Next Games Corporation Company Release 13 February 2019 at 13:00 EET

On January 10, 2019, Next Games published preliminary information prepared in accordance with the FAS standard concerning its financial performance for fourth quarter 2018 and announced that the company will transition from Finnish Accounting Standard (FAS) to International Financial Reporting Standards (IFRS) reporting. Previously Next Games has prepared its published financial statements in accordance with Finnish Accounting Standards (FAS).

Next Games has prepared the following unaudited IFRS financial information to provide its investors comparative information on Next Games’ previously published consolidated statement of comprehensive income, consolidated statement of financial position and key figures for the years ended December 31, 2016 and December 31, 2017 and the six month periods ended June 30, 2016, December 31, 2016, June 30, 2017, December 31, 2017 and June 30, 2018 as well as consolidated statement of financial position as at the transition date to IFRS January 1, 2016.

Key differences to the Finnish Accounting Standards resulting from the transition to IFRS are described in accompanying notes to this company release. For additional information on the historical financial information prepared in accordance with FAS, refer to the audited historical consolidated financial statements and the unaudited half year consolidated financial information of Next Games on the company's website at www.nextgames.com.

The financial information included in this release is unaudited except for the consolidated statement of financial position information for the year ended 2016 and 2017. As part of the accounting standard change, Next Games changed the presentation of expenses of the consolidated statement of comprehensive income from classification based on nature to classification based on function. Therefore, also the FAS income statement figures are unaudited from financial years 2016 and 2017.

Next Games publishes its full-year financial bulletin on February 15, 2019.

Key Financial Figures (IFRS)

1000 EUR1.1-31.12.20181.7-31.12.20181.1-30.6.20181.1-31.12.20171.7-31.12.20171.1-30.6.20171.1-31.12.20161.7-31.12.20161.1-30.6.2016
Revenue, gross bookings and gross Margin         
Revenue35,245 24,768 10,477 32,466 13,014 19,452 31,112 18,326 12,786 
Gross bookings35,788 25,339 10,449 30,930 12,641 18,289 33,594 19,828 13,766 
Gross Profit21,294 15,260 6,034 19,308 8,118 11,190 16,870 9,828 7,043 
          
Operating profit and adjusted Operating Profit         
Operating profit (loss)-16,914 -11.961 -4,954 -5,072 -4,202 -870 -2,192 1,593 -3,785 
Depreciation and amortisation (excluding IFRS 16)1,654 -1,513 140 382 132 251 244 122 123 
Adjusted operating profit (loss)-15,261 -10,447 -4,814 -4,690 -4,070 -619 -1,948 1,714 -3,662 
          
          
As percentage of revenue         
Gross Profit (%)60%62%58%59%62%58%54%54%55%
Operating profit margin (%)-48%-48%-47%-16%-32%-4%-7%9%-30%
Adjusted Operating Profit (%)-43%-42%-46%-14%-31%-3%-6%9%-29%

2018

Consolidated statement of comprehensive income Jan 1 – Jun 30, 2018

EUR thousand FASTotal IFRS adjustmentsIFRS 
 
 
  Jan 1 – Jun 30, 2018 Jan 1 – Jun 30, 2018 
Revenue from contracts with customers 10 477 10 477 
Cost of revenue -4 382-60-4 443 
Gross profit 6 094-606 034 
Other operating income 45 45 
Research and development costs -6 6473 092-3 555 
Sales and marketing costs -5 338-68-5 405 
Administrative costs -2 14572-2 073 
Operating profit  -7 9903 036-4 954 
Finance income 722 722 
Finance costs -1 461995-466 
Finance costs - net -740995255 
      
Share of associates' profit/loss  -116-116 
      
Profit before taxes -8 7303 915-4 815 
Income taxes     
Change in deferred tax 9-742-733 
Total income tax expense 9-742-733 
      
Profit for the period -8 7213 173-5 547 
      
Total comprehensive income for the period -8 7213 173-5 547 

Consolidated balance sheet June 30, 2018

EUR thousand FASTotal IFRS adjustmentsIFRS 
 
 
  June 30, 2018 June 30, 2018 
Assets     
Non-current assets     
Intangible assets 6 6643 2299 893 
Goodwill 7902 5543 344 
Property, plant and equipment2321 4341 666 
Investments 63-630 
Share of associates  393393 
Long-term debtors 669 669 
Deferred tax assets 2 785-8891 896 
Non-current assets total 11 2046 65817 863 
      
Current assets     
Trade and other receivables 6 368-96 359 
Cash and cash equivalents 16 940 16 940 
Current assets total 23 308-923 300 
      
Total assets 34 5136 65041 162 
      
Equity and liabilities     
Shareholders’ equity     
Share capital 80 80 
Invested non-restricted equity reserve53 30758953 897 
Retained earnings -16 7552 922-13 832 
Profit (loss) for the period -8 7213 173-5 547 
Shareholders’ equity 27 9126 68534 597 
      
Liabilities     
Non-current liabilities     
Governmental agency loan 663-35628 
Non-current liabilities total 663-35628 
      
Current liabilities     
Governmental agency loan 112 112 
Deferred revenue 886 886 
Trade payables 2 042 2 042 
Other liabilities 192 192 
Accruals and deferred income2 705 2 705 
Current liabilities total 5 937 5 937 
Liabilities total 6 600-356 565 
Equity and liabilities total  34 5136 65041 162 

