TIDMZATT
RNS Number : 4085G
Zattikka PLC
06 June 2013
For immediate release 6 June 2013
ZATTIKKA PLC
('Zattikka' or the 'Group')
Announces preliminary results for the year ended 31 December
2012
A tough year of integration, now behind us
Zattikka, the online games entertainment group, today publishes
its preliminary results for the year ended 31 December 2012, in
line with revised expectations in November 2012. The Group is
focused on developing and publishing games entertainment products
for mobile and tablet devices, PC/Macs across open browsers and
other internet connected devices, and providing art and design
services for third party game developers.
The Group's parent company, Zattikka plc, was incorporated on 16
November 2011 and its shares were admitted to trading on AIM on 16
April 2012 ("Admission"). The majority of the net proceeds received
from Admission were used to complete the acquisition of four
companies - Hattrick Holdings Limited ("Hattrick"), Concept Art
House Inc. ("Concept"), Sneaky Games Inc. ("Sneaky") and Expedite 5
Inc. ("E5"). The Group previously had no trading activities and
therefore these acquisitions marked its effective operational
debut. The Board recognises that during this initial period
Zattikka has performed below expectations; however, the Group
remains committed to working even harder to achieve its
objectives.
Financial Highlights
Pro-forma financials (non-IFRS) for the twelve months ended 31
December 2012*
-- Revenue bookings $10,200,000 (prior year n/a)
-- EBITDA (adjusted)** loss $2,200,000 (prior year n/a)
Consolidated Financials for the twelve months ended 31 December
2012 including the acquisitions from 16 April 2012
-- Revenue bookings $6,927,000 (prior year n/a)
-- EBITDA (adjusted)** loss $2,471,000 (prior year n/a)
-- IFRS loss for the period (after exceptional items and
acquisition costs of $9,059,000)*** $14,482,000 (prior year
n/a)
-- Cash and cash equivalents $1,796,000 (prior year n/a)
* Pro-forma is on the basis that the acquisitions took place on
1(st) January 2012.
** Adjusted EBITDA is not defined by IFRS and is defined as
earnings excluding interest, tax, depreciation, amortisation,
changes in deferred revenue, share-based payments charges,
exceptional and acquisition costs as set out in note 2 to the
following summary financial statements.
*** Loss for the period is also after share-based payments
charges $968,000, Depreciation & Amortization $3,133,000,
Finance costs $411,000 and a Tax credit $1,548,000.
Operating Highlights
-- Successful listing on AIM on 16 April 2012 simultaneously
with the four complementary acquisitions of Hattrick, Concept,
Sneaky and E5.
-- Improving momentum at Hattrick with H2 2012 revenue bookings
more than 20 per cent. higher than in H1 2012.
-- Investment in new product development through H2 2012 for key
games launches in 2013 including Legacy of a Thousand Suns and
Arena of Heroes.
-- Strengthened management team at Concept Art House with key
talent supporting North American and Chinese operations.
-- Implementation of disciplined cost controls, governance and project management systems.
-- Reduction of headcount and costs in shared functions in London.
-- New working capital facility with Barclays Bank plc for up to
GBP1m to be put in place following restructuring of unsecured loan
notes issued by Zattikka in connection with the acquisitions (as
announced separately this morning).
Board changes
We would like to thank Tim Chaney, who is stepping down from the
board, effective today, to pursue other business opportunities and
children's digital safety advisory work. Tim, who had a 12 month
notice period, is working a 3 month transition period on various
commercial arrangements. He has opted to receive further
compensation in cash, the majority of which he will use to invest
in stock in the future, following his resignation from the board,
as well as to acquire from the Group certain redundant
pre-acquisition "Gimme5Games" related flash games assets. The Group
will retain a two year revenue share in these assets. Tim, as
co-founder, played a pivotal part in the Group's formation and we
wish him success in his new venture.
Outlook
The Board is pleased with the encouraging start to 2013 and
believes many of the challenges, particularly around integration,
that were experienced post the Group's admission to AIM are under
control. The Group continues to make good strategic progress across
all of its business divisions as it seeks to execute its long-term
growth strategy. While the Group's trading performance is expected
to be weighted to the second half of 2013, reflecting the growth
nature of the Group's assets, at the current time, the board
anticipates that results for the full year will be broadly in line
with market expectations.
As stated in its Admission Document, the Group is committed to
pursuing an active acquisition policy and, since admission to AIM,
the Group has seen a number of potential targets and continues to
evaluate such opportunities. We look forward to updating the market
on our progress in due course.
Mark Opzoomer, Group Chief Executive, commented:
"While I am pleased to announce our maiden preliminary results
following the Company's admission to trading on AIM in April 2012,
I am disappointed they are not as strong as we hoped. This has not
deterred us from our purpose and we will, together, strive even
harder for better performances. The challenges we faced at the
Company's inception are now in the past.
We have accomplished much in a very short time resulting in a
fully integrated asset base now focused on driving organic revenue
generating opportunities. We have made a promising start to 2013,
particularly within our Hattrick franchise where after much
research and testing we have implemented a new tiered pricing
structure, while Concept Art House enjoyed its best quarter since
its acquisition in Q1 2012.
The Group team is fully energised and focused on taking the
business forward and we remain committed to our objectives over the
coming years."
For further information, please contact:
Zattikka
Mark Opzoomer, Chief Executive Officer +44 (0) 20 7491 6410
Rob Gorle, Chief Financial Officer
Canaccord Genuity Limited
Nominated Adviser and Broker
Simon Bridges
Peter Stewart +44 (0) 20 7523 8000
Buchanan
Jeremy Garcia
Clare Akhurst
www.buchanan.uk.com +44 (0) 20 7466 5000
About Zattikka:
Zattikka plc is a digital games entertainment group, developing
games and providing publishing services in this sector of the
rapidly evolving multi-billion dollar global digital entertainment
market. Zattikka is executing a clear vision to become a large
scale, diverse games publisher through strategic acquisitions and
by accelerating organic growth. Headquartered in the United Kingdom
with shares listed on London's AIM (ZATT), Zattikka games studios
include Sneaky Games (USA), Spellgun (USA and China) and Hattrick
(Europe). Business to business services include high quality game
art and design services provided by Concept Art House (USA and
China) and in-game analytics insights through its bespoke SNAP
technology platform developed in London.
