)

The Group's exposure to credit losses has historically been very low given the blue chip nature of the customers and there being no historical write offs.

Accounts receivable from the Group's four largest customers at 31 December 2020 totalled approximately $3.5m (2019: $2.4m).

(d) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Management monitors the level of cash and cash equivalents on a continuous basis to ensure sufficient liquidity to be able to meet the Group's obligations as they fall due.

Contractual cash flows relating to the Group's financial liabilities are as follows:


	As at 31 December 2020	As at 31 December 2019
	$'000	$'000
Within 1 year:
Borrowings	13	-
Trade payables	3,057	2,513
Accruals and other payables	439	3
Lease liabilities	184	177

	3,693	2,693

Between 1-2 years: Lease liabilities	189	182
Between 2-3 years: Lease liabilities	188	188
Between 3-4 years: Lease liabilities	65	187
Between 4-5 years: Lease liabilities	-	64

Total	4,135	3,314

(e) Interest rate risk

Interest rate risk is the risk that the future cash flows associated with a financial instrument will fluctuate because of changes in market interest rates. Interest on the Group's borrowings is fixed at 1% and interest rates on cash and cash equivalents are low, such that interest rate risk is minimal.

(f) Capital management

The Group's main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade for the foreseeable future. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

The Group considers its capital to include cash, share capital and retained earnings.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


23 FINANCIAL RISK MANAGEMENT (CONTINUED)


	As at 31 December 2020	As at 31 December 2019
	$'000	$'000

Net cash	26,313	17,009
Total equity	38,756	27,963

	65,069	44,972


24 DEFERRED TAX
The deferred tax balances recognised in the consolidated statement of financial position are as follows:
	As at 31 December 2020	As at 31 December 2019
	$'000	$'000
Deferred tax liability:
Short term timing differences	1,663	2,542

Net deferred tax liability	1,663	2,542


The net movement is explained as follows:	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Opening deferred tax liability	2,542	2,060
Charge to profit or loss	(879)	482

Closing deferred tax liability	1,663	2,542


25 SHARE-BASED PAYMENTS

The Group operates two share-based 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. 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 2017 grant is $8.98 per share and the 2019 grant is $40.21 per share. The RSAs vest in instalments every three months over the service period. 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:

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


25 SHARE-BASED PAYMENTS (CONTINUED)
	Year ended 31 December 2020	Year ended 31 December 2019

Opening RSA outstanding	367,730	206,316
RSA granted	-	529,531
RSA vested	(176,510)	(368,117)

Closing RSA outstanding	191,220	367,730


Weighted average remaining contractual life in years	1.08	2.08

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 31 December 2019	14,462	19.16	7,310	8.98	8.43
Granted during the period	6,638	93.07

At 31 December 2020	21,100	42.41	11,815	13.33	8.08

During the period covered by the financial statements, no options were exercised, expired or forfeited. Options granted during the year were valued using the Black-Scholes option-pricing model. The fair value per option granted during the period covered by the financial statements and the assumptions used in the calculation are as follows:


	Grant date
	25 November 2020	15 October 2020	17 April 2020	1 May 2019
Share price at grant date	$101.37	$101.37	$70.13	$34.46
Exercise price	$206.03	$137.35	$42.43	$42.43
Option life	6.25	6.25	6.25	6.25
Expected volatility	60.00%	60.00%	60.00%	52.98%
Expected dividends	0.00%	0.00%	0.00%	0.00%
Discount rate	0.25%	0.25%	0.25%	2.51%
Weighted average fair value per option	$39.30	$48.73	$46.22	$16.51

Expected volatility is estimated based on the closest Treasury rate to the expected term and the historical volatility of comparable public peers over the same period.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


26 SHARE CAPITAL	As at 31 December 2020	As at 31 December 2019
	No.	No.
Class of share
Ordinary shares of $0.001 each	1,059,052	1,059,052
Series Seed preferred shares of $0.001 each	125,755	125,755
Series A preferred shares of $0.001 each	198,560	198,560


	As at 31 December 2020	As at 31 December 2019
	$	$
Class of share
Ordinary shares of $0.001 each	1,059	1,059
Series Seed preferred shares of $0.001 each	126	126
Series A preferred shares of $0.001 each	199	199

	1,384	1,384

During the year ended 31 December 2019, the Group repurchased 41,300 ordinary shares for $2,000,000.

During the year ended 31 December 2019, the Group issued 198,560 Series A preferred shares for fully paid consideration totalling $15,000,000, net of direct issue costs of $75,831. Share premium of $14,923,970 has been recognised in respect of this share issue.

Ordinary shares

Each ordinary share entitles the holder to one vote at general meetings of the company, to participate in dividends and to share in the proceeds of winding up the company. As disclosed in note 25, a number of ordinary shares are subject to a restriction agreement.

Preferred shares

Each preferred share is convertible at any time at the option of the holder into one ordinary share. Each preferred share entitles the holder to one vote at general meetings of the company, to participate in dividends and to share in the proceeds of winding up the company in preference to any declaration or payment to holders of ordinary shares.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


27 CASH GENERATED FROM OPERATIONS	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

(Loss)/profit for the year	4,948	(4,505)
Adjustments for:
Share-based payments	5,845	9,962
Amortisation of intangible assets	5,321	2,493
Depreciation of tangible fixed assets	239	184
Foreign exchange (gains)/losses	5	(2)
Finance costs	21	16

Movements in working capital:
(Increase)/decrease in receivables	(1,299)	2,425
Increase/(decrease) in payables	511	1,641
Increase/(decrease) in deferred tax liability	879	(482)

Cash generated from operations	16,470	11,732

Changes in liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated cash flow statement as cash flows from financing activities.