2017

Consolidated statement of comprehensive income Jan 1 – Dec 31, 2017

EUR thousand FASTotal IFRS adjustmentsIFRS 
 
 
  Jan 1 – Dec 31, 2017 Jan 1 – Dec 31, 2017 
Revenue from contracts with customers 32 466 32 466 
Cost of revenue -13 042-115-13 158 
Gross profit 19 423-11519 308 
Other operating income 53 53 
Research and development costs -9 2742 240-7 034 
Sales and marketing costs -12 579-135-12 714 
Administrative costs -3 981-705-4 686 
Operating profit  -6 3571 285-5 072 
Finance income 37 37 
Finance costs -507-34-541 
Finance costs - net -470-34-504 
      
Share of associates' profit/loss  -455-455 
      
Profit before taxes -6 827797-6 031 
Income taxes   0 
Change in deferred tax 469-574-105 
Total income tax expense 469-574-105 
      
Profit for the period -6 359223-6 137 
      
Total comprehensive income for the period -6 359223-6 137 

Consolidated statement of comprehensive income Jul 1 – Dec 31, 2017

EUR thousandFASTotal IFRS adjustmentsIFRS 
 
 
 Jul 1 – Dec 31, 2017 Jul 1 – Dec 31, 2017 
Revenue from contracts with customers13 045 13 045 
Cost of revenue-4 841-55-4 896 
Gross profit8 204-558 149 
Other operating income16 16 
Research and development costs-5 8692 183-3 686 
Sales and marketing costs-6 786-31-6 817 
Administrative costs-1 94681-1 865 
Operating profit -6 3802 177-4 202 
Finance income36 36 
Finance costs-347-6-353 
Finance costs - net-311-6-317 
     
Share of associates' profit/loss -290-290 
     
Profit before taxes-6 6901 881-4 809 
Income taxes  0 
Change in deferred tax476-591-115 
Total income tax expense476-591-115 
     
Profit for the period-6 2151 290-4 924 
     
Total comprehensive income for the period-6 2151 290-4 924 

Consolidated statement of comprehensive income Jan 1 – Jun 30, 2017

EUR thousandFASTotal IFRS adjustmentsIFRS 
 
 
 Jan 1 – Jun 30, 2017 Jan 1 – Jun 30, 2017 
Revenue from contracts with customers19 452 19 452 
Cost of revenue-8 201-60-8 262 
Gross profit11 251-6011 190 
Other operating income6 6 
Research and development costs-3 40557-3 348 
Sales and marketing costs-5 794-103-5 897 
Administrative costs-2 035-785-2 821 
Operating profit 22-892-870 
Finance income0 0 
Finance costs-160-28-188 
Finance costs - net-160-28-187 
     
Share of associates' profit/loss -165-165 
     
Profit before taxes-137-1 084-1 222 
Income taxes-1 -1 
Change in deferred tax-71710 
Total income tax expense-8179 
     
Profit for the period-145-1 068-1 212 
     
Total comprehensive income for the period-145-1 068-1 212 

Consolidated balance sheet December 31, 2017

EUR thousand FASTotal IFRS adjustmentsIFRS 
 
 
  December 31, 2017 December 31, 2017 
Assets     
Non-current assets     
Intangible assets 5 9178596 776 
Goodwill 9032 4413 344 
Property, plant and equipment136139275 
Investments 1 074-1 0740 
Share of associates  509509 
Long-term debtors 820 820 
Deferred tax assets 2 776-1472 629 
Non-current assets total 11 6262 72714 353 
      
Current assets     
Trade and other receivables 4 987-94 978 
Cash and cash equivalents 26 377 26 377 
Current assets total 31 364-931 356 
      
Total assets 42 9902 71945 709 
      
Equity and liabilities     
Shareholders’ equity     
Share capital 80 80 
Invested non-restricted equity reserve53 27758953 866 
Retained earnings -10 3951 958-8 437 
Profit (loss) for the period -6 359223-6 137 
Shareholders’ equity 36 6022 77039 372 
      
Liabilities     
Non-current liabilities     
Governmental agency loan 691-49642 
Non-current liabilities total 691-49642 
      
Current liabilities     
Governmental agency loan 84 84 
Lease liabilities  224224 
Deferred revenue 914 914 
Trade payables 1 162 1 162 
Other liabilities 205 205 
Accruals and deferred income3 331-2273 104 
Current liabilities total 5 697-35 694 
Liabilities total 6 388-516 337 
Equity and liabilities total  42 9902 71945 709 

Consolidated balance sheet June 30, 2017

EUR thousandFASTotal IFRS adjustmentsIFRS 
 
 
 June 30, 2017 June 30, 2017 
Assets    
Non-current assets    
Intangible assets6 427-1 7684 660 
Goodwill1 1162 2283 344 
Property, plant and equipment150289439 
Investments1 074-1 0740 
Share of associates 800800 
Long-term debtors258 258 
Deferred tax assets2 3004432 744 
Non-current assets total11 32691912 245 
     
Current assets    
Trade and other receivables5 250-145 236 
Cash and cash equivalents32 003 32 003 
Current assets total37 253-1437 239 
     
Total assets48 58090449 484 
     
Equity and liabilities    
Shareholders’ equity    
Share capital80 80 
Invested non-restricted equity reserve53 25558953 845 
Retained earnings-10 3951 024-9 372 
Profit (loss) for the period-145-1 068-1 212 
Shareholders’ equity42 79554543 341 
     
Liabilities    
Non-current liabilities    
Governmental agency loan691-49642 
Non-current liabilities total691-49642 
     
Current liabilities    
Governmental agency loan84 84 
Lease liabilities 408408 
Deferred revenue1 316 1 316 
Trade payables873 873 
Other liabilities122 122 
Accruals and deferred income2 698 2 698 
Current liabilities total5 0934085 501 
Liabilities total5 7843596 143 
Equity and liabilities total 48 58090449 484 

