As filed with the Securities and Exchange Commission on September 29, 2023.
Registration No. 333-259707
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Exact name of registrant as specified in its charter)
British Virgin Islands | 7371 | Not applicable |
(State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
GDEV Inc.
55, Griva Digeni
3101, Limassol
Cyprus
Telephone: +35722580040
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Puglisi & Associates
850 Library Ave., Suite 204
Newark, DE 19711
Telephone: 302-738-6680
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all correspondence to:
J. David Stewart, Esq.
Latham & Watkins LLP
99 Bishopsgate
London, U.K., EC2M 2XF
Tel: (+44) (0)20 7710 1000
Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
The information included in this filing amends this Registration Statement and the prospectus contained therein. No additional securities are being registered under this Post-Effective Amendment No. 7. All applicable registration fees were paid at the time of the original filing of the Registration Statement.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 2023
PRELIMINARY PROSPECTUS
GDEV INC.
47,102,791 ORDINARY SHARES
7,750,000 WARRANTS TO PURCHASE ORDINARY SHARES
This prospectus relates to the offer and sale, from time to time, by the selling securityholders named herein (the “Selling Securityholders”), or their pledgees, donees, transferees, or other successors in interest, of: (i) up to 47,102,791 of our ordinary shares, no par value per share (the “ordinary shares”) issued to the Selling Securityholders, as described below (which includes up to 7,750,000 ordinary shares issuable upon the exercise of 7,750,000 of our warrants offered hereby issued to certain of the Selling Securityholders, as described below); and (ii) up to 7,750,000 of our warrants issued to certain of the Selling Securityholders, as described below.
On August 26, 2021, we consummated the transactions (the “Transactions”) contemplated by that certain Business Combination Agreement (the “Business Combination Agreement”), dated as of January 31, 2021, as amended on July 17, 2021 and August 11, 2021, by and among GDEV Inc. (formerly, Nexters Inc.) (“GDEV” or the “Issuer”), Kismet Acquisition One Corp. (“Kismet”), Kismet Sponsor Limited (the “Sponsor”), solely in its capacity as Kismet’s representative, Nexters Global Ltd. (“Nexters Global”), Fantina Holdings Limited, a private limited liability company domiciled in Cyprus, solely in its capacity as the representative of the shareholders of Nexters Global, and the shareholders of Nexters Global party thereto. As contemplated by the Business Combination Agreement, Kismet was merged into the Issuer, with the Issuer surviving the merger and the securityholders of Kismet (other than those who elected to redeem their Kismet ordinary shares) becoming securityholders of the Issuer (the “Merger”), and the Issuer acquired all of the issued and outstanding share capital of Nexters Global from the holders of Nexters Global’s share capital for a combination of cash and GDEV ordinary shares, such that Nexters Global became a direct wholly owned subsidiary of the Issuer (the “Share Acquisition”).
The securities covered by this prospectus include (i) 5,000,000 GDEV ordinary shares issued to certain institutional investors in private placements pursuant to the PIPE Subscription Agreements (as defined herein) consummated in connection with the Transactions, (ii)(a) 6,750,000 GDEV ordinary shares issued to the Sponsor in connection with the Merger and (b) 5,000,000 GDEV ordinary shares issued to the Sponsor in a private placement pursuant to the A&R Forward Purchase Agreement (as defined herein) consummated in connection with the Transactions, and (iii) 22,602,791 GDEV ordinary shares issued to certain former shareholders of Nexters Global in connection with the Share Acquisition, (iv)(a) 5,125,000 GDEV warrants issued to the Sponsor in connection with the Merger and (b) 1,000,000 GDEV warrants issued to the Sponsor in a private placement pursuant to the A&R Forward Purchase Agreement consummated in connection with the Transactions, and (v) 1,625,000 GDEV warrants transferred by the Sponsor to certain institutional investors in private placements pursuant to the PIPE Subscription Agreements (as defined herein) consummated in connection with the Transactions. In addition, this prospectus relates to the offer and sale of up to 7,750,000 GDEV ordinary shares issuable by us upon exercise of 7,750,000 GDEV warrants offered hereby.
Upon Kismet’s initial public offering (the “IPO”), the Sponsor held an aggregate of 6,750,000 Kismet founder shares which it had acquired against a capital contribution of $25,000, representing an acquisition price of approximately $0.0037 per share. In the IPO, Kismet issued 25,000,000 units to public holders at a price of $10.00 per unit, with each unit consisting of one Kismet ordinary share and one-half of one Kismet warrant. Simultaneously with the consummation of the IPO, the Sponsor purchased 6,750,000 Kismet private placement warrants at a purchase price of $6,750,000, or $1.00 per private placement warrant. Upon the consummation of the Transactions, (i) the Sponsor’s 6,750,000 Kismet founder shares were converted into 6,750,000 GDEV ordinary shares, (ii) 3,188,758 Kismet ordinary shares issued to public holders (following the redemption of 21,811,242 Kismet ordinary shares prior to the Merger) were converted to 3,188,758 GDEV ordinary shares, (iii) the Sponsor’s 6,750,000 Kismet private placement warrants were converted into 6,750,000 GDEV private placement warrants, (iv) the Sponsor acquired, pursuant to the A&R Forward Purchase Agreement, 5,000,000 GDEV ordinary shares and 1,000,000 GDEV warrants for an aggregate purchase price of $50,000,000, or approximately $9.86 per GDEV ordinary share and approximately $0.72 per GDEV warrant (assuming an estimated purchase price allocation based upon the closing trading price of Kismet’s public warrants of $0.72 on August 27, 2021, the closing date of the Transactions), and (v) the Sponsor transferred, pursuant to the PIPE Subscription Agreements, 1,625,000 GDEV private placement warrants to the PIPE Investors, for which the Sponsor did not receive any consideration.
The up to 47,102,791 ordinary shares being offered for resale pursuant to this prospectus by the Selling Securityholders represent approximately 21.5% of shares outstanding on a diluted basis assuming the exercise of all outstanding warrants and the exercise of all options vested as of the date of this prospectus or within 60 days hereof. Additionally, pursuant to other registration statements we have filed with the SEC, we have registered for resale by certain selling securityholders up to 175,413,828 ordinary shares. Furthermore, as of the date of this prospectus, 9,562,757 ordinary shares are registered and subject to issuance under our 2021 Employee Stock Option Plan, which ordinary shares may, upon issuance, be resold in the public market. In aggregate, the percentage of our ordinary shares being offered for resale under both this prospectus and our other registration statements amounts to approximately 98.9% of our shares outstanding on a fully diluted basis assuming both (a) the exercise of all outstanding warrants and the exercise of all options vested as of the date of this prospectus or within 60 days hereof and (b) the issuance of all ordinary shares issuable under our 2021 Employee Stock Option Plan (excluding ordinary shares associated with such vested options). Given the substantial number of ordinary shares registered for potential resale by selling securityholders (including the Selling Securityholders under this prospectus), the sale of ordinary shares by those selling securityholders, or the perception in the market that the selling securityholders of a large number of shares intend to sell shares, could increase the volatility of the market price of our ordinary shares or result in a significant decline in the public trading price of our ordinary shares. Even if our trading price is significantly below $10.00, the offering price of the Kismet units offered in its IPO, the Sponsor, one of the Selling Securityholders named in this prospectus, may still have an incentive to sell our ordinary shares because it acquired 6,750,000 ordinary shares relating to the 6,750,000 Kismet founder shares at prices lower than the public investors or the last reported trading price of our ordinary shares. For example, based on the last reported sale price of our ordinary shares of $2.74 on September 28, 2023, the Sponsor would experience a potential profit in respect of 6,750,000 of its GDEV ordinary shares relating to the 6,750,000 Kismet founder shares of up to approximately $2.736 per share, or approximately $18.5 million in the aggregate. While the Sponsor may experience a positive rate of return based on the trading price of our ordinary shares, the public holders of our ordinary shares may not experience a similar rate of return on the ordinary shares they purchase due to differences in the applicable purchase price and trading price. Ivan Tavrin, a former director of the Company and the former sole owner of the Sponsor who maintains sole dispositive power over all of GDEV ordinary shares held by the Sponsor until February 15, 2025, has caused the Sponsor to offer its entire holding in GDEV securities, comprising 11,750,000 ordinary shares and 6,125,000 warrants, in the offering to which this prospectus relates.
The Selling Securityholders may offer all or part of the securities for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. These securities are being registered to permit the Selling Securityholders to sell securities from time to time, in amounts, at prices and on terms determined at the time of offering. The Selling Securityholders may sell these securities through ordinary brokerage transactions, directly to market makers of our shares or through any other means described in the section entitled “Plan of Distribution” herein. In connection with any sales of securities offered hereunder, the Selling Securityholders, any underwriters, agents, brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
We will not receive any proceeds from the sale of any securities by the Selling Securityholders, except with respect to amounts received by us upon exercise of the GDEV warrants to the extent such GDEV warrants are exercised for cash. See “Use of Proceeds.” We will pay certain expenses associated with the registration of the securities covered by this prospectus, as described in the section entitled “Plan of Distribution.”
Our ordinary shares are listed on the Nasdaq Global Market (“Nasdaq”) under the symbol “GDEV.” On September 28, 2023, the last reported sale price of our ordinary shares as reported on Nasdaq was $2.74 per share. Our warrants are listed on the Nasdaq under the symbol “GDEVW.” On September 28, 2023, the last reported sale price of our warrants as reported on Nasdaq was $0.15 per warrant.
We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.
We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company disclosure and reporting requirements. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Prospectus dated , 2023
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 55 |
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Enforceability of Civil Liabilities Under U.S. Securities Laws | 160 |
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F-1 |
You should rely only on the information contained in this prospectus or any supplement. Neither we nor the Selling Securityholders have authorized anyone else to provide you with different information. The securities offered by this prospectus are being offered only in jurisdictions where the offer is permitted. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of each document. Our business, financial condition, results of operations and prospects may have changed since that date.
Except as otherwise set forth in this prospectus, neither we nor the Selling Securityholders have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form F-1 filed with the Securities Exchange Commission, or the SEC. The Selling Securityholders named in this prospectus may, from time to time, sell the securities described in this prospectus in one or more offerings. This prospectus include important information about us, the ordinary shares and warrants issued by us, the securities being offered by the Selling Securityholders and other information you should know before investing. Any prospectus supplement or post-effective amendment to the registration statement may also add, update, or change information in this prospectus. If there is any inconsistency between the information contained in this prospectus and any prospectus supplement or post-effective amendment to the registration statement, you should rely on the information contained in that particular prospectus supplement or post-effective amendment to the registration statement. This prospectus does not contain all of the information provided in the registration statement that we filed with the SEC. You should read this prospectus together with the additional information about us described in the section below entitled “Where You Can Find More Information.” You should rely only on information contained in this prospectus. We have not, and the Selling Securityholders have not, authorized anyone to provide you with information different from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date on the front cover of the prospectus. You should not assume that the information contained in this prospectus is accurate as of any other date.
We and the Selling Securityholders may offer and sell the securities directly to purchasers, through agents selected by us and/or the Selling Securityholders, or to or through underwriters or dealers. A prospectus supplement, if required, may describe the terms of the plan of distribution and set forth the names of any agents, underwriters or dealers involved in the sale of securities. See “Plan of Distribution.”
Unless otherwise stated or the context otherwise requires, all references to the “Company,” the “Group,” “we,” “us” or “our” refer to the business of GDEV Inc., together with its consolidated subsidiaries as a consolidated entity, and references to the “Issuer” refer solely to GDEV Inc. as a standalone company.
SELECTED DEFINITIONS
The following terms used in this document are defined below, unless the context otherwise requires:
“2021 ESOP” means the Company’s 2021 Employee Stock Option Plan adopted by the Company’s board of directors on November 16, 2021.
“Business Combination Agreement” means the Business Combination Agreement, dated as of January 31, 2021, as amended on July 17, 2021 and August 11, 2021, by and among Kismet, the Issuer, the Sponsor, solely in its capacity as Kismet’s representative, Nexters Global, Fantina Holdings Limited, a private limited liability company domiciled in Cyprus, solely in its capacity as the Company Shareholders representative, and the shareholders of Nexters Global party thereto.
“BVI” means British Virgin Islands.
“Closing” means the Merger Closing and the Share Acquisition Closing, collectively.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Companies Act” means the BVI Business Companies Act, 2004 (as amended).
“Company” means GDEV Inc. (formerly, Nexters Inc.), a British Virgin Islands business company, and its consolidated subsidiaries.
“Company Shareholders” means the shareholders of Nexters Global prior to the Closing.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“GDEV” means GDEV Inc. (formerly, Nexters Inc.), a British Virgin Islands business company.
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“IFRS” means International Financial Reporting Standards as adopted by the International Accounting Standards Board.
“Insolvency Act” means the Insolvency Act, 2003 of the British Virgin Islands.
“Investment Company Act” means the U.S. Investment Company Act of 1940, as amended.
“IPO” means Kismet’s initial public offering of Kismet units, consummated on August 10, 2020.
“JOBS Act” means the Jumpstart Our Business Startups Act of 2012, as amended.
“Key Company Shareholders” means, collectively, Andrey Fadeev, Boris Gertsovskiy and Everix Investments Limited, a private limited liability company domiciled in Cyprus.
“Kismet” means, prior to the Merger, Kismet Acquisition One Corp, a company incorporated under the laws of the British Virgin Islands.
“Kismet founder shares” means the Kismet ordinary shares issued prior to the IPO.
“Merger” means the merger of Kismet with and into the Issuer, as a result of which the separate corporate existence of Kismet ceased, with the Issuer continuing as the surviving company, and the security holders of Kismet (other than security holders of Kismet who elected to redeem their Kismet ordinary shares) became security holders of the Issuer.
“Merger Closing” means the closing of the Merger.
“Nasdaq” means the Nasdaq Global Market.
“Nexters Global” means Nexters Global Ltd., a private limited liability company domiciled in Cyprus, and its consolidated subsidiaries.
“PCAOB” means the Public Company Accounting Oversight Board.