	As at 1 January 2019	Cash flows	Non-cash movements	As at 31 December 2019
	$'000	$'000	$'000	$'000

Cash and cash equivalents	3,933	13,076	-	17,009
Lease liabilities	(102)	150	(846)	(798)

Net debt	3,831	13,226	(846)	16,211


	As at 1 January 2020	Cash flows	Non-cash movements	As at 31 December 2020
	$'000	$'000	$'000	$'000

Cash and cash equivalents	17,009	9,304	-	26,313
Borrowings	-	(175)	162	(13)
Lease liabilities	(798)	198	(26)	(626)

Net debt	16,211	9,327	136	25,674

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020


28 RELATED PARTY TRANSACTIONS

Interests in subsidiaries are set out in note 17.

The directors are considered to be the only key management personnel of the group. An analysis of key management personnel remuneration is set out below:


Key management personnel remuneration	Year ended 31 December 2020	Year ended 31 December 2019
	$'000	$'000

Aggregate emoluments	1,552	1,635
Equity-settled share-based payments	5,801	9,938

	7,353	11,573

Transactions with other related parties

The wife of the Company's CEO is a member and manager of DevGAMM LLC and pursuant to an agreement tied to her continued service to DevGAMM LLC, her membership interest in the company increased from 30% to 40% during the year ended 31 December 2020.

There were no other related party transactions during the period which require disclosure.


29 ULTIMATE CONTROLLING PARTY

The Company's ultimate controlling party is Alex Nichiporchik.


30 POST BALANCE SHEET EVENTS

On January 11, 2021, the membership interest in DevGAMM LLC of the wife of the Company's CEO increased by an additional 11% to 51% pursuant to an agreement tied to her continued service to DevGAMM LLC. From 11 January 2021, tinyBuild Inc. owned 49% of the share capital of DevGAMM LLC.

On January 31, 2021 (as amended on February 19, 2021), the Company entered into asset purchase agreement ("We're Five APA") with the We're Five Games LLC, as sellers pursuant to which the Company purchased from We're Five all right, title and interest in the Totally Reliable Delivery Service game, the Totally Reliable Delivery Service and We're Five Games trademarks, domain names, and certain related technology software (including all source code).The consideration payable under the transaction is made up of: (i) a total of $300,000 to be paid in non-equal amounts to each of We're Five Studio Team, (ii) $238,500 to be paid to We're Five Games LLC, of which $113,536 is a recoupable advance on any revenue share payments that may be due from the Company to any of the We're Five Studio Team and the remaining amount represents the amount that the parties have estimated to be payable to the We're Five Studio Team under their respective independent contractor agreements with tinyBuild LLC as described further below. In addition, the Company agreed to fund We're Five Games LLC up to a maximum of $837,784 USD to cover agreed monthly studio costs for the period April 2021 through March 2022 (payable monthly). Each of the We're Five Studio Team and certain key personnel entered into independent contractor agreements with the Company. Under the independent contractor agreement, tinyBuild would compensate the We're Five Studio Team for as long as they continue to be engaged by tinyBuild in the following amounts: (i) $500,000 in Options awarded to the We're Five Studio Team subject to vesting provisions, (ii) royalty payments of up to 20 per cent. of net revenues, and (iii) earnout payments in the form of additional Options up to a maximum of $2,184,000 if certain revenue targets are met in 2021, 2022, and 2023.

TINYBUILD INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2020

On February 2, 2021 (as amended on 18 February 2021) the Company entered into asset purchase agreement ("Hungry Couch APA") with the third party ("Seller") pursuant to which the Company purchased from the Seller certain intellectual property and other assets in connection with the Black Skylands game, the Black Skylands and Hungry Couch trademarks, the blackskylands.com and hungrycouch.com domain names, and certain related technology software (including all source code), in consideration of $550,000 USD, consisting of (i) 4 payments of $50,000 every six months over two years, not to exceed $200,000 and (ii) $350,000, being an amount previously paid by the Company to the Seller as an advance for the development work performed by the Seller developing the game, being waived and released by the Company. As a completion deliverable, the Seller entered into an independent contractor agreement with the Company pursuant to which the Seller will receive up to $200,000 Options, subject to the vesting provisions, and procured that certain key personnel of the Seller enter into independent contractor agreements with the Company. As part of the asset purchase agreement, the Seller will also be entitled to earnout payments in the form of product royalty payments and options based on meeting certain revenue targets in 2021, 2022, 2023, 2024 and beyond.

In February 2021, a share capital reorganisation commenced, to take effect immediately prior to admission as part of a recapitalisation agreement. Every one of series seed preferred shares and series A preferred shares was converted into one ordinary share. Immediately following such conversion all outstanding ordinary shares were converted into 129.83 shares of common shares. The number of existing common shares in issue immediately prior to admission became 180,087,475.

On 3 March 2021, the Company granted Zeus Capital a right to subscribe in cash for 1,511,449 Shares at the placing price of £1.69 per share during the period commencing on the 18 month anniversary of the date of Admission and expiring on the date which is the 10th anniversary of Admission. Such rights are capable of being exercised in whole or in part and will only be capable of exercise if the price of a common share exceeds an amount equal to 150% of the placing price.

On 9 March 2021, the Company listed on the London AIM, issuing 21,438,985 new shares and raising £36.2m ($50m) of gross proceeds.

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tinyBuild, Inc. — Regulatory Filings 2021

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tinyBuild, Inc. Regulatory Filings 2021