2016

Consolidated statement of comprehensive income Jan 1 – Dec 31, 2016

EUR thousand FASTotal IFRS adjustmentsIFRS 
 
 
 NoteJan 1 – Dec 31, 2016 Jan 1 – Dec 31, 2016 
Revenue from contracts with customers 31 112 31 112 
Cost of revenue -14 106-135-14 241 
Gross profit 17 005-13516 870 
Other operating income 1 238-1471 091 
Research and development costs -6 515156-6 359 
Sales and marketing costs -12 268-63-12 331 
Administrative costs -1 020-443-1 463 
Operating profit  -1 560-632-2 192 
Finance income 0 0 
Finance costs -62-38-100 
Finance costs - net -62-38-100 
      
Share of associates' profit/loss  -110-110 
      
Profit before taxes -1 622-780-2 402 
Income taxes   0 
Change in deferred tax 2 400972 496 
Total income tax expense 2 400972 496 
      
Profit for the period 778-68394 
      
Total comprehensive income for the period 778-68394 

Consolidated statement of comprehensive income Jul 1 – Dec 31, 2016

EUR thousandFASTotal IFRS adjustmentsIFRS 
 
 
 Jul 1 – Dec 31, 2016 Jul 1 – Dec 31, 2016 
Revenue from contracts with customers18 326 18 326 
Cost of revenue-8 423-75-8 498 
Gross profit9 902-759 828 
Other operating income1 189-1471 042 
Research and development costs-3 105172-2 933 
Sales and marketing costs-5 422-30-5 452 
Administrative costs-572-319-892 
Operating profit 1 991-3991 593 
Finance income0 0 
Finance costs50-2130 
Finance costs - net50-2130 
     
Share of associates' profit/loss -110-110 
     
Profit before taxes2 041-5291 512 
Income taxes    
Change in deferred tax2 400762 476 
Total income tax expense2 400762 476 
     
Profit for the period4 441-4533 988 
     
Total comprehensive income for the period4 441-4533 988 

Consolidated statement of comprehensive income Jan 1 – Jun 30, 2016

EUR thousandFASTotal IFRS adjustmentsIFRS 
 
 
 Jan 1 – Jun 30, 2016 Jan 1 – Jun 30, 2016 
Revenue from contracts with customers12 786 12 786 
Cost of revenue-5 683-60-5 744 
Gross profit7 103-607 043 
Other operating income49 49 
Research and development costs-3 422-16-3 438 
Sales and marketing costs-6 847-33-6 880 
Administrative costs-434-124-558 
Operating profit -3 551-233-3 785 
Finance income0 0 
Finance costs-112-18-130 
Finance costs - net-112-18-130 
     
Share of associates' profit/loss    
     
Profit before taxes-3 663-251-3 914 
Income taxes    
Change in deferred tax 2020 
Total income tax expense02020 
     
Profit for the period-3 663-231-3 894 
     
Total comprehensive income for the period-3 663-231-3 894 

Consolidated balance sheet December 31, 2016

EUR thousand FASTotal IFRS adjustmentsIFRS 
 
 
 NoteDecember 31, 2016 December 31, 2016 
Assets     
Non-current assets     
Intangible assets 389279668 
Goodwill 2002 0352 235 
Property, plant and equipment145519664 
Investments 1074-1 0740 
Share of associates  964964 
Long-term debtors 258 258 
Deferred tax assets 2400302 430 
Non-current assets total 4 4652 7537 219 
      
Current assets     
Trade and other receivables 6413-2696 144 
Cash and cash equivalents 3 664 3 664 
Current assets total 10 076-2699 808 
      
Total assets 14 5422 48517 027 
      
Equity and liabilities     
Shareholders’ equity     
Share capital 3 3 
Invested non-restricted equity reserve15 7831 92717 710 
Retained earnings -11 173773-10 400 
Profit (loss) for the period 778-68394 
Shareholders’ equity 5 3902 0177 407 
      
Liabilities     
Non-current liabilities     
Deferred tax liabilities  00 
Governmental agency loan 775-68707 
Lease liabilities  224224 
Non-current liabilities total 775156931 
      
Current liabilities     
Governmental agency loan     
Lease liabilities  313313 
Deferred revenue 2482 2 482 
Trade payables 1178 1 178 
Other liabilities 125 125 
Accruals and deferred income4 592 4 592 
Current liabilities total 8 3773138 689 
Liabilities total 9 1524689 620 
Equity and liabilities total  14 5422 48517 027 

Consolidated balance sheet June 30, 2016

EUR thousandFASTotal IFRS adjustmentsIFRS 
 
 
 June 30, 2016 June 30, 2016 
Assets    
Non-current assets    
Intangible assets212453665 
Goodwill4671 7682 235 
Property, plant and equipment169746915 
Investments0 0 
Long-term debtors257 257 
Non-current assets total1 1052 9684 072 
     
Current assets    
Trade and other receivables2 329 2 329 
Cash and cash equivalents2 402 2 402 
Current assets total4 73104 731 
     
Total assets5 8352 9688 803 
     
Equity and liabilities    
Shareholders’ equity    
Share capital3 3 
Invested non-restricted equity reserve15 7771 97317 750 
Retained earnings-11 163529-10 634 
Profit (loss) for the period-3 663-231-3 894 
Shareholders’ equity9532 2713 224 
     
Liabilities    
Non-current liabilities    
Deferred tax liabilities 5858 
Governmental agency loan426-36390 
Lease liabilities 408408 
Non-current liabilities total426429855 
     
Current liabilities    
Governmental agency loan    
Lease liabilities 256256 
Deferred revenue980 980 
Trade payables1 260 1 260 
Other liabilities103 103 
Accruals and deferred income2 114122 126 
Current liabilities total4 4572674 724 
Liabilities total4 8836975 579 
Equity and liabilities total 5 8352 9688 803 