“PIPE” means the issuance and sale of newly issued GDEV ordinary shares to the PIPE Investors in private placements outside the United States in reliance on Regulation S under the Securities Act consummated substantially concurrently with the closing of the Transactions.
“PIPE Investors” means the investors in the PIPE.
“prospectus” means the prospectus included in this registration statement on Form F-1 (Registration No. 333-259707) filed with the SEC.
“Registration Rights Agreement” means the Registration Rights Agreement entered into by and among the Issuer, the Key Company Shareholders and the Sponsor in connection with the Merger Closing.
“SEC” means the U.S. Securities Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“Share Acquisition” means the acquisition by the Issuer all of the issued and outstanding share capital of Nexters Global in exchange for the payment, issue and delivery to the Company Shareholders of a combination of cash and GDEV ordinary shares, pursuant to which Nexters Global became a direct wholly owned subsidiary of the Issuer.
“Share Acquisition Closing” means the closing of the Share Acquisition.
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“Sponsor” means Kismet Sponsor Limited, a British Virgin Islands business company.
“Transactions” means the transactions contemplated by the Business Combination Agreement which, among other things, provided for the Merger, the Share Acquisition and, unless the context otherwise requires, the PIPE subscription financing.
“Warrant Agreement” means the warrant agreement governing GDEV’s outstanding warrants, comprising the warrant agreement, dated as of August 5, 2020, between Kismet and Continental Stock Transfer & Trust Company and the assignment, assumption and amendment agreement, dated as of August 25, 2021, by and among Kismet, the Issuer and Continental Stock Transfer & Trust Company.
PRESENTATION OF FINANCIAL INFORMATION
Our consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, any numerical discrepancies in any table between totals and sums of the amounts listed are due to rounding.
KEY PERFORMANCE METRICS
Throughout this prospectus, we provide a number of key performance metrics used by our management to manage our business. Our key performance metrics include the following:
| ● | “Daily Active Users,” or “DAUs,” defined as the number of individuals who played one of the Company’s games during a particular day. |
| ● | “Monthly Active Users,” or “MAUs,” defined as the number of individuals who played a particular game in the 30-day period ending with the measurement date. |
| ● | “Monthly Paying Users,” or “MPUs,” defined as the number of individuals who made a purchase of a virtual item at least once on a particular platform in the 30-day period ending with the measurement date. |
| ● | “Monthly Payer Conversion,” defined as the total number of MPUs, divided by the number of MAUs. |
| ● | “Average Bookings Per Paying User,” or “ABPPU,” defined as the Company’s total Bookings attributable to in-game purchases in a given period, divided by the number of months in that period, divided by the average number of MPUs during the period. |
| ● | “Bookings,” defined as sales contracts generated from in-game purchases and advertising in a given period. |
For more information on each of these metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Performance Metrics.”
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INDUSTRY AND MARKET DATA
In this prospectus, we present industry data, information and statistics regarding the markets in which we compete as well as publicly available information, industry and general publications and research and studies conducted by third parties. This information is supplemented where necessary with our own internal estimates and information obtained from discussions with its customers, taking into account publicly available information about other industry participants and the Company’s management’s judgment where information is not publicly available. This information appears in “Summary of the Prospectus,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and other sections of this prospectus.
Industry publications, research, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could cause results to differ materially from those expressed in any forecasts or estimates.
TRADEMARKS
We have proprietary rights to trademarks used in this prospectus that are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “®” or “™” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective holder.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain “forward-looking statements” for purposes of the federal securities laws. Forward-looking statements include, but are not limited to, statements with respect to (i) our revenues, Bookings, performance, strategies, plans, prospects, forecasts and other aspects of our business, (ii) trends in the gaming industry, (iii) our target cohorts and user and the expected arrangement with them, (iv) our projected growth opportunities, including relative to our competitors and (v) other statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future.
Such statements are based on current expectations that are subject to risks and uncertainties. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this prospectus are based our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. Forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions. Many factors could cause actual results or performance to be materially different from those expressed or implied by the forward-looking statements in this prospectus, including among other things:
| ● | our ability to implement business plans, forecasts, and other expectations, and identify and realize additional opportunities; |
| ● | changes in general economic or political conditions in the countries or regions in which we operate; |
| ● | changes, conditions or effects that generally affect the mobile game industry; |
| ● | our potential inability to achieve our projected Bookings growth and scale its platform; |
| ● | our potential inability to maintain our current revenue stream and its relationships with players and advertisers; |
| ● | our potential inability to execute our M&A strategy; |
| ● | the enforceability of our intellectual property and protection of our proprietary information; |
| ● | the risk to our business, operations and plans if internal processes and information technology systems are not properly maintained and risks associated with our operational reliance on third parties, including third-party platforms and infrastructure; |
| ● | the risk to our business, operations and plans from cyber-attacks or other privacy or data security incidents; |
| ● | the ability to maintain the listing of our securities on a recognized securities exchange; |
| ● | changes in the competitive and regulated industries in which we operate, variations in operating performance across competitors, changes in laws and regulations (including data privacy, cybersecurity and tax laws and regulations) affecting our business and changes in our capital structure; |
| ● | the risk of downturns and a changing regulatory landscape in the highly competitive industry in which the we operate; |
| ● | the effect of global epidemics and contagious disease outbreaks, including COVID-19, and public perception thereof; |
| ● | volatility in the price of our securities; and |
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| ● | the other matters described in the section titled “Risk Factors.” |
The foregoing list of factors is not exhaustive. The forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 pandemic and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We will not and do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our securities. Before making an investment decision, you should read this entire prospectus carefully, especially “Risk Factors” and the financial statements and related notes thereto, and the other documents to which this prospectus refers. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” for more information.
Unless otherwise stated or the context otherwise requires, all references to the “Company,” the “Group,” “we,” “us” or “our” refer to the business of GDEV Inc., together with its consolidated subsidiaries as a consolidated entity, and references to the “Issuer” refer solely to GDEV Inc. as a standalone company.
The Company
We build mobile, web and social games for millions of players to enjoy globally. We are one of the top five independent mobile game developers in Europe (excluding developers owned and controlled by other companies active in the gaming market) based on in-game purchases in 2022, net of platform fees, according to data provided by data.ai. Our games are free to play, and we continuously innovate our games to provide novel, curated in-game content to our users at optimal points in their game journeys.
Our core product offering, Hero Wars, offers a suite of games across mobile, social and web-based platforms and has, since its launch in 2016, evolved into a well-recognized global gaming franchise in the RPG genre, with 3.5 million MAUs across more than 75 countries in 2022. In 2022, Hero Wars ranked 10th on Android and 8th on iOS according to the top grossing charts in the RPG genre in the United States.
Continuous improvements in game content and focus on customer engagement has allowed us to monetize on the popularity of our games and achieve attractive key performance metrics. In particular, between 2018 and 2021, we achieved 13 times’ growth in Bookings and as of December 31, 2022, our cumulative all time Bookings crossed the $1.5 billion mark. We benefit from predictable cohorts and a loyal base of core players, which supports our ability to sustain our monetization per user. In the year ended December 31, 2022, cohorts from previous periods accounted for approximately 81.7% of our Bookings for our core product, Hero Wars.
Since our formation over a decade ago, we have developed a sizeable built-to-scale platform, enabling us to streamline content development and offering a value-enhancing opportunity for potential newly acquired games and companies. For example, in 2022, we entered into agreements to acquire four separate gaming studios to expand our portfolio of midcore games, enlarge our player base and expand into new genres. We plan to further expand gameplays within our current products as well as work towards new game offerings.
Our headquarters are in Cyprus. As of June 30, 2023, we had 777 employees. Our revenue and for the first six months of 2023 and for the years ended December 31, 2022 and 2021 was $234 million, $479.7 million and $434.1 million, respectively, and our Bookings1 for the same periods were $214 million, $449.4 million and $562 million, respectively. We recorded net cash flows used in operating activities of $0.1 million for the first six months of 2023 and net cash flows generated from operating activities of $116.1 million and $105.5 million for the years ended December 31, 2022 and 2021, respectively. Our total comprehensive income/loss net of tax for the first six months of 2023 and for the years ended December 31, 2022 and 2021 was an income of $12.4 million, income of $10.7 million, and loss of $117.4 million, respectively.
Corporate Information
GDEV Inc. (formerly, Nexters Inc.), “GDEV” or the “Issuer”, is a business company incorporated under the laws of the British Virgin Islands on January 27, 2021. GDEV was formed for the sole purpose of effectuating the Transactions contemplated by the Business Combination Agreement, including the merger of Kismet Acquisition One Corp. (“Kismet”) into the Issuer and the acquisition by the Issuer of all the issued and outstanding share capital of Nexters Global Ltd. (“Nexters Global”). The Transactions were consummated on August 26, 2021.
1 | For a definition of Bookings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key performance metrics — Bookings.” |
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Prior to the Transactions, GDEV had no material assets and did not conduct any material activities other than those incidental to its formation and the matters contemplated by the Business Combination Agreement, such as the making of certain required securities law filings. Upon the closing of the Transactions, the Issuer became the direct parent of Nexters Global, a developer of mobile, web, and social games.
On June 21, 2023, GDEV filed a Certificate of Name Change with the Registrar of Corporate Affairs of the British Virgin Islands to change its name from “Nexters Inc.” to “GDEV Inc.” The name change was effective as of the date of filing of the Certificate of Name Change. The name change reflects the evolution
of the Company as a holding company focused on the growth of its diversified portfolio of studios and franchises. GDEV’s ordinary shares and warrants continue to trade on Nasdaq as “GDEV” and “GDEVW”, respectively, under the same CUSIPs and ISIN numbers as prior to the name change.
The principal executive office of GDEV is 55, Griva Digeni, 3101, Limassol, Cyprus, and the telephone number of GDEV is +35722580040. The website address of GDEV is: https://gdev.inc. The information contained on the website does not form a part of, and is not incorporated by reference into, this prospectus.
Recent Developments
Measures Taken to Eliminate Risks Associated With the Russian Military Conflict in Ukraine
In accordance with the Company’s Corporate Governance Guidelines (the “Guidelines”), each of our directors has the responsibility of overseeing management of the Company’s risks, with the board of directors (and its committees) having the obligation to take an active role in overseeing the management of the Company’s risks. In accordance with the Guidelines, the directors of the Company have taken a very direct, methodical and hands-on approach in relation to the evaluation and mitigation of political and business risks to the Company associated with the Russian military conflict in Ukraine. Following the outbreak of the conflict, the directors and management were in close daily contact via email and telephone communication on an ad hoc basis, where various aspects of the Company’s business are discussed. Directors requested information and actively participated in developing and implementing the Company’s immediate, medium and long-term strategies to address the Company’s exposures to Russian country risk, with a particular focus on sustainability and growth of the Company’s business and operations, compliance and corporate governance matters, support and relocation of employees based in affected regions, and official correspondences with Nasdaq and the SEC. The impact of other potential risks to the Company associated with the Russian military conflict in Ukraine, such as risks relating to the sanctions, the increased level of cyber-attacks, import or export bans and the reaction of Company’s employees thereto, were also considered by management and discussed with the Company’s directors, but those risks were assessed to be irrelevant or immaterial to the Company and its operations. Separate video conferences and email correspondences with the Company’s independent directors were also conducted to ensure that their views and recommendations were also taken into consideration.
The risks associated with the Russian military conflict in Ukraine were also addressed in the context of formal board meetings, where the strategy to deal with and eliminate and/or mitigate the existing risks and uncertainties facing the Company as a result of the Ukraine conflict were discussed. The most critical risks and uncertainties were assessed to be those relating to the Company’s operations in the affected regions, the Company’s M&A and corporate governance strategy, and sustainability of the Company’s business. Management and the board agreed upon the following measures to address these risks and uncertainties:
| ● | Discontinuation of investments in the acquisition of users in the affected regions; |
| ● | Relocation of critical personnel still located in Russia, Ukraine and Belarus, with the ultimate goal of relocating the vast majority of critical personnel within the next few months to Cyprus, Armenia and certain other “safe-harbor” countries; and |
| ● | Divestment of the Company’s Russia-based subsidiaries. |
Our board of directors determined that it is in the best interests of the Company, our player community and our investors to eliminate — to the maximum extent possible within the Company’s control — our exposure to country risks related to Russia, and developed plans to implement this strategy. To this end, on July 11, 2022, the Company’s board of directors formally approved the divestment of the Russia-based subsidiaries, which were not considered to be vital to the Company’s business operations, and the relocation plans of the critical personnel still located in Russia, Ukraine and Belarus.
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Accordingly, our strategic plan to minimize our risks related to Russia included: (i) the reallocation of the revenue streams associated with our Bookings generated through Russian social networks to a Russian subsidiary (the “Russian Network Subsidiary”) in conjunction with the disposition of the entirety of our Russian-based subsidiaries, including the Russian Network Subsidiary, and (ii) the relocation of the vast majority of critical personnel to Cyprus, Armenia and certain other “safe-harbor” countries.
| ● | The reallocation of our Bookings generated through the Russian social networks to the Russian Network Subsidiary permitted the Company to isolate the revenue streams its derived from its contractual relationships with Russian counterparties into a single subsidiary. With the disposition of the entirety of the Company’s Russian-based subsidiaries, including the Russian Network Subsidiary, to their respective management teams located within Russia, the Company decoupled itself from all revenue-generating contracts with Russian counterparties and, thereby, the risks associated with those counterparties, including the potential imposition of sanctions on such counterparties (or persons associated with such counterparties), as well as the perception of indirect support for Russia through the transacting of business with Russian entities. |
| ● | The relocation program is intended to ensure that the Company is not dependent upon any critical personnel located within Russia, thereby mitigating risks associated with the need to make payments in Russian rubles to those individuals, including the perception of indirectly supporting Russia through those payments, as well as the potential for losing access to those critical employees as a consequence of the potential imposition of regulatory or other measures, including market pressure. |
As of the date of this prospectus, we have largely completed the execution of our strategic plan. In particular, we have (i) completed the reallocation of our Bookings generated through the Russian social networks to the Russian Network Subsidiary, (ii) fully divested ourselves of our (former) Russian-based subsidiaries, including the Russian Network Subsidiary, (iii) discontinued offering of our games through Russian social networks, (iv) relocated or laid-off all employees in Russia, and (v) moved all our former Russian business operations to other countries.