For more information visit www.zattikka.com
Operating and Financial Review
Introduction
We are pleased to report our maiden preliminary results for the
year ended 31 December 2012. It has been a period of tremendous
change since the Group listed on AIM on 16 April 2012 and our team
has achieved much during that time. Our AIM flotation was clearly a
pivotal point in Zattikka's history and we were pleased to attract
support from a number of blue chip institutional shareholders.
Despite this progress the Group recognises that it has not yet
reached the expected stage of development, but remains confident it
has the strategy and team to deliver fully its vision.
The principal activities of the Group are developing and
publishing games entertainment products for mobile and tablet
devices, PC/Macs across open browsers and other internet connected
devices, and providing art and design services for third party game
developers. On our admission to AIM, the Company raised $20million
(before costs) in a placing of new shares, and acquired four
distinct and complementary businesses - Hattrick Holdings Limited
('Hattrick'), Concept Art House Inc ('CAH'), Sneaky Games Inc
('Sneaky'), and Expedite 5 Inc ('E5'). These transactions have
provided the Group with products that can then be sold to
end-customers in key European and US markets, either directly
through its own websites, or through third-party digital
distribution channels or other new digital platforms, and a work
for hire consultancy business providing art and design services
primarily to other digital games companies.
In this first period we consolidated a strong framework of
governance and internal controls to provide visibility across each
operating unit and the Group as a whole, and to facilitate
effective decision making. As part of this, we implemented new
group reporting and approval processes, and the first stages of a
new simplified legal entity and tax structure. NetSuite, a
cloud-based group accounting system is currently being rolled-out
across all regions to allow scale and reduce costs in this area. We
believe the steps taken during 2012 will allow us to continue the
tight management of the Group as it grows.
The broader games market continues to evolve creating new
opportunities for our brands to exploit. The evolution of the
mobile space through smart phones and tablet devices, and the
expansion of other gaming enabled devices, continues to expand the
active gaming community worldwide. We believe our portfolio of
businesses provides a good base from which we can address this
exciting market opportunity.
Consolidation Basis and Key Financial Metrics
This full year report is prepared on a consolidated basis and
includes the results of Zattikka plc from 1 January 2012 to 31
December 2012, plus the results of the businesses acquired from 16
April 2012 to 31 December 2012. Comparative figures are for the
period 16 November 2011 to 31 December 2011.
We include Revenue Bookings (or "Bookings") and Adjusted EBITDA
which we use to evaluate our business and measure our performance.
We believe they are better indicators of activity in a given period
but should be considered along with the IFRS measures presented in
this report.
Bookings are a non-IFRS financial measure that is equal to
revenue recognised during the period plus change in deferred
revenue during the period. Bookings, as opposed to revenue, are the
fundamental top-line metric we use to manage our business, as we
believe it is a better indicator of the sales activity in a given
period.
Operating and Financial Review (continued)
We believe that Adjusted EBITDA provides useful information to
investors and others in understanding and evaluating our operating
results in the same manner as our management and Board of
Directors. Adjusted EBITDA is defined as: Earnings before interest,
tax, depreciation, amortisation, changes in deferred revenue,
share-based payments charge, exceptional items and acquisition
costs.
Revenue Bookings
In this first period as a combined group we generated revenue
bookings of $6.9million (IFRS Revenue: $6.9million), of which 63%
was attributed to our Online Games group, and the remaining 37% to
Publishing Services. These revenues are diversified across
different revenue types, games platforms and geographic regions. We
operate across the main gaming regions with the majority of
Hattrick revenues being generated in Europe, and the majority of
work for hire in US and Asia. Had the Group been in place for the
full calendar year, the unaudited pro-forma revenue bookings would
have been $10.2million. All figures below relate to the post
acquisition period as reported in these financial statements.
We review our business within two operating segments:
Online Games
Our Online Games group, responsible for developing and
publishing intellectual property ("IP") owned by the Group,
generated revenue bookings of $4.3million (63% of group total),
including subscription revenues on the Hattrick football manager
game, typically paid annually in advance and advertising and
virtual goods revenues within our published games. The operating
divisions and products within Online Games are detailed below.
-- Hattrick. During 2012 we focused on marketing campaigns and
product improvements to increase the engagement and monetisation of
the existing Hattrick user base which resulted in a stabilisation
of the user base. Over a pro forma 12 month period, after a
disappointing first half, post-acquisition second half revenue
bookings were more than 20% higher than in H1. Hattrick currently
operates in the open web browser and is therefore free from
platform revenue share costs.
Based on research carried out during 2012, the Hattrick team
introduced a significant new tiered pricing tariff in March 2013.
The research indicates that the new tiered 'Silver', 'Gold' and
'Platinum' packages should encourage existing users to upgrade to
higher priced subscriptions, and that new functionality to offer
different packages and prices in different regions should allow
more competitive pricing to encourage new users to start
subscribing. The two focus areas for Hattrick during 2013 remain
product innovation, including changes to the front end of the game
to engage players earlier and improve player retention, and
geographic expansion which has already been evidenced in the first
quarter of 2013 with new distribution agreements in Russia and
Eastern Europe.
-- Popmundo. The Popmundo music role-playing game was split out
from Hattrick during the year and has now been fully transitioned
to a new version 2.0 which includes SNAP Analytics. Implementation
of key lessons from other products are in progress, including
regional pricing and expanding the paid subscription options.