Consolidated balance sheet January 1, 2016

EUR thousand FASTotal IFRS adjustmentsIFRS 
 
 
  January 1, 2016 January 1, 2016 
Assets     
Non-current assets     
Intangible assets 48639688 
Goodwill 62316122 235 
Property, plant and equipment157838996 
Investments 0 0 
Long-term debtors 257 257 
Non-current assets total 1 0863 0904 176 
      
Current assets     
Trade and other receivables 3 032-123 021 
Cash and cash equivalents 4 645 4 645 
Current assets total 7 677-127 666 
      
Total assets 8 7633 07911 842 
      
Equity and liabilities     
Shareholders’ equity     
Share capital 3 3 
Invested non-restricted equity reserve15 7761 97317 750 
Retained earnings -11 173285-10 888 
Profit (loss) for the period     
Shareholders’ equity 4 6062 2586 864 
      
Liabilities     
Non-current liabilities     
Deferred tax liabilities  7878 
Governmental agency loan 426-46380 
Lease liabilities  537537 
Non-current liabilities total 426569995 
      
Current liabilities     
Lease liabilities  251251 
Trade payables 1 833 1 833 
Other liabilities 184 184 
Accruals and deferred income1 714 1 714 
Current liabilities total 3 7312513 983 
Liabilities total 4 1578214 978 
Equity and liabilities total  8 7633 07911 842 

The following table summarizes the impact of the adoption of the IFRS to the equity of Next Games for the periods presented below:

EUR thousandNoteJune 30, 2018December 31, 2017June 30, 2017December 31, 2016June 30, 2016January 1, 2016 
 
 
Equity, FAS 27 91236 60242 7955 3909534 606 
IFRS adjustments        
Depreciation method 9.161724323640 
Licence acquisitions 5.239299359211272332 
Tekes loans 9.283939552027 
Business combinations and goodwill3.2 7992 6492 4002 1702 0141 858 
IPO transaction costs 6.-1 201-1 562-1 983-203   
Leasehold improvements 9.  -28-14-12  
Leases 7.02-168-114-58  
GaaS platform2. 1 213654323137   
Armada investment8. 196-699-409-244   
Bad debt provision 9.-7-7-11-11   
Development expenses 1.3 4021 378     
Adjustments total 6 6852 7705452 0172 2712 258 
Equity, IFRS 34 59739 37243 3417 4073 2246 864 

The following table summarizes the impact of the adoption of the IFRS to the profit of Next Games for the periods presented below:

EUR thousandNoteJan 1 – Jun 30, 2018Jan 1 – Dec 31, 2017Jul 1 – Dec 31, 2017Jan 1 – Jun 30, 2017Jan 1 – Dec 31, 2016Jul 1 – Dec 31, 2016Jan 1 – Jun 30, 2016 
 
 
Profit for the period, FAS -8 721-6 360-6 215-1457784 441-3 663 
IFRS adjustments         
Depreciation method9. -1-15-7-7-9-4-4 
Licence acquisitions5. -60-121-60-60-121-60-60 
Tekes loans9. -11-16 -162735-7 
Business combinations and goodwill3.134384222162277139139 
IPO transaction costs 6.361228421-192-157-157  
Leasehold improvements 9. 1428-14-14-2-12 
Leases 7.-2116171-54-114-56-58 
GaaS platform 2.559517331186137137  
Armada investment 8.895-455-290-165-244-244  
Bad debt provision 9. 44 -11-11  
Development expenses 1.202413781378     
Share-based payments4. -725-1813-907-907-454-227-227 
Adjustments total 31732231290-1068-683-453-231 
Profit of the year, IFRS -5547-6137-4924-1212943988-3894 

NOTES

SUMMARY OF EFFECTS OF IFRS TRANSITION ON EQUITY AND PROFIT

  1. Capitalization of game development expenses

Under FAS, Next Games has expensed all development costs as they have incurred. Under IFRS, it is mandatory to capitalize development costs once certain criteria in IAS 38 Intangible assets have been met. Therefore, Next Games has analyzed its game development projects and identified two projects, where the capitalization criteria were met during the financial years 2017 and 2018. As a result, the following adjustments were made:

  • In the financial period, 2017 the expenses of R&D function were decreased by EUR 1.723 thousand and change in deferred taxes (expense) was increased by EUR 345 thousand.
  • As at 31 December 2017, intangible assets were increased by EUR 1.723 thousand, retained earnings were increased by EUR 1.378 thousand and deferred tax liabilities were increased by EUR 345 thousand.
  • In the financial period January 1, 2018 - June 30, 2018 the expenses of R&D function were decreased by EUR 2.530 thousand and change of deferred taxes (expense) was increased by EUR 506 thousand.
  • As at 30 June 2018, intangible assets were increased by EUR 4.252 thousand, retained earnings were increased by EUR 3.402 thousand and deferred tax liabilities were increased by EUR 850 thousand.

As the development projects were not yet completed and the two games were not yet launched as at 30 June 2018, no amortization of the capitalized development costs was recognized.