Resumption of Trading on Nasdaq
On February 28, 2022, Nasdaq imposed a suspension of trading in securities of a number of companies with operations in Russia as of that date, including GDEV. In light of the measures that the Company has implemented to eliminate — to the maximum extent possible within the Company’s control — its exposure to country risks related to Russia, Nasdaq has lifted the suspension and trading of the Company’s securities resumed as of March 16, 2023.
Implications of Being an Emerging Growth Company and a Foreign Private Issuer
We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to U.S. public companies. These provisions include:
| ● | an exemption that allows the inclusion in an initial public offering registration statement of only two years of audited financial statements and selected financial data and only two years of related disclosure; |
| ● | reduced executive compensation disclosure; |
| ● | exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved; |
| ● | an exemption from compliance with the requirement of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements; and |
| ● | an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) in the assessment of the emerging growth company’s internal control over financial reporting. |
The JOBS Act also permits an emerging growth company such as us to delay adopting new or revised accounting standards until such time as those standards are applicable to private companies. We have elected to use this extended transition period to enable us to
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comply with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to take advantage of some but not all of these reduced reporting burdens.
We will remain an emerging growth company until the earliest of:
| ● | the last day of our fiscal year during which we have total annual revenue of at least $1.235 billion; |
| ● | the last day of our fiscal year following the fifth anniversary of the closing of the Business Combination; |
| ● | the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or |
| ● | the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. |
In addition, we report under the Exchange Act as a “foreign private issuer.” As a foreign private issuer, we may take advantage of certain provisions under the rules that allow us to follow BVI law for certain corporate governance matters. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; |
| ● | the rules under the Exchange Act requiring the filing with the U.S. Securities and Exchange Commission (the “SEC”) of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and |
| ● | Regulation Fair Disclosure (“Regulation FD”), which regulates selective disclosures of material information by issuers. |
Foreign private issuers, like emerging growth companies, also are exempt from certain more stringent executive compensation disclosure rules. Thus, if we remain a foreign private issuer, even if we no longer qualify as an emerging growth company, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are neither an emerging growth company nor a foreign private issuer.
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies:
| ● | the majority of our executive officers or directors are U.S. citizens or residents; |
| ● | more than 50% of our assets are located in the United States; or |
| ● | our business is administered principally in the United States. |
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Summary of Risk Factors
Investing in our securities entails a high degree of risk as more fully described under “Risk Factors.” You should carefully consider such risks before deciding to invest in our securities. These risks include, but are not limited to, the following:
| ● | We rely on third-party platforms, such as the iOS App Store, Facebook, and Google Play Store, to distribute our games and collect revenues, and such platforms may adversely change their policies. |
| ● | Our core game offering, Hero Wars, generates a substantial portion of our revenue. |
| ● | A small percentage of total users have generated a majority of our revenues. |
| ● | Our free-to-play business model, and the value of virtual items sold in our games, is highly dependent on how we manage the game revenues and pricing models. |
| ● | We may be unable to successfully develop new games. |
| ● | We operate in a highly competitive industry with low barriers to entry. |
| ● | Legal or regulatory restrictions or proceedings could adversely impact our business and limit the growth of our operations. |
| ● | Security breaches or other disruptions could compromise our information or the information of our players and expose us to liability. |
| ● | Our inability to protect our intellectual property and proprietary information could adversely impact our business. |
| ● | Our use of open source software in connection with certain of our games, may pose particular risks to our proprietary software, games and services in a manner that could have a negative impact on our business. |
| ● | We face added business, political, regulatory, operational, financial and economic risks as a result of our operations and distribution in a variety of countries. |
| ● | We have no controlling shareholders, however, the loss of one or more of our largest shareholders could significantly harm our business. |
| ● | In connection with the preparation of GDEV Inc.’s consolidated financial statements as of and for each of the years ended December 31, 2022, 2021 and 2020, we identified material weaknesses in our internal controls over financial reporting. |
| ● | The price of our ordinary shares and warrants may be volatile. |
| ● | Sales of a substantial number of our ordinary shares in the public market by our securityholders could cause the price of our ordinary shares to fall. |
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SUMMARY TERMS OF THE OFFERING
The summary below describes the principal terms of the offering. The “Description of Securities” section of this prospectus contains a more detailed description of our ordinary shares and warrants.
Any investment in the securities offered hereby is speculative and involves a high degree of risk. You should carefully consider the information set forth under “Risk Factors” of this prospectus.
Resale of Ordinary Shares |
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Ordinary shares offered by the Selling Securityholders | up to 47,102,791 of ordinary shares of GDEV, no par value per share, comprising: ● up to 5,000,000 ordinary shares issued in the PIPE; ● up to 5,000,000 ordinary shares issued to the Sponsor in a private placement; ● up to 6,750,000 ordinary shares issued to the Sponsor in the Merger; ● up to 22,602,791 ordinary shares issued to certain former shareholders of GDEV Global in the Share Acquisition; and ● up to 7,750,000 ordinary shares issuable upon the exercise of up to 7,750,000 warrants offered hereby. | |
Warrants offered by the Selling Securityholders | up to 7,750,000 warrants of Nexters, comprising: ● 5,125,000 GDEV warrants issued to the Sponsor in connection with the Merger; ● 1,000,000 warrants issued to the Sponsor in a private placement; and ● 1,625,000 warrants transferred by to the Sponsor to the PIPE Investors in private placements. | |
Ordinary shares issued and outstanding | 197,389,502 | |
Warrants issued and outstanding | 20,249,993 | |
Ordinary shares outstanding and on a fully diluted basis assuming the exercise of all outstanding warrants and options exercisable as of the date of this prospectus or within 60 days hereof | 219,285,226 | |
Principal terms of warrants | Each whole warrant entitles the holder thereof to purchase one ordinary share at a price of $11.50 per ordinary share, subject to adjustment as described herein. The warrants will expire at 5:00 p.m., NewYork City time on August 26, 2026, or earlier upon liquidation or, if permitted, redemption. | |
Use of proceeds | All of the ordinary shares and warrants offered by the Selling Securityholders pursuant to this prospectus will be sold by the |
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Selling Securityholders for their respective amounts. We will not receive any of the proceeds from these sales. However, we will receive up to an aggregate of $89,125,000 from the exercise of warrants being offered for sale in this prospectus, assuming the exercise of all 7,750,000 of such warrants for cash at an exercise price of $11.50 per ordinary share. | ||
Dividend policy | GDEV has never declared or paid any cash dividends. GDEV’s board of directors will consider whether or not to institute a dividend policy. It is presently intended that GDEV will retain its earnings for use in business operations and, accordingly, it is not anticipated that GDEV’s board of directors will declare dividends in the foreseeable future. GDEV has not identified a paying agent. See “Dividend Policy.” | |
Risk factors | Investing in our ordinary shares involves a high degree or risk. See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares. | |
Market for our ordinary shares and warrants | Our ordinary shares and warrants are listed on the Nasdaq under the symbols “GDEV” and “GDEVW”, respectively. |
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RISK FACTORS
You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus.
Risks Related to the Company’s Business and Operations
We rely on third-party platforms, such as the iOS App Store, Facebook, Huawei and Google Play Store, to distribute our games and collect revenues generated on such platforms and rely on third-party payment service providers to collect revenues generated on our own platforms.
Our games are primarily accessed and operated through Apple, Facebook, Google, Xsolla and Huawei, which also serve as significant online distribution platforms for our games. Substantially all of the virtual items that we or our distributors sell to paying players are purchased using the payment processing systems of these platforms. Consequently, our prospects and expansion depend on our continued relationships with these providers, and any other emerging platform providers that are widely adopted by our target players. We and our distributors are subject to the standard terms and conditions of these platform providers for application developers, which govern the content, promotion, distribution, operation of games and other applications on their platforms, as well as the terms of the payment processing services provided by the platforms, and which the platform providers can change unilaterally with little or no notice. Our business would be harmed if:
| ● | the platform providers discontinue or limit our or our distributors’ access to their platforms; |
| ● | governments or private parties, such as internet providers, impose bandwidth restrictions or increase charges or restrict or prohibit access to those platforms; |
| ● | governments or private parties impose restrictions, prohibitions or conditions in relation to payments; |
| ● | the platforms increase the fees they charge us or our distributors; |
| ● | the platforms modify their algorithms, communication channels available to developers, respective terms of service or other policies; |
| ● | the platforms decline in popularity; |
| ● | the platforms adopt changes or updates to their technology that impede integration with other software systems or otherwise require us to modify our technology or update our games in order to ensure players can continue to access our games and content with ease; |
| ● | the platforms elect or are required to change how they label free-to-play games or take payment for in-game purchases; |
| ● | the platforms block or limit access to the genres of games that we or our distributors provide in any jurisdiction; |
| ● | the platforms impose restrictions or spending caps or make it more difficult for players to make in-game purchases of virtual items; |
| ● | the platforms change how the personal information of players is made available to developers or develop or expand their own competitive offerings; or |
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| ● | we or our distributors are unable to comply with the platform providers’ terms of service. |
If our platform providers do not perform their obligations in accordance with our platform agreements, we could be adversely impacted. For example, in the past, some of these platform providers have been unavailable for short periods of time, unexpectedly changed their terms and conditions, or experienced issues with their features that permit our players to purchase virtual items. Additionally, we rely on Xsolla, a third-party online payment service provider, to process any payments generated on games accessed and operated on our own proprietary platform. If this third-party service provider is unable to process payments, even for a short period of time, our business would be harmed. These platforms and our third-party online payment service provider may also experience security breaches or other issues with their functionalities, which could expose us to data breaches and could result in negative publicity, loss of customer confidence, fines from regulators and exposure to litigation. In addition, if we do not adhere to the terms and conditions of our platform providers, the platform providers may take actions to limit the operations of, suspend or remove our games from the platform, and/or we may be exposed to liability or litigation. For example, in August 2020, Epic Games, Inc., or Epic Games, attempted to bypass Apple and Google’s payment systems for in-game purchases with an update that allowed users to make purchases directly through Epic Games in its game, Fortnite. Apple and Google promptly removed Fortnite from their respective app stores, and Apple filed a lawsuit seeking injunctive relief to block the use of Epic Games’ payment system and seeking monetary damages to recover funds made while the updated version of Fortnite was active. In September 2021, a court ruled that Apple must provide other payment options for in-app game purchases within a certain time, however, Apple is not required to allow Fortnite back on its app store. Both parties have appealed the ruling.
If any events described above or similar to those described above were to occur on a short-term or long-term basis, or if these third-party platforms and our online payment service provider otherwise experience issues that impact the ability of players to download or access our games, access social features, or make in-game purchases, they could have a material adverse effect on our brands and reputation, as well as our business, financial condition and results of operations.
If general economic conditions decline, demand for our games could decline. In addition, our business is vulnerable to changing economic conditions and to other factors that adversely affect the gaming industry, which could negatively impact our business.
In-game purchases involve discretionary spending on the part of consumers. Consumers are generally more willing to make discretionary purchases, including purchases of games and services like ours, during periods in which favorable economic conditions prevail. As a result, our games may be sensitive to general economic conditions and economic cycles. Difficult economic conditions in the markets in which we compete or seek to expand, such as decreases in per capita income and level of disposable income driven by increases in inflation, energy costs, income (and other) taxes and the cost of living, increased and prolonged unemployment or a decline in consumer confidence, in each case, as a result of worldwide or regional recession, the COVID-19 pandemic, the Russia-Ukraine conflict or other geopolitical tension, political instability or other country-specific factors, or other economic disruptions, could have a material adverse effect on the demand for our games. For example, under difficult economic conditions, consumers may seek to reduce discretionary spending by foregoing entertainment activities such as the playing of our games and incurring costs related to in-game purchases.
In fact, 2022 was the first year over the past decade when the worldwide gaming revenue decreased year-over-year, with a 5.1% decrease of the total gaming market in 2022 as compared with 2021, according to Newzoo. While one of the key reasons for the negative market dynamics in 2022 was, we believe, a result of the easing of the COVID-19 restrictions, which brought the consumers’ spending in online games back to historical normal levels in 2022 as compared with the earlier years impacted by the COVID-19 pandemic, we also attribute part of the decrease to more difficult economic conditions brought on by inflation, which limited consumers’ disposable income. Consistent with the general negative development in the gaming market, during 2022, the Company’s Bookings declined by 20% compared to 2021, with the significant reduction in our marketing budget in 2022 contributing to the decline. Furthermore, MPUs for Hero Wars for 2022 decreased by 24% compared to 2021.
A reduction or shift in domestic or international consumer spending could also result in an increase in our marketing and promotional expenses, in an effort to offset that reduction, and could negatively impact our business.
Discretionary spending on entertainment activities could further decline for reasons beyond our control, such as natural disasters, acts of war, pandemics, terrorism, transportation disruptions or the results of adverse weather conditions. Any prolonged or significant decrease in consumer spending on entertainment activities could result in reduced play levels in decreased spending on our games, and could adversely impact our results of operations, cash flows and financial condition.
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Our core game offering, Hero Wars, generates a substantial portion of our revenue. There can be no assurance as to the continued success of Hero Wars, and we may be unable to offset any declines in revenues from Hero Wars.
Our business is primarily dependent on the success of a single core game offering, Hero Wars, and on our ability to consistently enhance and improve it, as well as our other games that achieve popularity. Historically, we have depended on Hero Wars for a majority of our revenues, and we expect that this dependency will continue for the foreseeable future. For the first six months of 2023 and 2022, Hero Wars generated approximately 92% and 99%, respectively, of our revenues for each period, and for the years ended December 31, 2022, 2021 and 2020, 96%, 99% and 98%, respectively. For a game to remain popular and to retain players, we must constantly enhance, expand and upgrade the game with new features, offers, and content that players find attractive. As a result, each of our games require significant product development, marketing and other resources to develop, launch and sustain popularity through regular upgrades, expansions and new content, and such costs on average have increased over time. Even with these investments, we may experience sudden declines in the popularity of Hero Wars or any of our other games and fluctuations in the number of daily average users and monthly average users.