Operating and Financial Review (continued)
-- Sneaky Games. During 2012, Sneaky continued to operate two
mid-core fantasy role playing games, Fantasy Kingdoms (launched in
2010) and Syfy Monster Island (launched in 2011). Fantasy Kingdoms
Creator, an extension of the basic product, was launched in Germany
in late 2012 to test new markets, and since year end Monster Island
has been licensed for a Russian language version later in 2013. At
the end of the year, these products still attracted over 400,000
monthly active users on Facebook, however due to inadequate
monetisation the Group has provided for impairment of these assets
and is not planning to develop them further.
In the second half of 2012, Sneaky Games development has been
focused on 'Arena of Heroes' ("Arena"), a new game which leverages
the Group's analytics, art and game design capabilities, and is due
for full release in Q2 2013. Distinguishing features of Arena are
its ability to play both asynchronously, and seamlessly across
tablets, mobile, PC and Mac. The website is now live
www.arenaofheroes.com, founders' pack sales have begun and an
encouraging PC/Mac open beta weekend was held at the end of Q1
2013.The Group signed a new licence agreement with Games Workshop
for to develop a game based on the Titans characters from their
world renowned 'Warhammer 40,000' universe which is intended to
leverage the Arena platform.
-- Spellgun. Spellgun Studios was announced in November 2012,
formed by a team separated out of CAH to provide greater identity
and focus. Spellgun is a mobile-oriented game studio focusing on
titles for both iOS and Android platforms and leveraging CAH's high
calibre art resources, Zattikka's core analytics engine, and a
unique geographic position to build games for an ever-increasing
mobile game player base. Spellgun released its first product, the
mobile and tablet versions of Legacy of a Thousand Suns in April
2013.
Publishing Services
The Publishing Services group generated revenues of $2.6million
(37% of total) through work for hire art and design consultancy
services for third party game developers. As a result of the
strengthened team structure put in place during 2012, we
successfully increased the average contract size for the fourth
year in a row. CAH revenues in the fourth quarter of 2012 returned
to growth, stimulated by the strengthened management and an
increased penetration into selected international markets,
especially Japan. Management also plans to extend the existing art
and game design services to include in-game analytics, via the
Group's SNAP technology and cross promotional services via the
newly created Zattikka Games Network ("ZGN") at some point in the
future. The different services are:
CAH produces 2D, 3D, vector art and design for leading games
developers from its sales office in San Francisco and art
development studio in Shanghai. CAH has produced art and design for
successful Facebook games, such as Nightclub City and Kingdoms of
Camelot, and provides the Group with access to both Western and
Eastern markets with a foothold in the Asian social and mobile
gaming market. During the year, new contracts were signed with
NgMoco for Transformers Legends and Hellfire and contract
extensions were agreed with DeNa for its game Ninja Royale. CAH
showcased a new sales programme at Game Developers Conference in
San Francisco at the end of March.
Operating and Financial Review (continued)
-- SNAP Analytics. The Group has developed its own cloud based
analytics and metrics platform, called "SNAP", capable of reporting
on any game, regardless of the platform. During 2012 SNAP was
successfully implemented into each game in the Group's product
portfolio. This platform allows the product development team to
analyse the success of each individual feature in the game after it
has gone live, and to determine from the user behaviour, which
areas of the game need to be improved to enhance user engagement,
retention, virality and monetisation. This service may be suitable
to be extended to other game developers or publishers at some point
in the future.
-- ZGN is a new marketing focused initiative that will leverage
our traffic and audience for new games, improving marketing
efficiency, lowering cost per acquisition and improving ROI.
Initially intended just for Group products, this has the potential
to be opened up to third party products at some point in the
future.
Cost management
We manage our operating expenses tightly and as a result
quarterly administrative costs excluding staff costs increased by
only 11% between Q2 and Q4 despite the increased level of activity
during the year. We continue to review the cost base acquired in
the Group and have already made reductions in a number of areas for
2013.
Costs of sales of $1.6million included $0.9million of staff
costs relating to delivery of work for hire projects in Shanghai,
server and hosting costs of $0.3million and payment processing and
other outsourced charges of $0.3million. This resulted in a gross
profit margin of 77% for the Group.
All other operating expenses of $7.8million were included within
Administrative expenses. Staff related costs of $5.2million were
the largest operating cost area for the Group, and have been
subject to strict control since acquisition with focused investment
in critical development areas. Overall our headcount remained
broadly stable over the period from April 2012 ending the year at
160 compared to the peak of 183. We have invested in Hattrick with
additional heads in the product development team for the core
Hattrick product, and added a marketing director to lead the new
marketing initiatives. At CAH, we have reallocated resources to
create three key new critical roles to scale and manage the
business: a general manager in CAH China to provide local
governance and operational management to the China art development
team and build local sales pipeline, and in the USA a sales
director to scale the sales operation, and a creative director to
drive up quality and innovation.
In addition we have maintained the Sneaky Games development
team, reallocating some resources to the new ZGN function to
provide market support for new launches across the Group. The
smaller Spellgun studio was established in San Francisco during the
year as a split out of existing development skills at CAH. We
continue to review headcount costs across the Group to identify
opportunities to reallocate resources to more profitable
businesses. Including the Shanghai work for hire staff included
within cost of sales, staff costs represented 66% of total
expenses.
Operating and Financial Review (continued)
During 2012, we held our external marketing spend low at
$0.4million while we prepared for launches of new products and
features during 2013. The ZGN group in Austin was established to
lead the marketing for the US social mobile and tablet game
launches, and we have separate marketing resources in Europe to
focus on Hattrick. In this initial period of group implementation,
we incurred $0.9million of professional expenses which included
expenses relating to the public listing status and resulting
governance including stock exchange fees, Nomad, audit, PR and IR.
Facilities and all other costs were $1.3million covering the six
locations occupied by the Group in the US, Europe and China.