  1. Game as a Service platform capitalization

Under FAS, Next Games has expensed all costs related to the development of the Game as a Service platform (‘GaaS platform’). Under IFRS, management has concluded that the IAS 38 criteria for capitalization of GaaS platform development costs were met during the financial year 2016, as the GaaS platform is controlled by Next Games, future economic benefits are expected in a form of cost savings and increased revenue from new games, and the cost can be measured reliably. As a result, the following adjustments were made:

  • In the financial year, 2016, expenses of R&D function were decreased by EUR 171 thousand and change in deferred taxes (expense) was increased by EUR 34 thousand. 
  • As at 31 December 2016, intangible assets were increased by EUR 171 thousand, retained earnings (profit for the period) were increased by EUR 137 thousand and deferred tax liabilities were increased by EUR 34 thousand.
  • In the financial year, 2017, expenses of R&D function were decreased by EUR 646 thousand and change in deferred taxes (expense) was increased by EUR 129 thousand.
  • As at 31 December 2017, intangible assets were increased by EUR 817 thousand, retained earnings were increased by EUR 654 thousand and deferred tax liabilities were increased by EUR 163 thousand.
  • In the financial period January 1, 2018 - June 30, 2018, expenses of R&D function were decreased by EUR 699 thousand and change in deferred taxes (expense) was increased by EUR 140 thousand.
  • As at 30 June 2018, intangible assets were increased by EUR 1.516 thousand, retained earnings were increased by EUR 1.213 thousand and deferred tax liabilities were increased by EUR 303 thousand.

As the GaaS platform was still under development and not in use as at 30 June 2018, no amortization of the capitalized GaaS platform development costs were recognized.

  1. Business combinations and reversal of goodwill amortizations

Under IFRS, Next Games has elected to apply IFRS 3 Business combinations to a past business combination. Accordingly, the accounting of the acquisition of Helsinki Game Works Oy in October 2014 has been prepared in accordance with IFRS 3. Next Games did not have any other business combinations before the transition to IFRS as at 1 January 2016. Main adjustments compared to FAS consist of fair valuing Next Games’ shares given as consideration and identifying and fair valuing acquired intellectual property rights, which were not recognized under FAS. Component for post-combination services was separated from the acquisition cost, reflecting the employment obligation of the selling parties. This component is recognized as employee costs as the service is received by Next Games. Transaction costs were expensed instead of including them in the acquisition cost as treated under FAS. In addition, as goodwill is not amortized under IFRS, goodwill amortizations made under FAS were reversed. As a result, the following adjustments were made: 

  • As at 1 January 2016, goodwill was increased by EUR 1.612 thousand, intangible assets were increased by EUR 307 thousand, invested unrestricted equity reserve was increased by EUR 1.611 thousand, retained earnings were increased by EUR 247 thousand and deferred tax liabilities were increased by EUR 61 thousand.
  • In the financial year 2016, expenses of R&D function were decreased by EUR 277 thousand.
  • As at 31 December 2016, goodwill was increased by EUR 1.924 thousand, intangible assets were increased by EUR 307 thousand, invested unrestricted equity reserve was increased by EUR 1.611 thousand, retained earnings were increased by EUR 559 thousand and deferred tax liabilities were increased by EUR 61 thousand.
  • In the financial period 2017 expenses of R&D function were decreased by EUR 172 thousand.
  • As at 31 December 2017, goodwill was increased by EUR 2.124 thousand, intangible assets were increased by EUR 307 thousand, invested unrestricted equity reserve was increased by EUR 1.611 thousand, retained earnings were increased by EUR 759 thousand and deferred tax liabilities were increased by EUR 61 thousand.
  • As at 30 June, 2018, goodwill was increased by EUR 2.124 thousand, intangible assets were increased by EUR 307 thousand, invested unrestricted equity reserve was increased by EUR 1.611 thousand, retained earnings were increased by EUR 759 thousand and deferred tax liabilities were increased by EUR 61 thousand.

Next Games acquired Lume Games Oy in February 2017 and prepared the acquisition accounting in accordance with IFRS 3. Main adjustments compared to FAS consist of fair valuing Next Games’ shares given as consideration, fair valuing acquired technology, separating a component for post-combination services and expensing transaction costs. In addition, as goodwill is not amortized under IFRS, goodwill amortizations made under FAS were reversed. As a result, the following adjustments were made:

  • In the financial year 2017, expenses of R&D function were decreased by EUR 291 thousand, expenses of admin function were increased by EUR 61 thousand and change in deferred taxes (expense) was increased by EUR 18 thousand.
  • As at 31 December 2017, goodwill was increased by EUR 206 thousand, intangible assets were increased by EUR 92 thousand, invested unrestricted equity reserve was increased by EUR 41 thousand, retained earnings were increased by EUR 239 thousand and deferred tax liabilities were increased by EUR 18 thousand.
  • In the financial period January 1, 2018 - June 30, 2018, expenses of R&D function were decreased by EUR 143 thousand and change in deferred taxes (expense) was increased by EUR 9 thousand.
  • As at 30 June 2018, goodwill was increased by EUR 319 thousand, intangible assets were increased by EUR 138 thousand, invested unrestricted equity reserve was increased by EUR 41 thousand, retained earnings were increased by EUR 389 thousand and deferred tax liabilities were increased by EUR 28 thousand.
  1. Share-based payments

Next Games has established several share option plans which give the employees the right to subscribe Next Games’ shares.

Under FAS, Next Games has not recognized employee benefit expenses from the plans. Under IFRS, the plans are classified as equity-settled share-based payment plans. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense over the vesting period. As a result, the following adjustments were made:

  • In the financial year 2016, expenses of R&D function were increased by EUR 175 thousand, expenses of sales and marketing function were increased by EUR 42 thousand , expenses of admin function were increased by 237 and retained earnings were credited with same total amount EUR 454 thousand. Therefore, the balance sheet as at 31 December 2016 was not affected.
  • In the financial year 2017, expenses of R&D function were increased by EUR 698 thousand, expenses of sales and marketing function were increased by EUR 169 thousand, expenses of admin function were increased by EUR 946 and retained earnings were credited with same total amount EUR 1.813 thousand. Therefore, the balance sheet as at 31 December 2017 was not affected.
  • In the financial period January 1, 2018 - June 30, 2018, expenses of R&D function were increased by EUR 280 thousand, expenses of sales and marketing function were increased by EUR 68 thousand , expenses of admin function were increased by 378 and retained earnings were credited with same total amount EUR 725 thousand. Therefore, the balance sheet as at 30 June 2018 was not affected.
  1. License acquisitions

Next Games has acquired two licenses from AMC Networks Ventures LLC (‘AMC’): first one in 2014 related to The Walking Dead: No Man’s Land (‘NML license’) and the second one in 2017 related to The Walking Dead: Our World (‘OW license’). As a consideration, Next Games issued its shares to AMC. Under FAS, the NML license was not recognized to the balance sheet but the OW license was recognized as an intangible asset and as an increase in equity.