A small percentage of total users have generated a majority of our revenues, and we may be unable to attract new paying or retain existing paying users and maintain their spending levels.
Revenues of free-to-play games typically rely on a small percentage of players who spend moderate or large amounts of money in games to receive special advantages, levels, access and other features, offers, or content. The vast majority of users play free of charge or only occasionally spend money in games. As a result, compared to all users who play our games in any period, only a small percentage of such users were paying users. For example, for the year ended December 31, 2022, our Monthly Payer Conversion was 4.4%. In addition, a large percentage of our revenues comes from a small subset of these paying users. For example, for the year ended December 31, 2022, 126 thousand, or 10% of our total number of the annual paying users, generated 87% of our Bookings, while for the year ended December 31, 2021, 122 thousand, or 10% of our total number of annual paying users, generated 84% of our Bookings. The growth in the number of high paying users was 3.2% in 2022 as compared with 2021. Because many users do not generate revenues, and each paying user does not generate an equal amount of revenues, it is particularly important for us to retain the small percentage of paying users and to maintain or increase their spending levels. There can be no assurance that we will be able to continue to retain paying users or that paying users will maintain or increase their spending. If we fail to attract and retain a significant number of new and existing players to our games or if we experience a reduction in the number of players of our most popular games or any other adverse developments relating to our most popular games occur, our market share and reputation could be harmed and there could be a material adverse effect on our business, financial condition and results of operations. It is possible that we could lose more paying users than we gain in the future, which would cause a decrease in the monetization of our games and could have a material adverse effect on our business, financial condition and results of operations.
We invest in new user acquisition and rely on monetization strategies to convert users to paying users, retain our existing paying users and maintain or increase the spending levels of our paying users. In 2022, we significantly reduced our marketing budget in response to a decline in the effectiveness of our marketing spend due to market conditions in the gaming industry. If our investments on new user acquisition and monetization strategies do not produce the desired results, we may fail to attract, retain or monetize users and may experience a decrease in spending levels of existing paying users, any of which would result in lower revenues for our games and could have a material adverse effect on our business, financial condition and results of operations.
We believe that the key factors in attracting and retaining paying users include our ability to enhance existing games and game experiences in ways that are specifically appealing to paying users. These abilities are subject to various uncertainties, including but not limited to:
| ● | general market conditions affecting our industry; |
| ● | our ability to provide an enhanced experience for paying users without adversely affecting the gameplay experience for non-paying users; |
| ● | our ability to continually anticipate and respond to changing user interests and preferences generally and to changes in the gaming industry; |
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| ● | our ability to timely and adequately react in case of general rise of user discontent with our games or any of their existing or new features, including any coordinated actions by paying users; |
| ● | our ability to compete successfully against a large and growing number of industry participants with essentially no barriers to entry; |
| ● | our ability to hire, integrate and retain skilled personnel; |
| ● | our ability to increase penetration in, and enter into new markets; |
| ● | our ability to achieve a positive return on our user acquisition and other marketing investments and to drive organic growth; and |
| ● | our ability to minimize and quickly resolve bugs or outages. |
Some of our users also depend on our customer support organization to answer questions relating to our games. Our ability to provide high-quality effective customer support is largely dependent on our ability to attract, resource, and retain employees who are not only qualified to support our users, but are also well versed in our games. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could harm our reputation and adversely affect our ability to sell virtual items within our games to existing and prospective users.
If we are unable to maintain or increase our customer base or engagement, or effectively monetize our customer base’s use of our products and offerings, our revenue and financial results may be adversely affected. Any decrease in customer retention, growth or engagement, including player liquidity, could render our products less attractive to customers, which is likely to have a material and adverse impact on our revenue, business, financial condition and results of operations. If our active player growth rate slows, we will become increasingly dependent on our ability to maintain or increase levels of player engagement and monetization in order to drive revenue growth.
If we are unable to attract and retain users, especially paying users, it would have a material adverse effect on our business, financial condition and results of operations.
We utilize a free-to-play business model, which depends on players making optional in-game purchases, and the value of the virtual items sold in our games is highly dependent on how we manage the game revenues and pricing models.
Our games are available to players free of charge, and we generate the majority of our revenues from the sale of virtual items when players make voluntary in-game purchases. For example, in the first six months of 2023 and 2022, we derived 93.3% and 95.7%, respectively, of our revenues from in-game purchases, and in each of the years ended December 31, 2022, 2021 and 2020, 95.8%, 93.7% and 94.2%, respectively.
Paying users usually spend money in our games because of the perceived value of the virtual items that we offer for purchase. The perceived value of these virtual items can be impacted by various actions that we take in the games, such as offering discounts, giving away virtual items in promotions or providing easier non-paid means to secure such virtual items. If we fail to manage our game economies properly, players may be less likely to spend money in the games, which could have a material adverse effect on our business, financial condition and results of operations.
Unrelated third parties have developed, and may continue to develop, “cheats” or guides that enable players to advance in our games or result in other types of malfunction, which could reduce the demand for in-game virtual items. In particular, for our games where players play against each other, such as our Hero Wars game, there is a higher risk that these “cheats” will enable players to obtain unfair advantages over those players who play fairly, and harm the experience of those players. Additionally, these unrelated third parties may attempt to scam our players with fake offers for virtual items or other game benefits. These scams may harm the experience of our players, disrupt the economies of our games and reduce the demand for our virtual items, which may result in increased costs to combat such programs and scams, a loss of revenues from the sale of virtual items and a loss of players. As a result,
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players may have a negative gaming experience and be less likely to spend money in the games, which could have a material adverse effect on our business, financial condition and results of operations.
Our business depends on our ability to collect and use data to deliver relevant content and advertisements, and any limitation on the collection and use of this data could cause us to lose revenues.
When our players use our games, we may collect both personally identifiable and non-personally identifiable data about the player. Often, we use some of this data to provide a better experience for the player by delivering relevant content and advertisements. Our players may decide not to allow us to collect some or all of this data or may limit our use of this data. Any limitation on our ability to collect data about players and game interactions would likely make it more difficult for us to deliver targeted content and advertisements to our players. Furthermore, evolving data protection laws could impact our ability to collect data and to deliver targeted content and advertisements. See “—Risks Related to the Company’s Information Technology and Data Security—Data privacy and security laws and regulations, and related guidance and standards, in the jurisdictions in which we do business could increase the cost of our operations and subject us to possible sanctions, civil lawsuits (including class action or similar representative lawsuits) and other penalties; such laws and regulations are continually evolving. Our or our platform and service providers’ actual or perceived failure to comply with these laws and regulations could harm our business.” Interruptions, failures or defects in our data collection, mining, analysis and storage systems, as well as privacy concerns and regulatory restrictions regarding the collection of data, could also limit our ability to aggregate and analyze player data. If that happens, we may not be able to successfully adapt to player preferences to improve and enhance our games, retain existing players and maintain the popularity of our games, which could cause our business, financial condition, or results of operations to suffer.
Additionally, internet-connected devices and operating systems controlled by third parties increasingly contain features that allow device users to disable functionality that allows for the delivery of advertising on their devices, including through Apple’s Identifier for Advertising, or IDFA, or Google’s Advertising ID for Android devices, or AAID. Device and browser manufacturers may include or expand these features as part of their standard device specifications. For example, the release of iOS 14 brought with it a number of new changes, including the need for app users to opt-in before their IDFA can be accessed by an app (which came into effect in April 2021). Further changes could include the removal of such mobile advertising IDs from operating systems altogether. As a consequence, the ability of advertisers to accurately target and measure their advertising campaigns at the user level has become and may continue to be significantly limited and developers have experienced and may continue to experience a significant increase in costs. If players elect to not opt-in once these changes are in effect, if they utilize the current opt-out mechanisms in greater numbers, or if mobile advertising IDs are phased out, our ability to deliver effective advertisements would suffer, which has adversely affected and could continue to adversely affect our revenues from in-game advertising. Furthermore, our ability to efficiently target users is impacted, which has led and could continue to lead to less efficient user acquisition and make it more difficult for us to attract paying users, which could cause our business, financial condition or results of operations to suffer.
Our inability to complete acquisitions and integrate any acquired businesses successfully could limit our growth or disrupt our plans and operations.
We believe that acquisitions may be one of the sources of growth in the near future. Our ability to succeed in implementing our strategy will depend to some degree upon our ability to identify quality games and businesses and complete commercially viable acquisitions. We can provide no assurance that acquisition opportunities will be available on acceptable terms or at all, or that we will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. In some cases, the costs of such acquisitions may be substantial and there is no assurance that the time and resources expended in pursuing a particular acquisition will result in a completed transaction, or that any completed transaction will ultimately be successful. Furthermore, our ability to successfully grow through these types of transactions also depends upon our ability to identify, negotiate, complete and integrate suitable target businesses, technologies and products and to obtain any necessary financing, and is subject to numerous risks, including:
| ● | failure to identify acquisition, investment or other strategic alliance opportunities that we deem suitable or available on favorable terms; |
| ● | problems integrating acquired businesses, technologies or products, including issues maintaining uniform standards, procedures, controls and policies; |
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| ● | the availability of funding sufficient to meet increased capital needs; |
| ● | unanticipated costs associated with acquisitions, investments or strategic alliances; |
| ● | adverse impacts on our overall margins; |
| ● | diversion of management’s attention from the day-to-day operations of our existing business; |
| ● | the ability to retain or hire qualified personnel for expanded operations and the potential loss of key employees of acquired businesses; and |
| ● | increased legal and accounting compliance costs. |
In addition, the expected cost synergies associated with such acquisitions may not be fully realized in the anticipated amounts or within the contemplated timeframes, which could result in increased costs and have an adverse effect on our prospects, results of operations, cash flows and financial condition. We would expect to incur incremental costs and capital expenditures related to integration activities. Acquisition transactions may also disrupt our ongoing business, as the integration of acquisitions would require significant time and focus from management and might delay the achievement of our strategic objectives. For example, on January 25, 2022, we entered into share purchase agreements to acquire 100% of the issued share capital of Gracevale Limited, the parent company of Cubic Games, the developer and publisher of the mobile first-person shooter game Pixel Gun 3D. In order to successfully integrate the acquired companies’ operations into ours, we will need to align their accounting, corporate governance and other policies with our own internal structures, consistent with those of a public company. To the extent that we are unable to efficiently integrate these companies into ours, there may be a material adverse effect on our business, financial condition and result of operations. Furthermore, if we are unable to identify or adequately assess the quality of potential new projects or properly manage the cost of our investments, or if our investments do not prove to be successful due to various reasons outside of our control (including without limitation, due to market conditions, actions of our counterparties or regulatory requirements), we may not realize the expected benefit, incur increased costs or suffer reputational damage, which may lead to a material adverse effect on our business, financial condition and result of operations.
If we are unable to identify suitable target businesses, technologies or products, or if we are unable to successfully integrate any acquired businesses, technologies and products effectively, we may not realize the expected benefits, and our business, financial condition and results of operations could be materially and adversely affected, and we can provide no assurances that we will be able to adequately supplement any such inability to successfully acquire and integrate with organic growth. Also, while we employ several different methodologies to assess potential business opportunities, the businesses we may acquire may not meet or exceed our expectations.
Furthermore, we may target or maintain a non-controlling interest in companies as part of our acquisition strategy. For example, in the first quarter of 2022 we acquired non-controlling stakes in RJ Games (the publisher of Puzzle Breakers, a puzzle RPG) and Royal Ark (the publisher of the survival RPG titles Dawn of Zombies and Shelter War). Acquisitions of interests in companies in which we share or have no control, and the dilution of our interests in or a further reduction of our control of companies, will involve additional risks that could cause the performance of our interests and our operating results to suffer, including:
| ● | the management teams or other equity or debt holders of these companies having economic or business interests or objectives that are different from ours, and |
| ● | these companies not taking our advice with respect to the financial or operating issues they may encounter. |
Our inability to control companies in which we have a non-controlling interest also could prevent us from assisting them, financially or otherwise, or could prevent us from liquidating our interests in them at a time or at a price that is favorable to us. Additionally, these companies may not act in ways that are consistent with our business strategy. These factors could hamper our ability to maximize returns on our interests and cause us to incur losses on our interests in these companies.
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If we fail to develop or acquire new games that achieve broad popularity, we may be unable to attract new players or retain existing players, which could negatively impact our business.
Developing or acquiring new games that achieve broad popularity is vital to our continued growth and success. In 2021, we launched two new titles, Chibi Island and Island Questaway, and in 2022, we invested in developing titles, Puzzle Breakers, Dawn of Zombies and Shelter War. In 2023, we plan to further expand gameplays within our current products as well as work towards new game offerings. Our ability to successfully develop these games or to acquire and progress new games, and the ability of any of our games to achieve broad popularity and commercial success depends on a number of factors, including our ability to:
| ● | attract, retain and motivate talented game designers, product managers and engineers; |
| ● | identify, acquire or develop, sustain and expand games that are fun, interesting and compelling to play over long periods of time; |
| ● | effectively market new games and enhancements to our new and existing players; |
| ● | achieve viral organic growth and gain customer interest in our games; |
| ● | minimize launch delays and cost overruns on new games and game expansions; |
| ● | minimize downtime and other technical difficulties; |
| ● | adapt to player preferences; |
| ● | expand and enhance games after their initial release; |
| ● | partner with mobile platforms; |
| ● | maintain a quality social game experience; and |
| ● | accurately forecast the timing and expense of our operations. |
These and other uncertainties make it difficult to know whether we will succeed in continuing to develop or acquire successful games and launch new games that achieve broad popularity. If we are unable to successfully acquire new games or develop new games in-house, it could have a material effect on our pipeline and negatively affect our growth and results of operations.
We operate in a highly competitive industry with low barriers to entry, and our success depends on our ability to effectively compete.