The Group continues to manage all costs tightly whilst
continuing to invest where we see particularly strong
opportunities. The central shared functions, including Engineering,
Product and Finance, have been reduced by almost 40% to seven core
roles.
EBITDA and loss for the period
The Group recorded an EBITDA loss before exceptional items,
acquisition costs and share-based payments charge, of $2.5million,
reflecting the initial period of integration and restructuring
combined with the pre-launch investment in the Spellgun and Sneaky
studios. Being the first year of the new Group these results
include some parent company shared function costs in the period to
16 April prior to completion of the acquisitions. Adjusting for the
movement in deferred revenue, the adjusted EBITDA loss was
$2.5million.
The Group recognised a share-based payments charge of
$1.0million arising from the Long Term Incentive Plan for
management and staff which was implemented at the same time as the
acquisitions. The Group had amortisation of $3.0million relating to
the intangible assets acquired with the acquisitions.
Operating loss includes exceptional items and therefore we do
not believe this is representative of the underlying business.
During the year the Group recorded exceptional items and
acquisition costs of $9.1million including $7.0million of
impairment on the Sneaky Studio acquisition due to lower than
expected performance of some of the pre-acquisition titles,
$0.2million of reorganisation and integration costs, and
$1.8million of acquisition transaction and IPO costs.
Finance costs of $0.4million arose due to accrued interest on
the vendor loans arising on three of the acquisitions. The Group
recognised a tax credit of $1.5million relating to current year
losses, and the release of a deferred tax liability upon the
transfer of the business and assets of Hattrick Holdings Limited to
the UK.
Balance sheet and cash flow
On 16 April 2012 the Group raised $20.0million (before costs)
and simultaneously completed the acquisition of four companies for
aggregate consideration of $43.5million, including cash of
$14.8million, loan notes of $12.0million, shares in Zattikka plc of
$15.1million and contingent consideration of $1.6million. As
required by IFRS3 we carried out a fair value exercise to allocate
the purchase price of the acquisitions, which resulted in an
allocation of $13.8million to specific intangible assets, net of
current year amortisation, and goodwill at year end of
$24.7million. During finalisation of the purchase price allocation
management reassessed contingent consideration payable in respect
of the Hattrick acquisition, based on information available, but
outstanding, at the acquisition date. As a result, goodwill and
contingent consideration payable were reduced by $8.3million from
that reflected in the 30 June 2012 financial statements.
Operating and Financial Review (continued)
Trade receivables amounted to $0.8million, and other receivables
$0.5million including prepayments and accrued income. We have a
good record of collection on trade receivables, with average debtor
days of 39 days.
We ended the year with a cash balance of $1.8million. During the
period the Group used $2.4million of net cash in operations, and
incurred $0.3million to fund internally generated intangible and
tangible assets. $14.8million was used to acquire businesses, and
$1.3million of net cash was acquired on acquisition. The net
proceeds from the issue of ordinary share capital were $18.4
million after deduction of costs of $1.6million. Post year-end we
have successfully arranged a $1.6million (GBP1million) working
capital finance facility with Barclays Bank which we intend to use
while the Group launches a number of products during 2013.
Trade and other payables of $5.7million included contingent
consideration on the Hattrick acquisition of $1.6million, and
advisor payments relating to the acquisitions and listing
transaction of $1.8million on much of which we have agreed extended
payment terms. Deferred revenue of $2.4million relates to Hattrick
subscriptions and durable virtual goods.
At 31 December we had $11.9million of loan notes outstanding
arising from the acquisitions in April 2012.
Liquidity
As set out in our subsequent events note, the Group has reached
agreement with the unsecured vendor loan note holders to
restructure the existing loan notes which had certain consent
rights. The original notes were due 16 April 2013 with a one year
extension at the option of the Group, which has been exercised. The
loan note holders have agreed to extend the notes to 16 October
2014, permit the establishment of a secured working capital
facility and consent to the completion of further acquisitions and
placings. In addition the note holders have agreed, in return for
repayment of 50% (Sneaky: 20%) of the current notes, to convert 25%
(Sneaky: 80%) of the notes to equity and convert 25% (Sneaky: nil%)
to a new three year convertible consent-free note with a 10% annual
interest rate (which the Group would intend to refinance over the
three year period on a less dilutive basis).
The Group had cash and cash equivalents at 31 March 2013 in
excess of $1.0million. Consistent with the above the Group has
entered into a new secured working capital facility with Barclays
Bank plc in the amount of GBP1million ($1.6million) to provide
additional liquidity.
