October 29, 2020
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, has announced that it has released its audited annual financial results for the financial year ended June 30, 2020. The results have been filed with the Canadian Securities Administrators and are now available on SEDAR.
Jouni Keränen, CEO of Kuuhubb Inc., commented:
“Kuuhubb is a young company in the midst of a transformation. Up until this point, we have been focused on the acquisition of proven, yet under-appreciated assets which display the potential to capture a global user following. Developing that potential was achieved with Recolor through investing talent and resources into the technology, making numerous product improvements, pursuing partnerships and effectively marketing to our target audience to ultimately build a loyal user community.
However, the success of our company does not revolve around one game title. Rather, our experience and success with Recolor has provided us the expertise and confidence to identify emerging gaming trends, expand our game portfolio and focus our resources in developing and marketing our next generation of exciting games. For us at Kuuhubb, the Match-3 genre promises to be that future. We have deployed capital and resources to develop our own Match-3 game engine and commercialize Kuuhubb’s first in-house developed Match-3 title, “Tiles & Tales”. The Match-3 game genre is by far the largest segment among female gamers, generating over US$5B per year and representing over one-fifth of the entire US iPhone gaming market.
As part of the transformation and increased focus on Match-3 games we have decreased overall costs by over USD 1 million annually, including shutting down non-performing third-party publishing office in Amsterdam and ceasing market entry operations in India. We have to acknowledge that not every game, team or initiative will succeed and we will become faster at recognizing that and redeploying the resources in to efforts that maximize future returns.
As stated in our 2020 financial report, we are in ongoing, advanced discussions for the potential divestment of Recolor. Realizing Recolor’s future value now will allow us to invest in our next generation games. We strongly believe that our greatest opportunity for growth and long-term success lies in creating and operating games we develop ourselves using proprietary software such as our Match-3 engine combined with strategic alliances with strong partners adding not only financial strength, but industry specific expertise and synergistic benefits. Kuuhubb’s strengths – innovation, data driven approach and a unique talent pool in Helsinki, provide us the best possible path for scalable future growth and profitability.”
Audited Annual Financial Results for the Financial Year Ended June 30, 2020:
(*) Classification of Recolor Oy as held for sale and discontinued operations
As part of the efforts to meet the Company’s obligations and build growth, the Company announced it is exploring multiple strategic alternatives, including the divestiture of Company-owned assets such as shares of Recolor Oy. This may be completed within twelve months and as such the associated assets and liabilities within Recolor Oy are presented as held for sale and the net income attributable as discontinued operations in the consolidated financial statements. Unless otherwise indicated, the analysis and discussions herein are based on the Company’s continuing operations consist of the Company’s “My Hospital” operation.
Subsequent Events to Fiscal Year End:
Subsequent to the fiscal year ended June 30, 2020, the Company received the following additional financing and made the following announcements.
Closing of Non-Convertible Debenture Financing
On September 30, 2020, the Company announced the closing of a non-convertible debenture financing (the “Offering”) for aggregate gross proceeds of US$1,300,000 on a non-brokered basis. The Offering is composed of secured debentures (“Debenture”), each of which has a face value of US$29,500, a Maturity Date twenty-four months from the date of closing, and bears interest at a rate of 12% per annum.
The Company intends to use the proceeds from the Offering for business development and general working capital purposes. Full details of the Offering are available in the Company’s news release dated September 23, 2020 and filed under Kuuhubb’s profile at www.sedar.com.
Settlement Agreement with Cherrypick Games
On October 7, 2020, the Company announced that further to its news release issued on August 19, 2020, it had agreed to settlement terms (the “Agreement”) with Cherrypick Games S.A. (“Cherrypick”). Terms of the Agreement provide for a lower total payment amount from Kuuhubb to Cherrypick and the complete transfer of the “My Hospital” game from Cherrypick to Kuuhubb. The Agreement sets out a payment schedule that is to be fulfilled by May 31, 2021. Kuuhubb is, with the support of Cherrypick, in the process of transferring the game development to Kuuhubb’s development team in Helsinki and is planned to have full control of the source code by November 1 2020.
Further details on the arbitration award and agreement between Cherrypick and Kuuhubb’s can be found in the Company’s consolidated financial statements for the year ended June 30, 2020 and news release dated August 19, 2020, under the Company’s profile at www.sedar.com.
Exploration of Strategic Alternatives to Enhance Shareholder Value
On September 30, 2020, the Company announced that it has been conducting a process to explore strategic alternatives, including the potential divestiture of certain Company-owned assets, including the sale of Recolor Oy within the next twelve months. The Company together with Ernst & Young, has identified a potential buyer and negotiations are presently at an advanced stage. Management noted that, while they remain committed to their stated objective of creating sustainable shareholder value through the acquisition of proven, yet under-appreciated assets with long-term growth potential, they do have an obligation to their stakeholders to carefully consider and review any options that may enhance shareholder value, including the possible benefits of realizing that future value now. There can be no assurance that the strategic alternatives review process will result in any strategic change or outcome and the Company does not know the exact timetable for the conclusion of its review of strategic alternatives.
On February 12, 2020, the Company announced the entering into a sale and purchase agreement with Codecacao d.o.o., pursuant to which the Company would acquire (the “Codecacao Acquisition”) 100% of the issued and outstanding shares of Codecacao in consideration for 1,000,000 common shares of the Company, payable in installments, and €150,000. Completion of the Codecacao Acquisition is subject to the receipt of all regulatory approvals, including the approval of the TSX Venture Exchange and shareholder approval. In the event of a sale of Recolor Oy, the Company anticipates that the Codecacao Acquisition will not be completed. Further announcements will be made on the status of these transactions.
During the year ended June 30, 2020, the Federal Trade Commission (“FTC”) alleged the Company, through its “Recolor” mobile app, has violated certain privacy protection act in the U.S. by gathering certain privacy information with the app. While the Company denies the allegations, it has fully cooperated with FTC. The Company is in the final stages of settlement discussions with the FTC. As such, the Company has accrued and recorded a provisional settlement payment on the consolidated statements of loss and comprehensive loss.
EBITDA - Non-IFRS Measure
EBITDA is intended to provide additional information to investors and analysts. The Company calculated EBITDA as set out on page 2 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.