The mobile gaming industry is a rapidly evolving industry with low barriers to entry, and we expect more companies to enter the industry and a wider range of competing games to be introduced. As a result, we are dependent on our ability to successfully compete against a large and growing number of industry participants. In addition, the market for our games is characterized by rapid technological developments, frequent launches of new games and enhancements to current games, changes in player needs and behavior, disruption by innovative entrants and evolving business models and industry standards. As a result, our industry is constantly changing games and business models in order to adopt and optimize new technologies, increase cost efficiency and adapt to player preferences. Our competitors may adapt to an emerging technology or business model more quickly or effectively, developing products and games or business models that are technologically superior to ours, more appealing to consumers, or both. Potential new competitors could have significant resources for developing, enhancing or acquiring games and gaming companies, and may also be able to incorporate their own strong brands and assets into their games or distribution of their games. We also face competition from a vast number of small companies and individuals who may be successful in creating and launching games and other content for these devices and platforms using relatively limited resources and with relatively limited start-up time or expertise. New game developers
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enter the gaming market continuously, some of which experience significant success in a short period of time. A significant number of new titles are introduced each day.
In addition, the high ratings of our games on the platforms on which we operate are important as they help drive users to find our games. If the ratings of any of our games decline or if we receive significant negative reviews that result in a decrease in our ratings, our games could be more difficult for players to find or recommend. In addition, we may be subject to negative review campaigns or defamation campaigns intended to harm our ratings. This could lead to loss of users and revenues, additional advertising and marketing costs, and reputation harm.
Additionally, if our platform providers were to develop competitive offerings, either on their own or in cooperation with one or more competitors, our growth prospects could be negatively impacted. For example, in September 2019, Apple launched its own video game subscription service, Apple Arcade, which includes a catalogue of game offerings that may compete with our games. Increased competition and success of other brands, genres, business models and games could result in, among other things, a loss of players, or negatively impact our ability to acquire new players cost-effectively, which could have a material adverse effect on our business, financial condition and results of operations.
Moreover, current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others, including our current or future business partners or third-party software providers. In fact, some of the largest mergers and acquisitions in the history of the gaming industry took place (or were announced) in 2022, including Microsoft’s proposed acquisition of Activision Blizzard for $68.7 billion, Take-Two’s purchase of Zynga for $12.7 billion and Sony’s purchase of Bungie for $3.6 billion. Any such strategic acquisitions or cooperative relations established by our competitors may increase their scale, their ability to meet the needs of existing or prospective players and compete for similar human resources. If we are unable to compete effectively, successfully and at a reasonable cost against our existing and future competitors, our results of operations, cash flows and financial condition would be adversely impacted.
Our ability to successfully attract in-game advertisers depends on our ability to design an attractive advertising model that retains players.
While the vast majority of our revenues are generated by in-game purchases, a portion of our revenues are generated from the sale of in-game advertisements. For example, in the first six months of 2023 and 2022, we derived 6.7% and 4.3%, respectively, of our revenues from in-game advertising, and in each of the years ended December 31, 2022, 2021 and 2020, 4.2%, 6.3% and 5.8%, respectively. If we are unable to attract and maintain a sufficient player base or otherwise fail to offer attractive in-game advertising models, advertisers may not be interested in purchasing such advertisements in our games, which could adversely affect our revenues from in-game advertising. Alternatively, if our advertising inventory is unavailable and the demand exceeds the supply, this limits our ability to generate further revenues from in-game advertising, particularly during peak hours and in key geographies. Further, a full inventory may divert advertisers from seeking to obtain advertising inventory from us in the future, and thus deprive us of potential future in-game advertising revenues. This could have a material adverse effect on our reputation and our business, financial condition and results of operations.
In addition, if we include in-game advertising in our games that players view as excessive, such advertising may materially detract from players’ gaming experiences, thereby creating player dissatisfaction, which may cause us to lose players and revenues, and negatively affect the in-game experience for players making purchases of virtual items in our games.
If we develop and acquire new games that achieve success, it is possible that these games could divert players of our other games without growing the overall size of our network, which could harm our results of operations.
As we develop and acquire new games, it is possible that these games could cause players to reduce their playing time and purchases in our other existing games without increasing their overall playing time or purchases. In addition, we also may cross-promote our new games in our other games, which could further encourage players of existing games to divert some of their playing time and spending on existing games. If new games do not grow or generate sufficient additional revenues to offset any declines in purchases from our other games, our revenues could be materially and adversely affected.
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Changes to digital platforms’ rules, including those relating to “loot boxes,” or the potential adoption of regulations or legislation impacting loot boxes, could require us to make changes to some of our games’ economies or design, which could negatively impact the monetization of these games, thereby reducing our revenues.
In December 2017, Apple updated its terms of service to require publishers of applications that include “loot boxes” to disclose the odds of receiving each type of item within each loot box to customers prior to purchase. Google similarly updated its terms of service in May 2019. Loot boxes are a commonly used monetization technique in free-to-play mobile games in which a player can acquire a virtual loot box, but the player does not know which virtual item(s) he or she will receive (which may be a common, rare or extremely rare item, and may be a duplicate of an item the player already has in his or her inventory) until the loot box is opened. The player will always receive one or more virtual items when he or she opens the loot box. In the event that Apple, Google, or any of our other platform providers changes its developer terms of service to include more onerous requirements or if any of our platform providers were to prohibit the use of loot boxes in games distributed on its digital platform, we would be required to redesign the economies of the affected games in order to continue distribution on the impacted platforms, which would likely cause a decline in the revenues generated from these games and require us to incur additional costs.
In addition, there are ongoing academic, political and regulatory discussions in the United States, Europe, Australia and other jurisdictions regarding whether certain game mechanics, such as loot boxes, should be subject to a higher level or different type of regulation than other game genres or mechanics to protect consumers, in particular minors and persons susceptible to addiction, and, if so, what such regulation should include. Additionally, loot box game mechanics have been the subject of increased public discussion — for example, the Federal Trade Commission, or FTC, held a public workshop on loot boxes in August 2019, and at least one bill has been introduced in the U.S. Senate that would regulate loot boxes in games marketed toward players under the age of 18. Belgium has imposed an effective ban on loot boxes in video games which are purchasable with real world currency, and loot boxes remain under legislative scrutiny in other European jurisdictions, including the Netherlands, Spain and Finland, and a number of European consumer groups are advocating for tighter restrictions on the use of paid-for loot boxes. In January 2023, the European Parliament adopted a report calling on the European Commission to enhance controls on loot boxes. Following a two-year enquiry, the UK government called for the industry to self-regulate more effectively; a technical working group was convened to pursue enhanced industry-led measures to improve consumer protections and is expected to publish recommendations in 2023. China has applied stringent requirements and limitations on online game operations and has been developing and tightening the regulations on the offering of loot boxes in recent years, including, among other things, that loot boxes cannot be acquired with direct investment of real money or virtual currency, that all items available in loot boxes must be obtainable through other means or be provided with items of the same features obtainable through other means, and the odds of winning must be published. Japan has implemented a self-regulatory approach to loot boxes. The use of loot boxes in computer games is currently unregulated in Australia but a private members’ bill has been tabled in the Australian Parliament in 2022 proposing that computer games containing loot boxes be restricted to players over the age of 18.
In some of our games, certain mechanics may be deemed to be loot boxes. New regulations by the FTC, U.S. states or other international jurisdictions, which may vary significantly across jurisdictions and with which we may be required to comply, could require that these game mechanics be modified or removed from games, increase the costs of operating our games due to disclosure or other regulatory requirements, impact player engagement and monetization, or otherwise harm our business performance. It is difficult to predict how existing or new laws may be applied to these or similar game mechanics. If we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources, to modify our games or to discontinue game offerings in certain jurisdictions, which would harm our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business, financial condition or results of operations.
Our online offerings are part of new and evolving industries, which presents significant uncertainty and business risks.
The online gaming and interactive entertainment industries are relatively new and continue to evolve. Whether these industries grow and whether our online business will ultimately succeed, will be affected by, among other things, developments in social networks, mobile platforms, legal and regulatory developments (such as the passage of new laws or regulations or the extension of existing laws or regulations to online gaming and related activities), taxation of gaming activities, data and information privacy and payment processing laws and regulations, and other factors that we are unable to predict and which are beyond our control. Given the dynamic evolution of these industries, it can be difficult to plan strategically, including as it relates to product launches in new or
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existing jurisdictions that may be delayed or denied, and it is possible that competitors will be more successful than we are at adapting to change and pursuing business opportunities. Additionally, as the online gaming industry advances, including with respect to regulation in new and existing jurisdictions, we may become subject to additional compliance-related costs, including as it relates to regulatory payments and charges, licensing and taxes. For example, we have in the past received a notification from regulatory authorities in Vietnam that we should obtain certain licenses in order to able to continue offering our games in Vietnam. There can be no assurance that we will be not required to cease offering our games on certain platforms in Vietnam pending receipt of the relevant licenses. Consequently, we cannot provide assurance that our online and interactive offerings will grow at the rates expected, or be successful in the long term. If our products do not obtain popularity or maintain popularity, or if they fail to grow in a manner that meets its expectations, or if we cannot offer our product offerings in particular jurisdictions that may be material to our business, our business, results of operations and financial condition could be harmed.
The recent COVID-19 pandemic and similar health epidemics, contagious disease outbreaks and public perception thereof, could significantly disrupt our operations and adversely affect our business, results of operations, cash flows or financial condition.
The recent COVID-19 pandemic, epidemics, medical emergencies and other public health crises outside of our control could have a negative impact on our business. Large-scale medical emergencies can take many forms and can cause widespread illness and death. In particular, the global spread and impact of the COVID-19 pandemic is complex, unpredictable and continuously evolving. The COVID-19 pandemic led governments and other authorities around the world to impose measures intended to control its spread, including restrictions on large gatherings of people, travel bans, border closings and restrictions, business closures, quarantines, shelter-in-place orders, social distancing measures and vaccine requirements. While the outbreak recently appeared to be trending downward as vaccination rates increased, resulting in the easing of restrictions, new variants of COVID-19 continue emerging, spreading globally and causing significant uncertainty.
Although the full extent of the impact from the COVID-19 pandemic on our business is unknown at this time, it could affect the health of our employees, or otherwise impact the productivity of our employees, third-party organizations with which we partner, or regulatory agencies we rely on, which may prevent us from delivering content in a timely manner or otherwise executing our business strategies. We have followed guidance by the Cypriot government and the governments of other relevant jurisdictions in which we operate to protect our employees and our operations during the pandemic and have implemented a remote environment for certain of our employees, and, as a result, may experience inefficiencies in our employees’ ability to collaborate.
The COVID-19 pandemic could also affect the health of our consumers, which may affect sales of our virtual items in our games. In addition, the COVID-19 pandemic has caused an economic recession, high unemployment rates and other disruptions, both in the United States and the rest of the world. Any of these impacts, including the prolonged continuation of these impacts, could adversely affect our business.
We cannot predict the other potential longer-term impacts of the COVID-19 pandemic on our business or operations, and there is no guarantee that any near-term trends in our results of operations will continue, particularly if the COVID-19 pandemic and the adverse consequences thereof continue for a long period of time. Any further adverse impacts caused by the COVID-19 pandemic could further deteriorate employment rates and the economy, detrimentally affecting our consumer base and divert player discretionary income to other uses, including for essential items. These events could adversely impact our cash flows, results of operations and financial conditions and heighten many of the other risks described in these “Risk Factors.” Furthermore, while we saw increased consumer interest and engagement in online gaming during 2020 and 2021, which we in part attribute to the travel restrictions, lockdowns and other social distancing measures implemented by governments to combat the COVID-19 pandemic. With the easing of these restrictions, the gaming industry has generally experienced a decline in Bookings. Our Bookings decreased in 2022 by 20% as compared with 2021 correlating to this trend and certain other negative effects in the market. As our marketing investments tapered back to historical normal levels, we could experience a further decrease in user activity or spending in line with the general industry trend, which could adversely impact our cash flows, operating results, and financial condition. Furthermore, there can be no assurance that any re-imposition of any such restrictive measures in a renewed effort to control the spread of COVID-19 variants will result in the effects we have experienced in the past. In addition, while we may take actions as may be required to reduce the risks posed by COVID-19, there is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19.
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Legal or regulatory restrictions could adversely impact our business and limit the growth of our operations.
There is significant opposition in some jurisdictions to interactive social gaming. In September 2018, the World Health Organization added “gaming disorder” to the International Classification of Diseases, defining the disorder as a pattern of behavior characterized by impaired control over gaming and an increase in the priority of gaming over other interests and daily activities. Additionally, the public has become increasingly concerned with the amount of time spent using phones, tablets and computers per day, and these concerns have increased as people spend more time at home and on their devices over the course of the stay-at-home orders caused by, as well as the increasing work-from-home flexibility granted by employers as a consequence of, the COVID-19 pandemic. Such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming specifically. These could result in a prohibition on interactive social gaming altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations, all of which could have an adverse effect on our results of operations, cash flows and financial condition. We cannot predict the likelihood, timing, scope or terms of any such legislation or regulation or the extent to which they may affect our business.
Consumer protection concerns regarding games such as ours have been raised in the past and may again be raised in the future. These concerns include: (i) methods to limit the ability of children to make in-game purchases, and (ii) a concern that mobile game companies are using big data and advanced technology to predict and target “vulnerable” users who may spend significant time and money on mobile games in lieu of other activities. Such concerns could lead to increased scrutiny over the manner in which our games are designed, developed, distributed and presented. We cannot predict the likelihood, timing or scope of any concern reaching a level that will impact our business, or whether we would suffer any adverse impacts to our results of operations, cash flows and financial condition.
Legal proceedings may materially adversely affect our business and our results of operations, cash flows and financial condition.
We have been party to, and in the future may become subject to, legal proceedings in the operation of our business, including in respect of the implementation of our mergers and acquisitions strategy. Such legal proceedings include, but not limited to, those relating to advertising, consumer protection, employee matters, tax matters, alleged service and system malfunctions, alleged intellectual property infringement and claims relating to our contracts, licenses and strategic investments, as well as claims by or against our shareholders (present or past), directors, officers and employees.
