Kuuhubb Reports Fiscal Year End Audited Annual Financial Results

October 30, 2019

Toronto, Canada – October 28, 2019 - Kuuhubb Inc. (“Kuuhubb” or the “Company”) (TSXV: KUU), a mobile game development and publishing company focused on providing the female audience with creative interactive gaming experiences, is pleased to announce that it has released its audited annual financial results for the financial year ended June 30, 2019. The results have been filed with the Canadian Securities Administrators and are now available on SEDAR.

CEO’s Message:
Jouni Keränen, CEO of Kuuhubb Inc., commented, “We have had a challenging year. Significant resources were spent on the proxy battle, which ended in April. Financial constraints resulted in decreasing revenues and numerous difficult decisions were required to ensure the execution of our key priorities. A turn-around is now taking place and moving forward from the past has required us to take a large goodwill write down for this fiscal year. This Quarter will see the commercial launch of Kuuhubb’s first new game in over two years, as our pipeline of new products will start hitting the market. We are excited to soon commercially launch the second generation of Kuuhubb games such as Dance Talent and Tiles & Tales. We will continue to focus on innovation and efficiency, and aim to enter the female gaming market’s largest segment, Match-3, with unique and differentiating concepts that have the potential to become major hits. Work has also begun on our third-generation game in casual esports, utilizing the proprietary Kuuhubb game engine resulting in faster time to market and lower overall development costs.”

Audited Annual Financial Results for the Financial Year Ended June 30, 2019:

  • The Company recognized revenue of US$12,362,053 for the year ended June 30, 2019. This revenue was generated from sales of the Recolor app totaling US$9.7 million, the in-application sale of virtual goods from the My Hospital game totaling US$1.5 million and advertising revenue of US$1.1 million.
  • The Company incurred cost of sales of US$5,362,436 for the year ended June 30, 2019. The cost of sales is related to the application marketplace (such as Apple App Store and Google Play) fees.
  • The Company incurred consulting and professional fees of US$1,471,649 for the year ended June 30, 2019. These fees were related to Kuuhubb’s audit fees, general legal counsel and other professional services. In addition, this year the Company incurred additional fees related to the AGM and the related Board of Director change.
  • The Company showed EBITDA of negative US$1,595,531 by adding back non-cash depreciation and amortization of US$6,099,783, non-cash share-based compensation of US$1,229,317, non-cash goodwill and intangible impairment US$6,761,098, net interest and accretion expenses of US$893,517, non-cash fair value change of derivative of US$27,699, deduct foreign exchange gain of US$59,278 and deduct deferred tax recovery of $1,394,884 from and to the net loss of US$15,152,783.
    - Due to the financial constraint, the Company reduced the marketing and user acquisition costs for Recolor. This led to a significant reduction in revenues of Recolor. In addition, the same constraint also delayed several app launches and the Company’s ability to monetize the promising Indian and Japanese markets. The uncertainty of the Company’s ability to realize the potential of its goodwill resulted in the decision to write off the goodwill in its entirety.
  • The Company had a shareholders' deficit of US $4,162,446 USD as of June 30, 2019 mainly due to further write down of goodwill and intangibles as described above.
  • The authorized share capital of the Company consists of an unlimited number of common shares. The Company currently has outstanding 55,752,709 common shares and 8,465,000 stock options.

Costs Related to Q2 & Q3 2019 Proxy Fight and Board of Directors Changes:
The company incurred significant costs related to proxy fight, and added new board members with the necessary and relevant industry knowledge to help the Company focus on achieving its long-term strategic objectives. Appointed were Messrs. Garner Bornstein, an entrepreneur with a proven track record of creating successful companies in the world of disruptive technology; Elmer Kim, an accomplished private equity, family office and investment management executive with over 25 years of investment and technology industry experience; and Andre Lüdi, an investment bank and private wealth management executive with over 30 years of experience in the European financial sector.

Limited User Acquisition (UA) and Marketing Spending Impacting Fiscal Year Revenue:
Revenues declined due to the significantly reduced marketing budget related to Kuuhubb’s user acquisition spending. The Company spent 76% less in the fiscal 2019 compared to fiscal 2018. The shareholder requisition in the third quarter consumed substantial resources that would have ideally been deployed in furthering the Company’s user acquisition marketing efforts.

Game Expansion and Growth Strategy:
Kuuhubb is building a leading lifestyle game portfolio and is solidifying its position as an industry innovator, targeting the female demographic. As a mobile game development and publishing company focused on providing the female audience with creative interactive gaming experiences, the Company strategy is to use its in-house technology and experienced development teams located in Helsinki, Finland and Zagreb, Croatia to leverage its existing communities built through its Recolor franchise to enter popular gaming genres and commercialize new titles in the coming 12 to 24 months.

The Company’s first-generation gaming assets, Recolor and My Hospital have generated revenues in excess of USD $33M and the Company continues to work on improving the user experience, overall quality and monetization of those titles. Building on that established colouring trend, Kuuhubb intends to commercially launch two new games by the end of calendar 2019.

The 2nd generation of new titles diversifies Kuuhubb’s gaming portfolio into the Match-3, or “matching tiles”, genre. New titles under development and currently in soft launch are Dance Talent, due to be commercially launched by the end of 2019. Also currently in soft launch is Tiles & Tales, scheduled for commercial launch in 2020. Kuuhubb’s expansion into next generation Match-3 games, Dance Talent and Tiles & Tales, take the basic tile matching concept and expand on it by adding visual and story-based progression through a so called ‘meta game’. Meta games enable a higher level of player interaction through characters and stories and result in enhanced engagement and increased longevity of the games.

While still focused on the commercialization of its 2nd generation titles, Dance Talent and Tiles & Tales, Kuuhubb’s vision is to continue to innovate. The Company anticipates that its 3rd generation games will capitalize on a significant opportunity in the casual, mobile esports game niche as it plans to combine the immensely popular casual and Battle Royale genres to create a unique title for the female gaming market.

Additional Financial Details (Subsequent to Fiscal Year End):
Subsequent to the fiscal year ended June 30, 2019, the Company received the following additional financings and cash collections. These new financings are part of ongoing negotiations to secure funding for more effective marketing and user acquisition for our upcoming new products:

  • In October 2019, Kuuhubb Oy received $330,690 (€300,000) from Valiance UG as partial repayment for the outstanding loan receivable balances as at June 30, 2019.
  • On October 23, 2019, Kuuhubb Oy completed a $672,942 (€605,000) private placement financing (the “Financing”) through the issuance of an unsecured loan payable in the principal amount of €605,000. The loan matures on June 28, 2021 and bears an interest rate of 7.5% per annum (payable at the end of each calendar quarter). $15,572 (€14,000) in financing fees were incurred as a direct cost in the closing of the Financing. This balance has been capitalized and netted against the proceeds received from the issuance of the loan.
  • On September 4, 2019, Kuuhubb Oy received a $272,486 (€247,310) loan from Business Finland. The loan is unsecured and has a seven-year maturity period with an interest rate of 1%. In accordance with the loan agreement, the Company is expected to meet certain qualitative covenants throughout the term of the agreement.

EBITDA - Non-IFRS Measure
EBITDA is intended to provide additional information to investors and analysts. The Company calculated EBITDA as set out on page 1 of this press release. EBITDA does not have any standardized meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate EBITDA differently.