Under IFRS, management has concluded that both licenses meet the IAS 38 criteria for an intangible asset. Furthermore, as Next Games received a license from AMC and AMC received shares of Next Games in return, the arrangement is considered as an equity-settled share-based payment transaction in the scope of IFRS 2 Share-based payment. As the arrangement does not include any specific vesting conditions, the shares are considered to be vested once AMC has provided the rights to the licenses to Next Games, i.e. the shares vest immediately at the date of the acquisition. As the fair value of the acquired unique licenses cannot be estimated reliably, Next Games shall measure their value indirectly, by reference to the fair value of the equity instruments granted. As a result, the following adjustments were made:

  • As at 1 January 2016, intangible assets were increased by EUR 332 thousand, invested unrestricted equity reserve was increased by EUR 362 thousand and retained earnings were decreased by EUR 30 thousand.
  • In the financial year 2016, cost of revenue was increased by EUR 121 thousand.
  • As at 31 December 2016, intangible assets were increased by EUR 211 thousand, invested unrestricted equity reserve was increased by EUR 362 thousand and retained earnings were decreased by EUR 151 thousand.
  • In the financial year, 2017, cost of revenue was increased by EUR 121 thousand.
  • As at 31 December 2017, intangible assets were increased by EUR 299 thousand, invested unrestricted equity reserve was increased by EUR 571 thousand and retained earnings were decreased by EUR 272 thousand.
  • In the financial period 1 January, 2018 - 30 June, 2018, cost of revenue was increased by EUR 61 thousand.
  • As at 30 June 2018, intangible assets were increased by EUR 239 thousand, invested unrestricted equity reserve was increased by EUR 571 thousand and retained earnings were decreased by EUR 332 thousand
  1. Transaction costs related to the listing of Next Games’ shares

Next Games completed a listing of its shares on the First North Finland marketplace of Nasdaq Helsinki Ltd in March 2017. Under FAS, majority of incurred transaction costs were capitalized as prepayments and accrued income or intangible assets and amortized over three years. Other transaction costs were expensed as incurred. Under IFRS, transaction costs directly attributable to the issue of new equity instruments are not capitalized but rather deducted from equity as incurred. Other transaction costs directly attributable to the listing shall be allocated to the issue of new shares which are consequently deducted from equity and to the sale of old shares which are expensed as incurred. Next Games has made the allocation of such transaction costs based on the actual relative amounts of new and old shares. Other transaction cost not directly attributable to the listing were expensed as incurred. In addition, with respect to transaction costs eligible to be deducted from equity and incurred before 31 December 2016, management has chosen to deduct such costs from equity already as at 31 December 2016. As a result, the following adjustments were made:

  1. In the financial year 2016, expenses of admin function were increased by EUR 197 thousand and change in deferred taxes (income) was increased by EUR 39 thousand.
  2. As at 31 December 2016, prepayments and accrued income was decreased by EUR 254 thousand, deferred tax assets were increased by EUR 51 thousand, invested unrestricted equity reserve was decreased by EUR 46 thousand and retained earnings (profit for the period) were decreased by EUR 157 thousand.
  3. In the financial year 2017, expenses of admin function were decreased by EUR 284 thousand and change in deferred taxes (expense) was increased by EUR 56 thousand.
  4. As at 31 December 2017, intangible assets were decreased by EUR 1.954 thousand, deferred tax assets were increased by EUR 392 thousand, invested unrestricted equity reserve was decreased by EUR 1.633 thousand and retained earnings were increased by EUR 71 thousand.
  5. In the financial period January 1, 2018- June 30, 2018, expenses of admin function were decreased by EUR 451 thousand and change in deferred taxes (expense) was decreased by EUR 90 thousand.
  6. As at 30 June 2018, intangible assets were decreased by EUR 1.503 thousand, deferred tax assets were increased by EUR 302 thousand, invested unrestricted equity reserve was decreased by EUR 1.633 thousand and retained earnings were increased by EUR 432 thousand.
     
  7. Leases

Next Games has adopted IFRS 16 Leases retrospectively from 1 January 2016, however certain specific transition provisions as permitted under the IFRS 1 have been applied as described below.

On adoption of IFRS 16, Next Games recognized lease liabilities in relation to leases which had previously been classified as of balance sheet operating leases under FAS. Next Games has applied the exemptions of IFRS 1.D9B(a-b) and, therefore, the initial recognition is done by measuring the lease liability at the present value of the remaining lease payments at the date of transition to IFRS using the incremental borrowing rate at the date of transition as a discount rate. Right-of-use asset is measured as an amount which is equal with the lease liability. Next Games has also decided to apply recognition exemptions for short-term leases and leases of low-value assets, i.e. payments are recognized on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less and this exemption is used with property leases which contain the interim head office. Low-value assets contain certain IT-equipment.