Legal proceedings targeting our games and claiming violations of laws could occur based on the unique and particular laws of each jurisdiction, particularly as litigation claims and regulations continue to evolve. Defending ourselves against claims by third parties, or the initiation of litigation to enforce any rights that we may have against third parties, could result in substantial costs and diversion of our resources, causing a material adverse effect on our business, financial condition and results of operations.
Given the nature of our business, we may from time to time be party to various legal, administrative and regulatory inquiries, investigations, proceedings and claims that arise in the ordinary course of business. Because the outcome of such legal matters is inherently uncertain, they could have a material adverse effect on our results of operations, cash flows or financial condition.
We rely on a limited number of geographies for a significant portion of our revenues.
Although we have players across the globe, we derive a significant portion of our revenues from a limited number of countries and are dependent on access to those markets. For example, for the first six months of 2023 and for the year ended December 31, 2022, 36% and 33%, respectively, of our revenues were derived from users located in the United States, 25% and 26%, respectively, of our revenues were derived from users located in Asia, with Japan and South Korea being the key drivers, and 24% and 21%, respectively, of our revenues were derived from users located in Europe. Our ability to retain paying players depends on our success in these geographies, and if we were to lose access to these markets or experience a decline in players in these geographies for any reason, it would have a material adverse effect on our business, financial condition and results of operations.
Our systems and operations are vulnerable to damage or interruption from natural disasters, power losses, telecommunications failures, cyber-attacks, terrorist attacks, acts of war, human errors, break-ins and similar events.
We may experience disruption as a result of catastrophic events such as natural disasters, power losses, telecommunications failures, cyber-attacks, terrorist attacks, acts of war, human errors, break-ins and similar events. In the occurrence of a catastrophic
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event, including a global pandemic like the ongoing COVID-19 pandemic, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in application development, lengthy interruptions in our services, breaches of data security and loss of critical data, such as player, customer and billing data as well as trade secret or other confidential information, software versions or other relevant data regarding operations, and we do not maintain insurance policies to compensate us for any resulting losses, which could have a material adverse effect on our business, financial condition and results of operations. As a result of the COVID-19 pandemic, we grant our employees the choice to work remotely. If a natural disaster, power outage, connectivity issue or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.
We primarily rely on skilled employees with creative and technical backgrounds. The loss of one or more of our key employees, or our failure to attract and retain other highly qualified employees in the future, could significantly harm our business.
We primarily rely on our highly skilled, technically trained and creative employees to develop new technologies and create innovative games. Such employees, particularly game designers, engineers and project managers with desirable skill sets are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. The loss of employees or the inability to hire additional skilled employees as necessary could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause additional disruptions to our business.
We are highly dependent on the continued services and performance of our key personnel, including, in particular Andrey Fadeev and Boris Gertsovskiy, our co-founders, and our other executive officers and senior management team. Moreover, our success is highly dependent on the abilities of our co-founders’ decision-making process with respect to the day-to-day and ongoing needs of our business, as well as their more fundamental understanding of our Company as its co-founders. Although we have entered into an employment agreements with our co-founders, either co-founder can terminate his employment, subject to certain agreed notice periods and post-termination restrictive covenants. We do not maintain key-man insurance for any executive officer or member of our senior management team.
In addition, our games are created, developed, enhanced and supported in our in-house game studios. The loss of key game studio personnel, including members of management as well as key engineering, game development, artists, product, marketing and sales personnel, could disrupt our current games, delay new game development or game enhancements, and decrease player retention, which would have an adverse effect on our business.
As we continue to grow, we cannot guarantee we will continue to attract the personnel we need to maintain our competitive position. In particular, we expect to face significant competition from other companies in hiring such personnel as well as recruiting well-qualified staff in multiple international jurisdictions. Furthermore, our competitors may lure away our existing personnel by offering them employment terms that our personnel view as more favorable. As we mature, the incentives to attract, retain and motivate our staff provided by our equity awards or by future arrangements, such as through cash bonuses, may not be as effective as in the past. If we do not succeed in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively.
We track certain performance metrics with internal and third-party tools and do not independently verify such metrics. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and adversely affect our business.
We track certain performance metrics, including the number of active and paying players of our games using a combination of internal and third-party analytics tools, including such tools provided by Apple, Facebook and Google. Our performance metrics tools have a number of limitations, including limitations placed on third-party tools, such as (i) the complicated and time consuming process of the validation of our data by comparison to the third-party data due to (a) differences between calendar periods used in our systems and billing periods used in the third-party tools and (b) differences in foreign exchange rates applied in our systems, which use the rates at the date of each in-game purchase, and certain third-party tools that use the exchange rates as at the date of the invoice; (ii) incomplete data in our system that was used prior to mid-2018; (iii) inconsistencies of definitions of metrics in our current system compared with the system that we used prior to mid-2018; and (iv) untimely updates of the master data in our system regarding the platform commission fees and indirect taxes, due to numerous changes of these parameters that we may not always be able to identify and process. Such tools are subject to change unilaterally by the relevant third parties and our methodologies for tracking these metrics
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or access to these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal or external tools we use to track these metrics under-count or over-count performance or contain technical errors, the data we report may not be accurate, and we may not be able to detect such inaccuracies, particularly with respect to third-party analytics tools. In addition, limitations or errors with respect to how we measure data (or how third parties present that data to us) may affect our understanding of certain details of our business, which could affect our long-term strategies. We also may not have access to comparable quality data for games we acquire with respect to periods before integration, which may impact our ability to rely on such data. Furthermore, such limitations or errors could cause players, analysts or business partners to view our performance metrics as unreliable or inaccurate. If our performance metrics are not accurate representations of our business, player base or traffic levels, if we discover material inaccuracies in our metrics or if the metrics we rely on to track our performance do not provide an accurate measurement of our business or otherwise change, our reputation may be harmed and our business, prospects, financial condition and results of operations could be materially and adversely affected.
We compete with other forms of leisure activities, and a failure to successfully compete with such activities could have a material adverse effect on our business, financial condition and results of operations.
We face competition for leisure time, attention and discretionary spending of our players. Other forms of entertainment, such as offline, traditional online, personal computer and console games, television, movies, sports and the internet, together represent much larger or more well-established markets and may be perceived by our players to offer greater variety, affordability, interactivity and enjoyment. Consumer tastes and preferences for leisure time activities are also subject to sudden or unpredictable change on account of new innovations, developments or product launches. If consumers do not find our games to be compelling or if other existing or new leisure time activities are perceived by our players to offer greater variety, affordability, interactivity and overall enjoyment, our business could be materially and adversely affected.
Our revenue growth rate and financial performance in recent periods may not be indicative of future performance, and our revenue may decline in the future compared to prior periods.
Although we have experienced rapid revenue growth in recent periods, with revenue of $479.7 million, $434.1 million and $260.9 million for the years ended December 31, 2022, 2021 and 2020, respectively, as we continue to grow our business, we have already experienced a decline in our revenue growth rates. For example, our revenues for the first six months of 2023, at $234.0 million, declined in comparison to our revenues of $252.8 million in the first six months of 2022. Our revenue growth rate may continue to decline, or the level of revenue we are able to generate may itself decline, compared to prior fiscal years due to a number of reasons, which may include more challenging comparisons to prior periods, a decrease in the growth of our overall market or market saturation, slowing demand for our games, our inability to continue to acquire games or game studios, and our inability to capitalize on growth opportunities. In addition, our revenue may experience increased volatility due to global societal and economic disruption, such as those related to the COVID-19 pandemic and related government responses thereto.
Our business may suffer if we do not successfully manage our current and potential future growth.
Despite the decline in our revenues in the first six months of 2023 compared to the first six months of 2022, on the whole, we have grown significantly in recent years, and we intend to continue to expand the scope of the games we provide. Our revenues increased from $260.9 million in the year ended December 31, 2020 to $434.1 million in the year ended December 31, 2021 and to $479.7 million in the year ended December 31, 2022. Our anticipated future growth, particularly to the extent that we experience rapid growth, will likely place significant demands on our management and operations. Our success in managing our growth will depend, to a significant degree, on the ability of our executive officers and other members of senior management to operate effectively, and on our ability to improve and develop our financial and management information systems, controls and procedures. In addition, we will likely have to successfully adapt our existing systems and introduce new systems, expand, train and manage our employees and improve and expand our marketing capabilities. Further, our continued growth will depend to some degree on our continuing ability to find additional commercially viable acquisitions, or expanding our internal development.
If we are unable to properly and prudently manage our operations as and to the extent they continue to grow, or if the quality of our games deteriorates due to mismanagement, our brand name and reputation could be severely harmed, and our business, prospects, financial condition and results of operations could be adversely affected.
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We may require additional capital to meet our financial obligations and support business growth, and this capital may not be available on acceptable terms or at all.
Based on our current plans and market conditions, we believe that cash flows generated from our operations will be sufficient to satisfy our anticipated cash requirements in the ordinary course of business for the foreseeable future. However, we intend to continue to make significant investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new games and features or enhance our existing games, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future could include restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.
Our insurance may not provide adequate levels of coverage against claims.
We generally do not maintain insurance coverage other than director and officer liability insurance, as we believe that the majority of the risks that we face cannot be insured against or cannot be insured on economically reasonable terms. Therefore, any losses that we incur generally would not benefit from insurance coverage, and such losses could adversely affect our business prospects, results of operations, cash flows and financial condition.
Changes in tax laws or approach to their enforcement, new tax rulings, and audits or examinations of our filing positions, including withholding taxes, could materially affect our financial condition and results of operations.
Tax laws are dynamic and therefore subject to regular change as new laws are passed and new interpretations of existing laws are issued or applied. Our existing corporate structure and intercompany arrangements have been implemented in a manner which we consider to be in compliance with current prevailing tax laws. However, the tax treatment of our structure and any transactions between entities in our group, in the British Virgin Islands and Cyprus as well as in other applicable jurisdictions, could be subject to material adjustment. In addition, we expect taxing authorities in the jurisdictions where we do business, or are deemed to do business, for tax purposes, to audit or examine our income and transactions. The ultimate outcome of any such review processes, and any engagement we have with the relevant tax authorities, are difficult to predict.
We may be exposed to taxation in jurisdictions other than Cyprus if we are treated as having a permanent establishment or as being a tax resident in any of those jurisdictions. While we do not believe that either the Issuer or Nexters Global will be treated as having a tax residence or a permanent establishment elsewhere outside of Cyprus, we cannot provide assurance that foreign tax authorities will not attempt to claim that our entities have permanent establishment or tax residence in their jurisdictions. If any of the foregoing occurs, additional taxes, as well as related penalties, may be imposed on us and our business, prospects, financial condition and results of operations could be materially and adversely affected.
We could be required to collect sales taxes or be subject to other use-based tax liabilities in relation to past sales.
One or more countries or U.S. states or localities may seek to collect what they view as past or existing, or impose additional, sales, value added taxes or use or similar taxes on us by reference to the location of the users of our games. While we generally are not responsible for taxes generated on games accessed and operated through third-party platforms, we are responsible for collecting and remitting applicable sales, value added, use or similar taxes for revenue generated on games accessed and operated on our own platforms and/or in countries where the law requires the game publishers to collect and pay such taxes even if games are made available for users through third-party platforms. Furthermore, an increasing number of U.S. states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. This is also the case in respect of the European Union, where value added taxes or digital services taxes may be imposed on companies making digital sales to consumers within the European Union. Additionally, since the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect sales and use tax despite not having a physical presence in the state of the customer, most
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U.S. states impose such obligations, and other U.S. states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect and remit taxes on sales in their jurisdictions.
As a result of the above, we are in the process of evaluating whether our activities give rise to sales, use, value added taxes and any other taxes in jurisdictions in which we historically have not registered to collect and remit taxes. In addition, we are monitoring indirect tax developments globally to confirm the impact of future anticipated indirect taxes on our business and services. A successful assertion by one or more of the countries or jurisdictions requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently collect some taxes, could result in substantial liabilities, including taxes on past sales, as well as interest and penalties, and could create significant administrative burdens for us or otherwise harm our business.
Risks Related to the Company’s Information Technology and Data Security
Our success depends upon our ability to adapt to, and keep pace with, changes in technology, platforms and devices, and evolving industry standards.
Our success depends upon our ability to attract and retain players, which is largely driven by maintaining and increasing the quality and content of our games. To satisfy players, we need to continue to improve their experience and innovate and introduce games that players find useful and that cause them to return to our suite of games more frequently. This includes continuing to improve our technology to tailor our game offerings to the preferences and requirements of additional geographic and market segments, and adapt to the release of new devices and platforms and to improve the user-friendliness and overall availability of our games, all of which can be costly and generate risk. Our ability to anticipate or respond to changing technology and evolving industry standards and to develop and introduce improvements and enhancements to games on a timely basis is a significant factor affecting our ability to remain competitive, expand and attract new players and retain existing players. We cannot assure you that we will achieve the necessary technological advances or have the financial or other resources needed to introduce new games or improvements and enhancements to games on a timely basis or at all. In addition, our ability to increase the number of players of our games will depend on continued player adoption of such games. Accordingly, our failure to develop or adjust to changes in technology, platforms, devices and operating models and evolving industry standards could adversely impact our business. Even where we are able to successfully adapt to changing technology, platforms, devices and operating models and evolving industry standards, we may require substantial expenditures to do so, which could adversely impact our business, financial condition and results of operations.
Our games and other software applications and systems, and the third-party platforms upon which they are made available, could contain undetected errors.
Our games and other software applications and systems, as well as the third-party platforms upon which they are made available, could contain undetected errors, bugs, flaws, corrupted data, defects and other vulnerabilities that could adversely affect the performance of our games. These defects may only become apparent after we launch a new game or publish an update to an existing game, particularly as we launch new games or updates and rapidly release new features to existing games under tight time constraints. For example, these errors could prevent a player from making in-game purchases of virtual items, which could harm our reputation or results of operations. These errors could also be exploited by cheating programs and other forms of misappropriation, thus harming the overall game-playing experience for our players. This could cause players to reduce their playing time or in-game purchases, discontinue playing our games altogether, or not recommend our games to other players, which could result in further harm to our reputation or results of operations. Such errors could also result in our games being non-compliant with applicable laws or create legal liability for us. Resolving such errors could disrupt our operations, cause us to divert resources from other projects, or harm our results of operations.