The consolidated financial statements have been prepared on the
assumption that we will continue as a going concern and the audit
opinion relating to the financials has been issued in an unmodified
form. The ability of the Company to continue as a going concern is
dependent on further implementing its business plans, continuing
access to its on-demand working capital loan facility, raising
capital against planned further acquisitions, and the continuing
support of its creditors. The Board intends to raise additional
working capital at the same time as a next acquisition in order to
remove the reliance on the working capital facility, and provide
additional headroom in the forecast in the event that any of our
products do not perform as expected.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2012
Note Year ended Period ended
31 December 31 December
2012 2011
$'000 $'000
Revenue 2 6,927 -
Cost of sales (1,604) -
------------ -------------
Gross profit 5,323 -
Administrative expenses (7,782) -
------------ -------------
EBITDA before exceptional items, acquisition (2,459) -
costs and share-based payments charge
Exceptional items and acquisition (9,059) -
costs
Amortisation and depreciation (3,133) -
Share-based payments charge (968) -
------------ -------------
Operating loss (15,619) -
Finance costs (411) -
------------ -------------
Loss before tax (16,030) -
Tax credit 5 1,548 -
------------ -------------
Loss for the year/period (14,482) -
Other comprehensive income,
net of tax
Exchange translation differences on 445 -
foreign operations
------------ -------------
Total comprehensive loss for the year/period (14,037) -
------------ -------------
Basic and diluted loss per share ($) (0.92) -
10
------------ -------------
Consolidated Statement of Financial Position
as at 31 December 2012
31 December 31 December
2012 2011
$'000 $'000
Assets Note
Non-current assets
Goodwill 6 24,736 -
Other intangible
assets 7 13,846 -
Property, plant and equipment 271 -
38,853 -
Current assets
Inventory 3 -
Trade and other 1,316 -
receivables
Cash and cash equivalents 1,796 -
------------ ------------
3,115 -
Total assets 41,968 -
Liabilities
Current liabilities
Taxation (119) -
Trade and other (4,445) -
payables
Deferred revenue (2,337) -
(8,065) -
(6,901) -
Net current liabilities (3,786) -
Total assets less current 35,067 -
liabilities
Non-current liabilities
Loan notes 8 (11,860) -
Trade and other (1,272) -
payables
Deferred revenue (43) -
Deferred taxation (1,310) -
------------ ------------
(14,485) -
Total liabilities (21,386) -
------------ ------------
Net assets 20,582 -
Shareholders' equity
Called up share
capital 9 3,520 -
Share premium account 30,131 -
Share-based payments 968 -
reserve
Translation reserve 445 -
Retained deficit (14,482) -
------------ ------------
Equity attributable to the owners 20,582 -
of the parent company
------------ ------------
Consolidated Statement of Changes in Equity
Share Share Share-based Translation Retained Total
capital premium payments reserve deficit
account reserve
$'000 $'000 $'000 $'000 $'000 $'000
Balance at 16 November - - - - - -
2011
Profit for the period - - - - - -
------- --------- ------------ ------------ --------- ---------
Total comprehensive - - - - - -
income for the period
Shares issued - - - - - -
------- --------- ------------ ------------ --------- ---------
Balance at 31 December - - - - - -
2011
------- --------- ------------ ------------ --------- ---------
Loss for the year - - - - (14,482) (14,482)
Other comprehensive
income for the year - - - 445 - 445
------- --------- ------------ ------------ --------- ---------
Total comprehensive
income/(loss) for
the year - - - 445 (14,482) (14,037)
------- --------- ------------ ------------ --------- ---------
Warrants issued - 197 - - - 197
Fair value adjustments
loan notes - 51 - - - 51
Share-based payments
charge - - 968 - - 968
Shares issued 3,520 29,883 - - - 33,403
------- --------- ------------ ------------ --------- ---------
Balance at 31 December
2012 3,520 30,131 968 445 (14,482) 20,582
------- --------- ------------ ------------ --------- ---------
Consolidated cash flow statement
For the year ended 31 December 2012
Note Year ended Period ended
31 December 31 December
2011
2012 2011
$'000 $'000
Cash flows from operating activities
Cash flows from operations (2,339) -
Tax paid (96) -
------------- -------------
Net cash used in operating activities (2,435) -
------------- -------------
Cash flows from investing activities
Purchase of intangible assets (154) -
Purchase of property, plant (164) -
and equipment
Acquisition of subsidiaries 3 (14,825) -
Net cash acquired on acquisition
of subsidiaries 3 1,318 -
------------- -------------
Net cash used in investing activities (13,825) -
------------- -------------
Cash flows from financing activities
Net proceeds from issue of ordinary
share capital 9 18,390 -
Finance costs (411) -
------------- -------------
Net cash generated from financing 17,979 -
activities
------------- -------------
Net increase in cash and cash 1,719 -
equivalents
Cash and cash equivalents at the beginning - -
of year/period
Effect of changes in foreign 77 -
exchange rates
------------- -------------
Cash and cash equivalents at end of year/period 1,796 -
1. Going Concern
The consolidated financial statements have been prepared on the
assumption that we will continue as a going concern and the audit
opinion relating to these financials has been issued in an
unmodified form. This basis of accounting contemplates the recovery
of the Company's assets and the satisfaction of its liabilities in
the normal course of operations. The ability of the Company to
continue as a going concern is dependent on further implementing
its business plans, continuing access to an existing on-demand
working capital loan facility, raising capital against planned
further acquisitions, and the continuing support of its creditors.
The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going
concern.
Our cash balance as of 31 December 2012 was $1.8million. Our
total current assets as of the reporting date amounted to
$3.1million and total current liabilities were $6.9million
resulting in net current liabilities of $3.8million. We incurred a
loss and revenues for the year ended 31 December 2012 of
$14.5million and $6.9million, respectively.
As described in note 12, subsequent to 31 December 2012, the
Company has agreed the extension of the maturity of the Loan Notes
to October 2014 and has received consent from the Loan Note Holders
to enter into a working capital loan facility.
The Loan Note Holders also consented to a making further
acquisitions and the raising of related additional capital. The
Board intends to raise additional working capital at the same time
as or before any subsequent acquisition in order to remove the
reliance on the working capital facility, and provide additional
headroom in the forecast in the event that any of our products do
not perform as expected.
The Board of Directors has approved a forecast scenario for the
period to June 2014, which has been prepared on a standalone basis
without assuming completion of any future financing or
acquisitions, and which demonstrates that the Company has
sufficient cash resources for the next twelve months, subject to
the underlying assumptions on revenue and product growth.
Whilst there can be no assurance that the above efforts will be
successful, the Board of Directors believes that the steps taken
above, and the likelihood of continuing support for the working
capital loan, are reasonably capable of removing the threat to the
continuation of the business during the twelve-month period
following the issuance of these financial statements .
After considering the uncertainties above, Board of Directors
have decided to continue to adopt the going concern basis in
preparing the financial statements.
2. Segmental information
The Group operates in one business, the development and
publishing of interactive games entertainment products across
internet connected platforms, through various media channels. The
Board considers the business from a product and service viewpoint.
It monitors performance by the following segments - on line games
and publishing services. The cash collection agencies which the
Group uses to collect some of its revenue, do not keep sufficiently
detailed records to enable Zattikka to report on a geographical
basis. Selling products through the internet, the Group has found
that no one location is material to the business and the recording
accurate and reliable geographical data to be difficult to record
and produce.