Next Games has applied the exemption of IFRS 1.D9D(e) and used hindsight when determining the lease terms of certain property leases, which included extension or termination options. Therefore, the lease term of previous head quarter was not revised during the financial year 2017 when the lease was terminated. The termination penalties of the previous head quarter amounting to EUR 210 thousand has been included in the initial recognition of the lease liability and the right-of-use asset.

After the recognition exemptions, under IFRS Next Games has recognized lease liability and right-of-use asset from the lease contract of previous head quarter. As a result, the following adjustments were made:

  • As at 1 January 2016, non-current lease liabilities were increased by EUR 537 thousand and current lease liabilities were increased by EUR 251 thousand. The right-of-use assets under buildings and structures were increased by EUR 788 thousand.
  • In the financial year 2016, expenses of R&D function were increased by EUR 95 thousand, expenses of sales and marketing function increased by 17 thousand and expenses of admin function increased by 8 thousand. Financial expenses were increased by EUR 23 thousand and change in deferred taxes (income) was increased by EUR 29 thousand.
  • As at 31 December 2016, non-current lease liabilities were increased by EUR 224 thousand and current lease liabilities were increased by EUR 313 thousand. The right-of-use assets under buildings and structures were increased by EUR 394 thousand. Deferred tax assets were increased by EUR 29 thousand and retained earnings (profit for the period) were decreased by EUR 114 thousand.
  • In the financial year 2017, expenses of R&D function were decreased by EUR 107 thousand, expenses of sales and marketing function increased by EUR 35 thousand and expenses of admin function increased by EUR 18 thousand. Financial expenses were increased by EUR 14 thousand and change in deferred taxes (expense) was increased by EUR 29 thousand.
  • As at 31 December 2017, current lease liabilities were increased by EUR 224 thousand. Accruals and deferred income were decreased by EUR 227 thousand. Deferred tax assets were increased by EUR 45 thousand, deferred tax liabilities were increased by EUR 45 thousand and retained earnings were decreased by EUR 2 thousand.
  • In the financial year January 1, 2018 - June 30, 2018, Financial expenses were increased by EUR 3 thousand and change in deferred taxes (income) was increased by EUR 1 thousand.
  • No adjustments for balance sheet June 30, 2018
  1. Armada investment

In the financial year 2015, Next Games made an investment in Armada Interactive Oy (‘Armada’), a Finnish mobile gaming company. The amount of this initial investment was immaterial. In December 2016, Next Games made an additional investment in Armada by assigning the intellectual property rights received in connection with the acquisition of Helsinki Game Works Oy in October 2014 to Armada. Under FAS, it was considered that part of the goodwill generated from the acquisition of Helsinki Game Works Oy was disposed of when the intellectual property rights were assigned to Armada and the additional investment to Armada was made. However, under IFRS, as the accounting of the acquisition of Helsinki Game Works Oy was made in accordance with IFRS 3 and the acquired intellectual property rights were fair valued, no goodwill was considered to be disposed when the intellectual property rights were assigned to Armada.

As at 31 December 2017 Next Games held approximately 9.5 % of the shares and voting rights of Armada. Under FAS, the shareholding in Armada is accounted for as an investment measured at cost.

However, under IFRS, management has concluded that despite the ownership interest of less than 20 %, Next Games has significant influence in Armada and, consequently, the investment shall be accounted for as an associate in accordance with IAS 28 Investments in associates and joint ventures. Next Games has a right to appoint one of the board members of Armada and there are material transactions between Next Games and Armada as Armada is developing a game which is primarily based on the intellectual property rights received from Next Games. As a result, the following adjustments were made:

  • In the financial year 2016, other operating income was decreased by EUR 196 thousand and share of associates result was decreased by EUR 110 thousand. Change in deferred tax increase (income) EUR 61 thousand.
  • As at 31 December 2016, goodwill was increased by EUR 111 thousand, intangible assets were decreased by EUR 307 thousand, investments were decreased by EUR 1.074 thousand, investments in associates were increased by EUR 964 thousand, retained earnings (profit for the period) were decreased by EUR 244 thousand and deferred tax liabilities were decreased by EUR 61 thousand.
  • In the financial year 2017, share of associates result was decreased by EUR 455 thousand.
  • As at 31 December 2017, goodwill was increased by EUR 111 thousand, intangible assets were decreased by EUR 307 thousand, investments were decreased by EUR 1.074 thousand, investments in associates were increased by EUR 509 thousand, retained earnings were decreased by EUR 699 thousand and deferred tax liabilities were decreased by EUR 61 thousand.
  • In the financial period January 1, 2018 - June 30, 2018, share of associates result was decreased by EUR 116 thousand and amortization expenses of non-current investments were decreased by EUR 1.011 thousand euros
  • As at 30 June 2018, goodwill was increased by EUR 111 thousand, intangible assets were decreased by EUR 307 thousand, investments were decreased by EUR 63 thousand, investments in associates were increased by EUR 393 thousand, retained earnings were increased by EUR 196 thousand and deferred tax liabilities were decreased by EUR 61 thousand.
  1. Other adjustments

Change in depreciation method:

Under IFRS, Next Games has depreciated machinery and equipment over its useful life and accordingly adjusted the depreciation based on the reducing-balance method that was applied under FAS. The change in the depreciation policy decreased the accumulated depreciation of machinery and equipment in the opening IFRS balance sheet and thereby increased the carrying amount of machinery and equipment by EUR 50 thousand. The corresponding amount, net of deferred liability of EUR 10 thousand, was debited to retained earnings. As a result of the change, expenses of R&D function increased EUR 9 thousand in 2016, sales and marketing function expenses increased EUR 2 thousand and admin functions’ expenses increased EUR 1 thousand. Change of deferred taxes (income) increased EUR 2 thousand. As a result of the change, expenses of R&D function increased EUR 12 thousand in 2017, sales and marketing function expenses increased EUR 4 thousand and admin functions’ expenses increased EUR 2 thousand. Change of deferred taxes (income) increased EUR 4 thousand. As a result of the change, expenses of R&D function increased EUR 0 thousand in January - June 2018, sales and marketing function expenses increased EUR 0 thousand and admin functions’ expenses increased EUR 0 thousand. Change of deferred taxes (income) increased EUR 0 thousand.