Any failure or significant interruption in our network could impact our operations and harm our business.
Our technology infrastructure is critical to the performance of our games and to player satisfaction. Most of our games run on public cloud computing systems run through Amazon Web Services with respective servers located in Ireland and Germany. The servers that host our systems located in these data centers are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. The occurrence of any of these events could cause our games to become unavailable for a short or long period of time. We have experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, malicious attempts to cause platform unavailability, and capacity
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constraints. If a particular game is unavailable when players attempt to access it or navigation through a game is slower than they expect, players may stop playing the game and may be less likely to return to the game as often, if at all. Similarly, certain games rely on third-party data centers, which may have similar risks over which we would have less control. A failure or significant interruption in our game service would harm our reputation and operations. We expect to continue to make significant investments in our technology infrastructure to maintain and improve all aspects of player experience and game performance. To the extent that our disaster recovery systems are not adequate, or we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate increasing traffic, our business and results of operations may suffer. We do not maintain insurance policies covering losses relating to our systems and we do not have business interruption insurance, which may increase any potential harms that the business may suffer from systems failure or business interruptions.
Our success depends on the security and integrity of the games we offer, and security breaches or other disruptions could compromise our information or the information of our players and expose us to liability, which would cause our business and reputation to suffer.
We believe that our success depends in large part on providing secure games to our players. Our business sometimes involves the collection, storage, processing and transmission of players’ proprietary, confidential and personal information. We also maintain certain other proprietary and confidential information relating to our business and personal information of our personnel. Despite our security measures, our games may be vulnerable to attacks by hackers, players, vendors or employees or breaches due to malfeasance or other disruptions. Any security breach or incident that we experience could result in unauthorized access to, misuse of, or unauthorized acquisition of our or our players’ data, the loss, corruption or alteration of this data, interruptions in our operations, or damage to our computers or systems or those of our players or third-party platforms. Any of these could expose us to claims, litigation, fines and potential liability.
An increasing number of online services have disclosed security breaches, some of which have involved sophisticated and highly targeted attacks on portions of their services. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, public perception of the effectiveness of our security measures and brand could be harmed, and we could lose players. Data security breaches and other data security incidents may also result from non-technical means, such as actions by employees or contractors. Any compromise of our security could result in a violation of applicable privacy and other laws, regulatory or other governmental investigations, enforcement actions, and legal and financial exposure, including potential contractual liability that is not always limited to the amounts covered by our insurance. Any such compromise could also result in damage to our reputation and a loss of confidence in our security measures. Any of these effects could have a material adverse impact on our results of operations, cash flows and financial condition.
Our ability to prevent anomalies and monitor and ensure the quality and integrity of our games and software is periodically reviewed and enhanced, but may not be sufficient to prevent future attacks, breaches or disruptions. Similarly, we assess the adequacy of our security systems, including the security of our games and software to protect against any material loss to any of our players and the integrity of our games to players. However, we cannot provide assurances that our business will not be affected by a security breach or lapse.
If we sustain cyber-attacks or other privacy or data security incidents that result in security breaches, we could suffer a loss of sales and increased costs, exposure to significant liability, reputational harm and other negative consequences.
Our information technology infrastructure may be vulnerable to computer viruses or physical or electronic intrusions that our security measures may not detect. We have experienced security incidents in the past, and we may face additional attempted and actual security intrusions in the future. Any circumvention of our security measures could result in the misappropriation or disclosure of confidential or proprietary information, interrupt our operations, result in financial loss or otherwise cause damage to our reputation and business. Further, the ability to bypass our information security controls could degrade our trust and safety programs, which could expose individuals to a risk of physical harm or violence.
If there is a breach of our computer systems and we know or suspect that certain personal information has been exfiltrated, accessed, or used inappropriately, we may need to inform individual whose data was stolen, accessed, or used. For instance, laws in all fifty U.S. states and outside the United States (and sometimes contractual and/or other obligations) require notification of certain
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incidents to a number of third parties, such as customers, regulators, credit reporting agencies or others when certain information has been compromised as a result of a security breach. Further, under certain regulatory schemes, such as the California Consumer Privacy Act, as discussed below, we may be fined and/or liable for statutory damages on a per breached record basis, irrespective of any actual damages or harm to the individual. This means that in the event of a breach we could face government scrutiny or consumer class actions alleging statutory damages amounting to hundreds of millions, and possibly billions of dollars. In addition, a significant cyber incident could harm our reputation, cause us to breach our contracts with other parties or subject us to regulatory actions or litigation, any of which could materially affect our business, prospects, financial condition and operating results.
There are risks of security breaches both on and off our systems as we increase the types of technology we use to operate our platform, including mobile apps and third-party payment processing providers, and as we collaborate with third parties that may need to process our user data or have access to our infrastructure. The evolution of technology systems introduces ever more complex security risks that are difficult to predict and defend against. Further, there has been a surge in widespread cyber-attacks during the COVID-19 pandemic. The increase in the frequency and scope of cyber-attacks during the COVID-19 pandemic has exacerbated data security risks. An increasing number of companies, including those with significant online operations, have recently disclosed breaches of their security, some of which involved sophisticated tactics and techniques allegedly attributable to criminal enterprises or nation-state actors. While we take significant measures to guard against the type of activity that can lead to data breaches, the techniques used by bad actors to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are unknown until launched against a target. As such, we may be unable to anticipate these tactics and techniques or to implement adequate preventative measures to detect, prevent or mitigate cyber-attacks. In addition, we and our third-party vendors or suppliers that host our data may encounter attempted cyber-attacks that may take a variety of forms, including denial of service attacks, botnets, malicious file attacks, cross-site scripting, credential abuse, ransomware, bugs, viruses, worms, and malicious software programs. All of these types of cyber incidents can give rise to a variety of losses and costs, including legal exposure and regulatory fines, damages to reputation, and others.
Further, with a large geographically disparate employee base, we are not immune from the possibility of a malicious insider compromising our information systems and infrastructure. This risk has grown in light of the greater adoption of remote work following the COVID-19 pandemic. We also have a distributed community support organization including third-party providers that have access to personal information. We and other companies in our industry have dealt with incidents involving such insiders exfiltrating the personal information of customers, stealing corporate trade secrets and key financial metrics, and illegally diverting funds. No series of measures can fully safeguard against a sufficiently determined and skilled insider threat.
In addition, there may be an increased risk of cyber-attacks by state actors or others due to the current conflict between Russia and the Ukraine including, on the one hand, cybersecurity attacks perpetrated by Russia or others at its direction in response to economic sanctions or other actions taken by certain jurisdictions (including Cyprus, where our headquarters are located) against Russia in connection with its military action in Ukraine and, on the other hand, cybersecurity attacks against the Company due to its origins in Russia and its historical association with Russia, in spite of its recent divestment of all of its Russia-based subsidiaries. Any increase in such attacks on us or our systems could adversely affect our platform, networks, systems or other operations.
Bad actors have targeted and will continue to target us, such as through phishing attacks where a third party attempts to infiltrate our systems or acquire information by posing as a legitimate inquiry or electronic communication, which are fraudulent identity theft schemes designed to appear as legitimate emails from us or from our users. Bad actors may also employ other schemes aimed at defrauding our users in ways that we may not anticipate or be able to adequately guard against. Even if phishing and spamming attacks and other fraud schemes are not carried out through our systems, victims may nevertheless seek recovery from us. Because of our prominence, we believe that we are a particularly attractive target for such attacks. Though it is difficult to determine what, if any, harm may directly result from any specific scheme or attack, any failure to maintain performance, reliability, security, and availability of our offerings, services, and technical infrastructure and may harm our reputation.
The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential suppliers or players. We maintain cybersecurity policies and procedures to manage risk to our information technology systems, and we continuously adapt our systems and processes to mitigate such threats, and plan to enhance our protections against such attacks. Nevertheless, we may not be able to address these cybersecurity threats proactively or implement adequate preventative measures, and we may be unable to promptly detect and address any such disruption or security breach, if at all. As threats related to cyber-attacks develop and grow, we may also find it necessary to make further investments to protect our data
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and infrastructure, which may impact our results of operations. We may be unable to cover all possible claims stemming from security breaches, cyber-attacks and other types of unlawful activity, or any resulting disruptions from such events, and we may suffer losses that could have a material adverse effect on our business. We do not maintain insurance policies covering losses relating to cybersecurity incidents, which may increase any potential harms that the business may suffer from a cyber-attack. We could also be negatively impacted by existing and proposed laws and regulations in the United States, Cyprus and other jurisdictions in which we operate, as well as government policies and practices related to cybersecurity, data privacy, data localization, data protection and access to data. In addition, the platforms on which we distribute games may encourage, or require, compliance with certain security standards, such as the voluntary cybersecurity framework released by the U.S. National Institute of Standards and Technology, or NIST, which consists of controls designed to identify and manage cyber-security risks, and we could be negatively impacted to the extent we are unable to comply with such standards. See “—Data privacy and security laws and regulations, and related guidance and standards, in the jurisdictions in which we do business could increase the cost of our operations and subject us to possible sanctions, civil lawsuits (including class action or similar representative lawsuits) and other penalties; such laws and regulations are continually evolving. Our or our platform and service providers’ actual or perceived failure to comply with these laws and regulations could harm our business.”
We rely on information technology and other systems, and any failures in our systems or errors, defects or disruptions in our games could diminish our brand and reputation, subject us to liability and disrupt our business and adversely impact our results of operations.
We rely on information technology systems that are important to the operation of our business, some of which are managed by third parties. These third parties are typically under no obligation to renew agreements and there is no guarantee that we will be able to renew these agreements on commercially reasonable terms, or at all. These systems are used to process, transmit and store electronic information, to manage and support our business operations and to maintain internal control over our financial reporting. In addition, we collect and store certain data, including proprietary business information, and may have access to confidential or personal information in certain of our businesses that is subject to privacy and security laws and regulations. We could encounter difficulties in developing new systems, maintaining and upgrading current systems and preventing security breaches. Among other things, as described above, our systems are susceptible to damage, outages, disruptions or shutdowns due to fire, floods, power loss, break-ins, cyber-attacks, ransomware, malicious file attacks, bugs, viruses, worms, cross-site scripting, credential abuse, network penetration, denial of service attacks, regulatory activities and similar events. Moreover, any failures in our computer systems or telecommunications services could affect our ability to operate our games or otherwise conduct business.
Portions of our information technology infrastructure, including those operated by third parties, may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time-consuming, disruptive and resource-intensive. We have no control over third parties that provide services to us and those parties could suffer problems or make decisions adverse to our business. We have contingency plans in place to prevent or mitigate the impact of these events. However, such disruptions could materially and adversely impact our ability to deliver games to players and interrupt other processes. If our information systems do not allow us to transmit accurate information, even for a short period of time, to key decision-makers, the ability to manage our business could be disrupted and our results of operations, cash flows and financial condition could be materially and adversely affected. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could materially and adversely affect our reputation, competitive position, results of operations, cash flows and financial condition.
Substantially all of our games rely on data transferred over the internet, including wireless internet. Access to the internet in a timely fashion is necessary to provide a satisfactory player experience to the players of our games. Third parties, such as telecommunications companies, could prevent access to the internet or limit the speed of our data transmissions, with or without reason, causing an adverse impact on our player experience that may materially and adversely affect our reputation, competitive position, results of operations, cash flows and financial condition. In addition, telecommunications companies may implement certain measures, such as increased cost or restrictions based on the type or amount of data transmitted, that would impact consumers’ ability to access our games, which could in turn materially and adversely affect our reputation, competitive position, results of operations, cash flows and financial condition. Furthermore, internet penetration may be adversely affected by difficult global economic conditions or the cancellation of government programs to expand broadband access. Moreover, access to internet, applications and services which we operate or on which we depend may, in some jurisdictions, be blocked or restricted as a matter of law and speed of internet may be reduced based on decisions of regulators and courts.
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Our business depends on the growth and maintenance of wireless communications infrastructure.
Our success depends on the continued growth and maintenance of wireless communications infrastructure in the United States and internationally. This includes deployment and maintenance of reliable next-generation digital networks with the speed, data capacity and security necessary to provide reliable wireless communications services. Wireless communications infrastructure may be unable to support the demands placed on it if the number of subscribers continues to increase, or if existing or future subscribers increase their bandwidth requirements. Wireless communications have experienced a variety of outages and other delays as a result of infrastructure and equipment failures, and could face outages and delays in the future. These outages and delays could reduce the level of wireless communications usage as well as our ability to distribute our games successfully. In addition, changes by a wireless carrier to network infrastructure may interfere with downloads of our games and may cause players to lose functionality in our games that they have already downloaded. This could harm our reputation, business, financial condition and results of operations.
Data privacy and security laws and regulations, and related guidance and standards, in the jurisdictions in which we do business could increase the cost of our operations and subject us to possible sanctions, civil lawsuits (including class action or similar representative lawsuits) and other penalties; such laws and regulations are continually evolving. Our or our platform and service providers’ actual or perceived failure to comply with these laws and regulations could harm our business.
We collect, process, store, use and share data, some of which contains personal information, including the personal information of our players. Our business is therefore subject to a number of federal, state, local and foreign laws, regulations, regulatory codes and guidelines governing data privacy, data protection and security, including with respect to the collection, storage, use, processing, transmission, sharing and protection of personal information. Such laws, regulations, regulatory codes and guidelines regulations are complex, may be inconsistent across jurisdictions or conflict with other rules and their interpretation is rapidly evolving, making implementation and enforcement, and thus compliance requirements, ambiguous, uncertain, and potentially inconsistent. Compliance with such laws may require changes to our data collection, use, transfer, disclosure, other processing, and certain other related business practices and may thereby increase compliance costs or have other material adverse effects on our business.