Online games Publishing Eliminations Total
services
$'000 $'000 $'000 $'000
Revenue 4,336 2,591 - 6,927
Inter-segment revenue - 105 (105) -
Change in deferred revenue (12) (12)
------------- ----------- ------------- ---------
Bookings 4,324 2,696 (105) 6,915
------------- ----------- ------------- ---------
Segment results
-------------------------------- ------------- ----------- ------------- ---------
EBITDA adjusted (2,968) 497 - (2,471)
Change in deferred revenue 12 - - 12
Share-based payments charge (843) (125) - (968)
Exceptional items (note
4) (8,501) (558) - (9,059)
------------- ----------- ------------- ---------
EBITDA (12,300) (186) - (12,486)
-------------------------------- ------------- ----------- ------------- ---------
Depreciation and amortisation (1,539) (1,594) - (3,133)
------------- ----------- ------------- ---------
Segment result: operating
loss (13,839) (1,780) (15,619)
Finance costs (411)
Tax credit 1,548
---------
Loss for the year (14,482)
---------
Other segment items
Capital expenditure on
property, plant and equipment 41 123 164
Expenditure on intangible
assets 154 - 154
Statement of Financial
Position
Segment assets 1,928 1,458 3,386
Goodwill 10,744 13,992 24,736
Intangible assets 9,134 4,712 13,846
------------- ----------- ------------- ---------
Total assets 21,806 20,162 41,968
------------- ----------- ------------- ---------
No one customer accounted for more than 10% of the total revenue
in the year.
There was no trade between 16(th) November 2011 and 31 December
2011.
3. Acquisitions
Concept Art House Inc.
On 16 April 2012, Zattikka plc acquired the entire share capital
of Concept Art House Inc. CAH is a work for hire art and design
company based in San Francisco, USA and Shanghai, China. This
acquisition brings to the Group a presence and experience in the
growing Asian market and provides high quality creative art and
design work. The book and fair values of those assets and
liabilities as at 16 April 2012 are set out below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
Carrying Fair value Fair
amounts adjustments value
$'000 $'000 $'000
Net assets acquired
Intangible assets
* Brand - 603 603
* Customer relationships - 2,175 2,175
* Commercial agreements - 1,934 1,934
Property, plant and equipment 137 - 137
Trade and other receivables 811 - 811
Cash and cash equivalents 896 - 896
Trade and other payables (181) - (181)
Deferred tax - (1,837) (1,837)
Net identifiable assets 1,663 2,875 4,538
Goodwill recognised on
acquisition 9,307
--------
Consideration 13,845
--------
Satisfied by:
Cash 4,445
Loan notes 2,400
Zattikka plc 4,423,102 GBP0.10 Ordinary
shares 7,000
Total amount payable in respect of
the acquisition 13,845
Cash consideration 4,445
Less cash and cash equivalents acquired (896)
--------
Net cash outflow arising
on acquisition 3,549
3. Acquisitions (continued)
Expedite 5 Inc
On 16 April 2012, Zattikka plc acquired the entire share capital
of Expedite 5 Inc. This company has developed SNAP, a cloud based
analytics service to work across all distribution platforms to
collect and analyse user behaviour. This technology is in the
process of being implemented throughout the Group. The book and
fair values of those assets and liabilities as at 16 April 2012 are
set out below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
Carrying Fair value Fair
amounts adjustments value
$'000 $'000 $'000
Net assets acquired
Intangible assets
* Software 64 87 151
Property, plant and equipment 11 - 11
Trade and other receivables 205 - 205
Cash and cash equivalents 22 - 22
Trade and other payables (3,887) - (3,887)
Net identifiable liabilities (3,585) 87 (3,498)
Goodwill recognised on acquisition 5,998
Consideration 2,500
--------
Satisfied by:
Zattikka plc 1,579,679 GBP0.10
Ordinary shares 2,500
Total amount payable in respect of the
acquisition 2,500
Cash consideration -
Less: cash and cash equivalents acquired (22)
--------
Net cash inflow arising on
acquisition (22)
--------
The trade of Expedite 5 Inc was transferred to Zattikka UK
Limited on 16 April 2012 and Expedite 5 Inc was subsequently
dissolved on 3 May 2012.
3. Acquisitions (continued)
Hattrick Holdings Limited
On 16 April 2012, Zattikka plc acquired the entire share capital
of Hattrick Holdings Limited. Hattrick provides an online football
manager game and a music lifestyle role playing game. Hattrick will
provide the Group with an entry into the sports gaming market and
in the long term lead to opportunities in other team sports. The
book and fair values of those assets and liabilities as at 16 April
2012 are set out below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
Carrying Fair value Fair
amounts Adjustments value
$'000 $'000 $'000
Net assets acquired
Intangible assets
* Brand - 3,173 3,173
* Customer relationships - 2,485 2,485
* Software 376 5,673 6,049
Property, plant and
equipment 47 - 47
Inventory 125 (118) 7
Trade and other receivables 2,746 - 2,746
Cash and cash equivalents 304 - 304
Trade and other payables (520) - (520)
Deferred revenue (2,303) - (2,303)
Corporation tax (57) - (57)
Deferred tax - (1,171) (1,171)
------------- --------------- --------
Net identifiable assets 718 10,042 10,760
------------- --------------- --------
Goodwill recognised on acquisition 10,744
Consideration 21,504
--------
Satisfied by:
Cash 8,706
Loan notes 8,512
Zattikka plc 1,650,828 GBP0.10 Ordinary
shares 2,660
Contingent consideration 1,626
--------
Total amount payable in respect of the
acquisition 21,504
Cash consideration
Less: cash and cash equivalents acquired 8,706
(304)
--------
Net cash outflow arising on acquisition 8,402
--------
The trade of Hattrick Holdings Limited was transferred to
Hattrick Europe Limited with effect from 31 December 2012.