Leasehold improvements:

Under FAS, leasehold improvements have been classified as intangible assets. Under IFRS, leasehold improvements are classified as tangible assets, in accordance with their nature.

Next Games has incurred leasehold improvement costs during the financial year 2016 related to their old head quarter premises, which lease contract was terminated effective from 31 December 2017. As a result, EUR 103 thousand was reclassified from intangible assets to tangible assets as at 31 December 2016. Due to a reassessment of the depreciation period, R&D functions’ expenses were increased by EUR 14 thousand in the financial year 2016 and decreased by EUR 12 thousand in the financial year 2017. Sales and marketing functions’ expenses increased EUR 2 thousand in 2016 and decreased EUR 4 thousand in 2017. Admin functions’ expenses increased EUR 1 thousand in 2016 and decreased EUR 2 thousand in 2017. Deferred tax asset of EUR 4 thousand was recognized as at 31 December 2016 and subsequently derecognized in the financial year 2017.

In addition, Next Games has incurred leasehold improvement costs during the financial year 2017 related to their new head quarter premises, which were taken into use during the summer 2018. As a result, EUR 118 thousand was reclassified from intangible assets to tangible assets as at 31 December 2017 and EUR 1.413 thousand as at June 2018. As the premises were not yet in use, no depreciation was recognized.

Governmental loans:

Next Games has two outstanding loans from governmental agency Tekes. First loan was granted in 2014 and the total nominal amount of the loan is EUR 336 thousand. According to the original loan agreement the loan will be repaid annually in four instalments starting from March 2018. Hence, company made amendment to the agreement and repayments starts in March 2019. Last payment will be performed in March 2021. According to the loan agreement the interest rate of the loan is three percent points below the base interest, however, at least 1% per annum.

Second loan with total nominal amount of EUR 439 thousand was granted in two instalments, first EUR 90 thousand in September 2015 and second EUR 349 thousand in September 2016. According to the loan agreement the loan will be repaid annually in four instalments starting from September 2019. Last payment will be performed in September 2022. According to the loan agreement the interest rate of the loan is three percent points below the base interest, however, at least 1% per annum.

Due to low market interest rates during recent years, the actual interest rates of the loans have been 1% per annum. Therefore, there is a favorable interest rate element in the loans which has to be separately accounted for under IFRS. Next Games uses amortized cost method to calculate the valuation of the loan, which causes differences with nominal amount method, which is used in FAS.

The projects that governmental loans are directed to, had occurred in 2014 and 2016. Therefore the governmental grants have been recognized as other operating income in 2016 and retained earnings to opening balance sheet.

  • As at 1 January 2016, IFRS loan balance was EUR 380 thousand (FAS: EUR 426 thousand). Other receivables were decreased by EUR 12 thousand. Retained earnings were increased by EUR 27 thousand. Deferred tax liabilities were increased by EUR 7 thousand.
  • In the financial year 2016, other operating income was increased by EUR 49 thousand. Interest expenses were increased by EUR -15 thousand. Change in deferred taxes were EUR -7 thousand.
  • As at 31 December 2016, IFRS loan balance was EUR 707 thousand (FAS: EUR 775 thousand). Retained earnings were increased by EUR 27 thousand. Deferred tax liabilities were increased by EUR 14 thousand.
  • In the financial year 2017, IFRS interest expenses were increased by EUR -20 thousand comparing FAS. Change in deferred taxes was EUR 4 thousand.
  • As at 31 December 2017, IFRS loan balance was EUR 726 thousand (FAS: EUR 775 thousand). Retained earnings were increased by EUR 55 thousand. Deferred tax liability was increased by EUR 10 thousand.
  • In the financial period January 1 - June 30, 2018, IFRS interest expenses were increased by EUR 14 thousand and change in deferred taxes (income) EUR 3 thousand.
  • As at 30 June 2018, IFRS loan balance was EUR 740 (FAS: EUR 775 thousand). Retained earnings were increased by EUR 28 thousand. Deferred tax liability was EUR 7 thousand.

Bad debt provision:

Under FAS, Next Games has not recorded any bad debt provisions in the financial statements. Under IFRS, Next Games adopts IFRS 9 standard, which requires the Company to continuously assess its financial assets. Next Games has assessed its accounts receivables and recorded a bad debt provision of EUR -14 thousand in 2016 financial statements. For 2017, Next Games recorded a bad debt provision of EUR -9 thousand.

Additional information:
Saara Bergström
CMO
investors@nextgames.com
+358 (0)50 483 3896

Certified Adviser: Danske Bank A/S, Finland branch, tel. +358 10 546 7938

About Next Games
Next Games (Helsinki Nasdaq First North: NXTGMS) is the first publicly listed mobile game developer and publisher in Finland, specializing in games based on entertainment franchises, such as movies, TV series or books. The developers of the critically acclaimed The Walking Dead games redefines the way franchise entertainment transforms into highly engaging service-based mobile games. In summer 2018, Next Games launched The Walking Dead: Our World, which utilizes cutting edge AR technology and is powered by Google Maps. Currently Next Games is working on multiple new games based on popular entertainment franchises including, Blade Runner Nexus, for the popular Blade Runner franchise. For more information head to www.nextgames.com