3. Acquisitions (continued)
Sneaky Games Inc
On 16 April 2012, Zattikka plc acquired the entire share capital
of Sneaky Games Inc. Sneaky has developed a portfolio of games in
the mid-core fantasy role playing genre. This acquisition brings
social game development and direct marketing expertise to the
Group. The book and fair values of those assets and liabilities as
at 16 April 2012 are set out below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
Carrying Fair value Fair
amounts adjustments value
$'000 $'000 $'000
Net assets acquired
Intangible assets
* Brand - 133 133
* Software - 239 239
* Commercial agreements 23 - 23
Property, plant and equipment 14 - 14
Deferred taxation 149 (149) -
Trade and other receivables 42 - 42
Cash and cash equivalents 96 - 96
Trade and other payables (296) - (296)
Deferred revenue (106) - (106)
Taxation (7) - (7)
Net identifiable assets (85) 223 138
Goodwill recognised on acquisition 5,522
--------
Consideration 5,660
--------
Satisfied by:
Cash 1,674
Loan notes 1,061
Zattikka plc 1,848,224 GBP0.10
Ordinary shares 2,925
Total amount payable in respect of the
acquisition 5,660
--------
Cash consideration 1,674
Less: cash and cash equivalents acquired (96)
--------
Net cash outflow arising on acquisition 1,578
--------
3. Acquisitions (continued)
Had a full period's trading been recorded for the four
acquisitions for the period between 1 January 2012 and 31 December
2012, the unaudited pro-forma revenue (IFRS) would have been
$10.4million (Revenue bookings $10.2 million) and adjusted EBITDA
loss would have been $2.2million.
Acquisition related costs (included in acquisition costs in the
Consolidated Statement of Comprehensive Income for the period ended
31 December 2012) amounted to $1.8million.
Adjusted EBITDA is defined as: Earnings before finance charges,
taxes, depreciation, amortisation, changes in deferred revenue,
exceptional items and acquisition costs and share-based payments
charges.
4. Exceptional items and acquisition costs
Exceptional items incurred during the period ended 31 December
2012 relate to
2012 2011
$'000 $'000
Integration costs of acquisitions acquired 200 -
on 16 April 2012
Redundancy costs 36 -
Sneaky Games Inc goodwill impairment (note 6,835 -
6)
Sneaky Games Inc impairment of intangible 196 -
assets
Acquisition activity (including listing on the 1,792 -
London Stock Exchange AIM market)
-------- --------
9,059 -
-------- --------
5. Tax
2012 2011
$'000 $'000
Current tax
- -
* UK tax
150 -
* Overseas tax
-------- -------
Current tax 150 -
-------- -------
Deferred tax credit (1,698) -
-------- -------
Tax per Income Statement (1,548) -
Factors affecting tax credit for the year
Loss before taxation (16,030) -
Tax at the UK corporation tax rate of 24.5% (3,927) -
Expenses not deductible for tax purposes 2,563 -
Losses not recognised for deferred tax purposes 936 -
Capital allowances and other short term timing
differences not recognised for deferred tax
purposes (2) -
Effect of intra-group transfer of trade and
assets (1,026) -
Difference arising due to subsidiaries operating
in foreign jurisdictions (92)
--------- ---------
Tax credit for the year (1,548) -
--------- ---------
6. Goodwill - Group
2012 2011
$'000 $'000
Cost
At 1 January - -
Recognised on acquisition of subsidiaries 39,920 -
Contingent consideration reduction (8,349) -
Provision for impairment (6,835) -
-------- ------
At 31 December 24,736 -
Goodwill acquired on a business combination is allocated to the
Cash-Generating Units (CGU's) that are expected to benefit from
that business combination. Goodwill has been allocated as
follows:
CAH Hattrick E5 Sneaky Total
$'000 $'000 $'000 $'000 $'000
On acquisition 9,307 19,093 5,998 5,522 39,920
Reallocation of E5 goodwill 4,685 (5,998) 1,313 -
------- --------- -------- -------- --------
13,992 19,093 - 6,835 39,920
Reduction in contingent
consideration - (8,349) - - (8,349)
Goodwill impairment - - - (6,835) (6,835)
------- --------- -------- -------- --------
Total 13,992 10,744 - - 24,736
------- --------- -------- -------- --------
The recoverable amount of the cash generating unit is determined
from value in use calculations. The key assumptions for the value
in use calculations are those regarding the discount rates, growth
rates and expected changes to selling prices and direct costs
during the forecast period. The Group prepares pre-tax cash flow
forecasts derived from the most recent financial budgets approved
by management for the next two years and extrapolates the cash
flows for the following three years based on an estimated growth
rate of: 3% for Sneaky, 3% for Hattrick and 7% for CAH due to
higher performance growth in the past. This rate does not exceed
the average long term growth rate for the relevant geography. The
forecast period is considered appropriate based on the life of
technology acquired. The pre-tax discount rate used to discount the
forecast cash flows differs by CGU:
-Sneaky 18%
-CAH 16%
-Hattrick 15%
The impairment test performed shows that the fair value of the
goodwill is in excess of its book value for CAH and Hattrick, but
impairment for Sneaky follows a slower performance on some of its
titles.
Goodwill allocated to Sneaky has been written off through
recognition of an impairment loss against goodwill of
$6.8million.
During finalisation of the purchase price allocation to the net
identifiable assets acquired, management reassessed contingent
consideration payable in respect of the Hattrick Holdings Limited
acquisition, based on information available, but outstanding, at
the acquisition date. As a result, contingent consideration payable
was reduced by $8.3million from that reflected in the 30 June 2012
financial statements.
7. Intangible assets - Group
Brand Customer Commercial Software Capitalised Total
relationships agreements development
$'000 $'000 $'000 $'000 $'000 $'000
Cost
At 16 November 2011 - - - - - -
and
------ -------------- ----------- --------- ------------ -------
At 31 December 2011 - - - - - -
Additions - - - 11 143 154
On acquisition 3,909 4,660 1,957 6,439 - 16,965
------ -------------- ----------- --------- ------------ -------
At 31 December 2012 3,909 4,660 1,957 6,450 143 17,119
Amortisation
At 16 November 2011 - - - - - -
and
------ -------------- ----------- --------- ------------ -------
At 31 December 2011 - - - - - -
Charge for the year 437 870 696 993 75 3,071
Exchange movement 1 1 - 4 - 6
Impairment 70 - - 126 - 196
At 31 December 2012 508 871 696 1,123 75 3,273
Net book value
At 31 December 2012 3,401 3,789 1,261 5,327 68 13,846
------ -------------- ----------- --------- ------------ -------
At 31 December 2011 - - - - - -
------ -------------- ----------- --------- ------------ -------
8. Loan Notes
On 16 April 2012 Zattikka plc issued $12.0million of unsecured
loan notes to the vendors of Hattrick, CAH and Sneaky ("Loan Note
Vendors") to satisfy part of the purchase consideration on the
acquisition of subsidiaries.
These notes had an initial period of one year to 16 April 2013,
with a one year extension at the option of the Group to 16 April
2014, which was exercised in March 2013. The Loan Note Vendors had
an option to convert into Ordinary Shares at any time.
The loan notes attract Interest of 5% interest accruing during
the initial term, increasing to 10% in the second year if the
Company serves the extension notice and 5% if the loan note vendors
serve the extension notice. Interest is payable upon redemption or
maturity of the note.
In June 2013 the Loan Note Vendors agreed to amendment
agreements with further extension of maturity to 16 October 2014,
and to permit the establishment of a secured working capital
facility and consent to the completion of further acquisitions and
placings as described in note 12.
9. Called up share capital
2012 2011
No. No.
Allotted, called up and fully paid
Shares issued in year 22,218,251 1
----------- -------
$'000 $'000
At 31 December 2012 (22,218,251 ordinary 3,520 -
shares of 10p each, 2011 1 ordinary share
of 1p each)
The Company was incorporated with share capital represented by
an unlimited number of ordinary shares of GBP0.01 value. On 11
April 2012 the issued share capital was converted into 10 pence
shares.
Share capital as at 31 December 2012 amounted to $3,520,037 (31
December 2011 $0.02). During the period the Group issued the
following shares:
No of shares Nominal Value Share premium
$'000 $'000
Consideration for the
acquisition Concept Art
House Inc 4,423,102 701 6,299
Consideration for the
acquisition Expedite 5
Inc 1,579,679 250 2,250
Consideration for the
acquisition Hattrick Holdings
Limited 1,650,828 262 2,398
Consideration for the
acquisition Sneaky Games
Inc 1,848,224 293 2,632
Issue of shares to non-executive
Directors 78,985 12 113
Issued for cash 12,637,433 2,002 17,988
22,218,251 3,520 31,680
------------- -------------- --------------
The net proceeds from the issue of ordinary share capital was
$18.4million after deduction of issue costs of $1.6million.
The non-executive Directors were issued 78,985 shares for a
non-cash consideration of $125,000 in recognition of the work they
completed leading up to Zattikka plc being listed on the London
Stock exchange.
10. Basic loss per share and diluted loss per share
2012
$'000
Basic and diluted loss per share
Loss attributable to shareholders 14,482
Weighted average number of shares 15,783,457
Basic and diluted loss per share $0.92
11. Related parties
The Company conducts numerous transactions each year with its
subsidiaries. Amounts recognised in income for the year to 31
December 2012 comprised management recharges amounting to $888,000
which were eliminated in the Group accounts. Amounts owing to or
from subsidiaries are disclosed in the balance sheet and related
notes. Investments in subsidiaries during the year are disclosed in
note 3.
During the period, Bond Capital Partners, in which H H Ludwig
and M W Opzoomer are shareholders, provided corporate finance
services and office facilities to Zattikka plc. Charges for these
services amounted to $176,824 during the period and the amount
owing to Bond Capital was $32,306 as at 31 December 2012.
Expedite 5 Inc was acquired on 16 April 2012, for total
consideration of $2.5million. H H Ludwig, M W Opzoomer, T M Chaney
and R J T Gorle who are Directors of Zattikka plc were Directors of
Expedite 5 Inc. The trade of Expedite 5 Inc was transferred to
Zattikka UK Limited on 16 April 2012 and Expedite 5 Inc was
subsequently dissolved on 3 May 2012.
12. Subsequent events
In March 2013 the Company extended the maturity date of the Loan
Notes from 16 April 2013 to 16 April 2014 as permitted in the terms
of the Loan Notes. In June 2013 the Company agreed a further
extension of the maturity of the Loan Notes to October 2014.
It was agreed in respect of the Hattrick and CAH Loan Notes that
in return for repayment of 50% of the Loan Notes, 25% will be
converted into ordinary shares in Zattikka plc, and a further 25%
into New Loan Notes maturing in April 2016. In respect of the
Sneaky Loan Notes, in return for repayment of 20% of the Loan
Notes, 80% would be converted into ordinary shares in Zattikka
plc.
These agreements also included all necessary consents for the
Company to raise working capital finance, enter into acquisitions,
and raise equity capital required to complete any such
acquisitions.
Related to this, the Group subsidiary Hattrick Europe Limited
entered into an agreement with Barclays Capital ('the Bank') for
GBP1.0million of working capital finance. At the same time Zattikka
plc provided a guarantee for any liabilities of Hattrick Europe
Limited to the Bank, and provided security over its shareholding in
Hattrick Europe Limited in favour of the Bank. The facility is an
on-demand facility which allows for setting of a fixed interest
rate over periods of up to one year at a margin of 5% above the
percentage rate per annum determined by the bank to be its cost of
funds.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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