As the scope of data privacy and security regulations worldwide continues to evolve, we believe that the adoption of increasingly restrictive regulations in this area is likely within the United States and other jurisdictions. For example, in the United States at the state level, California passed the California Consumer Privacy Act (the “CCPA”) which became enforceable by the California Attorney General in 2020, along with related regulations, which together imposed additional data protection obligations on covered businesses. Additionally, California also passed the California Privacy Rights Act (the “CPRA”), which entered into effect on January 1, 2023. The CPRA significantly modifies the CCPA, including adding new privacy rights and creating a new enforcement agency, the California Privacy Protection Agency. Effective January 1, 2023, personal information collected about California residents acting in the context of a business-to-business contact or as an employee also now fully within scope of the CCPA.
The CCPA has encouraged other new state data privacy laws, such as the Virginia Consumer Data Protection Act (“VCDPA”), the Colorado Privacy Act (“CPA”) and Connecticut Data Privacy Act (“CTDPA”), and the Utah Consumer Privacy Act (“UCPA”), which go into effect in 2023 and similarly introduce new privacy rights and impose new obligations on businesses. More generally, these laws are part of a trend toward more stringent U.S. privacy legislation. We cannot fully predict the impact of these laws, or subsequent guidance, regulations or rules on our business or operations, including those that are still in draft form, but they may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material adverse effect on our business, including how we use personal information, our financial condition, and the results of our operations or prospects.
Outside of the United States, many countries have also adopted comprehensive data protection and security laws. In the BVI we are subject to the Data Protection Act, 2021 (the “BVI DPA”) The DPA establishes a framework of rights and duties designed to safeguard individuals’ personal data, balanced against the need of public authorities, businesses and organizations to collect and use personal data for lawful purposes. The BVI DPA is centered around seven data protection principles (the General Principle, the Notice and Choice Principle, the Disclosure Principle, the Security Principle, the Retention Principle, the Data Integrity Principle and the Access Principle). The BVI DPA is however based on the original UK Data Protection Act 1998 and therefore less comprehensive than the GDPR (defined below) and U.K. GDPR (defined below) to which we are also subject.
In the European Economic Area (the “EEA”), we are subject to the EU General Data Protection Regulation 2016/679 (the “GDPR”), which became effective in May 2018. Further, following the withdrawal of the United Kingdom from the European Union
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and the expiry of the transition period, from January 1, 2021, we have had to comply with the GDPR as implemented in the United Kingdom, which together with the amended United Kingdom Data Protection Act 2018 (together, the “U.K. GDPR”), retains in large part the GDPR in United Kingdom national law. The GDPR and the U.K. GDPR (collectively, the “Applicable Data Protection Laws”) impose comprehensive data privacy compliance obligations on controllers and processors of personal data in the EEA and the United Kingdom, including, for example, specific standards for obtaining consent from individuals to process their personal data, robust disclosures to individuals and a comprehensive individual data rights regime, and defined timelines for data breach notifications. The Applicable Data Protection Laws create compliance obligations applicable to our business and some of our players, which can be uncertain given rapidly developing guidance and case law, and could change our business practices, expose us to significant reputational damage, regulatory enforcement actions or assessment notices (for a compulsory audit), orders to cease/ change our data processing activities, and/ or civil lawsuits (including class action or similar representative lawsuits) by consumers or consumer organizations, amongst others, for alleged breach of data protection laws. The Applicable Data Protection Laws include financial penalties for noncompliance including possible fines of up to the greater of 4% of global annual revenues for the preceding financial year or €20 million, or £17.5 million in the United Kingdom, for the most serious violations. Many large geographies in which we operate, including Australia, Brazil, Canada and India, have passed or are in the process of passing comparable or other robust data privacy legislation or regulation, which may lead to additional costs and increase our overall risk exposure.
We are also subject to EU and UK rules with respect to cross-border transfers of personal data out of the EEA and the UK, respectively, and recent legal developments and guidance have created complexity and uncertainty regarding such transfers to other countries, in particular in relation to transfers to the United States. In July 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-US Privacy Shield. The CJEU further noted that reliance on the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the Privacy Shield) alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. Following the CJEU’s ruling, there has been increased regulatory action in this area. For example, the Irish regulator has issued a draft decision requiring Meta to suspend the transfer of personal data from the EU to the United States, and the Austrian, French, Italian and Danish data protection authorities have indicated in recent rulings that use of Google Analytics by European website operators involves the unlawful transfer of personal data to the United States. A similar ruling was also recently handed down by the European Data Protection Supervisor in respect of the use of Google Analytics by the European Parliament. The Danish regulator has also issued a similar decision in respect of Google Chromebooks. We currently rely on the standard contractual clauses to transfer personal information outside the EEA and the UK, including to the United States, with respect to both intragroup and third party transfers. As the enforcement landscape further develops, and supervisory authorities issue further decisions and guidance on personal information export mechanisms, we could suffer additional costs, complaints and/or regulatory investigations or fines, we may have to stop using certain tools and vendors and make other operational changes, we have had to and will have to implement revised standard contractual clauses for existing intragroup, customer and vendor arrangements within required time frames, and/or if we are otherwise unable to transfer personal information between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could materially adversely affect our business, results of operations and financial condition. Our business also increasingly relies on machine learning, artificial intelligence and automated decision making to improve our services and tailor our interactions with our customers. However, in recent years use of these methods has come under increased regulatory scrutiny. New laws, guidance and/or decisions in this area may limit our ability to use our machine learning and artificial intelligence, or require us to make changes to our platform or operations that may decrease our operational efficiency, result in an increase to operating costs and/or hinder our ability to improve our services. For example, there are specific rules on the use of automated decision making under the GDPR that require the existence of automated decision making to be disclosed to the data subject with a meaningful explanation of the logic used in such decision making in certain circumstances, and safeguards must be implemented to safeguard individual rights, including the right to obtain human intervention and to contest any decision. Equally, the regulatory framework around the development and use of machine learning, artificial intelligence and automated decision making is evolving. In Europe, on April 21, 2021, the European Commission proposed a Regulation seeking to establish a comprehensive, risk-based governance framework for artificial intelligence in the EU market. The proposal is intended to apply to companies that develop, use and/ or provide artificial intelligence in the EU and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security and accuracy, and proposes fines for breach of up to 6% of worldwide annual turnover. In addition, on September 28, 2022, the European Commission proposed two Directives seeking to establish a harmonized civil liability regime for artificial intelligence in the EU, in order to facilitate civil claims in respect of harm caused by artificial intelligence and to include artificial intelligence-enabled products within the scope of the EU’s existing strict liability regime. If enacted, this regulatory framework is expected to have a material impact on the way artificial intelligence is regulated in the EU, and together with developing guidance and/ or decisions in this area, may affect our use of artificial intelligence and our ability to provide and to improve our services, require additional compliance measures
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and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations and financial condition.
Any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to players or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims (including class actions), or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our players to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to us may limit the adoption and use of, and reduce the overall demand for, our games. Additionally, if third parties we work with, such as our service providers or data sharing partners, violate applicable laws, regulations, or agreements, such violations may put our players’ and/or employees’ data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims (including class action claims) or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our players to lose trust in us and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks.
In addition, in some cases, we are dependent upon our platform providers to solicit, collect and provide us with information regarding our players that is necessary for compliance with these various types of regulations. Our business, including our ability to operate and expand internationally, could be adversely affected if laws or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, the design of our games, features or our privacy policy. These platform providers may dictate rules, conduct or technical features that do not properly comply with federal, state, local and foreign laws, regulations and regulatory codes and guidelines governing data privacy, data protection and security, including with respect to the collection, storage, use, processing, transmission, sharing and protection of personal information and other consumer data. In addition, these platforms may dictate rules, conduct or technical features relating to the collection, storage, use, transmission, sharing and protection of personal information and other consumer data, which may result in substantial costs and may necessitate changes to our business practices, which in turn may compromise our growth strategy, adversely affect our ability to attract, monetize or retain players, and otherwise adversely affect our business, reputation, legal exposures, financial condition and results of operations. Any failure or perceived failure by us to comply with these platform-dictated rules, conduct or technical features may result in platform-led investigations or enforcement actions, litigation, or public statements against us, which in turn could result in significant liability or temporary or permanent suspension of our business activities with these platforms, cause our players to lose trust in us, and otherwise compromise our growth strategy, adversely affect our ability to attract, monetize or retain players, and otherwise adversely affect our business, reputation, legal exposures, financial condition and results of operations.
Player interaction with our games is subject to our privacy policy and terms of service. If we fail to comply with our posted privacy policy or terms of service or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in complaints by data subjects or proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, non-availability of our services, impact our financial condition and harm our business. If regulators, the media or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, and negatively impact our financial condition and damage our business.
In the area of information security and data protection, many jurisdictions have passed laws requiring notification when there is a security breach for personal information or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. Our security measures and standards may not be sufficient to protect personal information and we cannot guarantee that our security measures will prevent security breaches, cyber-attacks, acts of vandalism, computer viruses, malware, ransomware, denial-of-service attacks, human error issues or other similar events that lead to misplaced or lost information, programming and/or other similar issues. A security breach that compromises personal information could harm our reputation and result in a loss of player and/or employee confidence in our games and ultimately in a loss of players, which could adversely affect our business and impact our financial condition. A security breach could also involve loss or unavailability of business-critical data, and could require us to spend significant resources to mitigate and repair the breach, which in turn could compromise our growth and adversely affect our ability to attract, monetize or retain players. These risks could also subject us to liability under applicable security breach-related laws and regulations and could result in additional compliance costs, costs related to regulatory inquiries and
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investigations, and an inability to conduct our business. See “—If we sustain cyber-attacks or other privacy or data security incidents that result in security breaches, we could suffer a loss of sales and increased costs, exposure to significant liability, reputational harm and other negative consequences.”
Our business could be adversely impacted by changes relating to electronic marketing or the restriction of the use of third-party cookies and similar tracking technologies.
In recent years, European lawmakers and regulators have expressed concern over electronic marketing and the use of third-party cookies, web beacons and similar technology for online behavioral advertising. In the EEA and the United Kingdom, under national laws derived from the ePrivacy Directive, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent for cookies, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. Recent European court and regulator decisions and regulatory guidance are driving increased attention to cookies and tracking technologies. For example, the French data protection regulator and courts are increasingly active in enforcement in this area, as are other regulators as a result of actions by NOYB (a not-for-profit privacy activist group), that has issued over 700 draft complaints to European website operators regarding their cookie banners and subsequently referred over 650 complaints to relevant national regulators — and has said that it aims to seek enforcement on up to 10,000 websites in Europe.
Regulation of cookies, web beacons and other tracking technologies may lead to broader restrictions on our online activities, including efforts to understand followers’ internet usage and promote ourselves to them. If the trend of increasing enforcement by regulators of the strict approach to opt-in consent for all but essential use cases, as seen in recent guidance and decisions continues, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, compromise our growth strategy, adversely affect our ability to attract, monetize or retain players, divert the attention of our technology personnel, increase regulatory scrutiny, and adversely affect our business, reputation, legal exposures, margins, financial condition and results of operations. Changes proposed by providers of major browsers to eliminate or restrict the usage of third-party cookies to track user behaviors, and to allow users to limit the collection of certain data generally or from specified websites and apps, could impair our ability to collect user information, including personal data and usage information, that helps us to understand followers’ internet usage, promote ourselves to them, and provide more targeted advertising. These changes could adversely affect our business, given our use of cookies and similar technologies to target our marketing and personalize the user experience. See “— Risks Related to the Company’s Business and Operations — Our business depends on our ability to collect and use data to deliver relevant content and advertisements, and any limitation on the collection and use of this data could cause us to lose revenues.”
In light of the complex and evolving nature of EU, EU Member State and UK privacy laws on cookies and tracking technologies, there can be no assurances that we will be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease/ change our use of such technologies, as well as civil claims including class actions, and reputational damage.
Our business, products, and distribution are subject to increasing regulation of content. If we do not successfully respond to these regulations, our business, financial condition and results of operations could be materially adversely affected.
The video game industry has come under increased scrutiny from regulators and consumer advocacy groups, many of which are calling for increased regulation/oversight of the content of video games. While none of our games target children under 13 years of age as their primary audience, the FTC, as well as consumer organizations, may consider that the characteristics of several of our games attract children under 13 years of age. The U.S. Children’s Online Privacy Protection Act, or COPPA, regulates the collection, use and disclosure of personal information from children under 13 years of age. While none of our games are directed at children under 13 years of age, if COPPA were to apply to us, failure to comply with COPPA may increase our costs, subject us to expensive and distracting government investigations and could result in substantial fines. Although we have taken certain measures to identify which of our games are subject to COPPA due to their child-appealing nature and to comply with COPPA with respect to those games, if COPPA were to apply to us in a manner other than we have assessed or prepared for, our actual or alleged failure to comply with COPPA may increase our costs, subject us to expensive and distracting lawsuits or government investigations, could result in substantial fines or civil damages and could cause us to temporarily or permanently discontinue certain games or certain features and functions in games.
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The United Kingdom has enacted the “Age Appropriate Design Code,” a statutory code of practice pursuant to the United Kingdom Data Protection Act 2018. This code came into force on September 2, 2021, following a 12-month transition period for organizations to conform. The code requires online services, including our games that are likely to be accessed by children under 18, to put the best interests of the child’s privacy first in the design, development and data-related behavior of the game. The U.K. government also has a draft bill relating to "online harms" which is at an advanced stage in the legislation process and is likely to be brought into law during 2023 (the “UK Online Safety Bill”). The UK Online Safety Bill is aimed at enhancing user safety online. Notably, it seeks to prevent the spread of illegal content and activity such as images of child abuse, terrorist material and hate crimes (including racist abuse) and to protect children from harmful material.
It is likely that other countries within and outside the European Union will follow with their own codes or guidance documents relating to processing personal information from children or in relation to online harms. For example, on 16 November 2022, the Digital Services Act (the “DSA”) came into force. The majority of the substantive provisions of the DSA will take effect between 2023 and 2024, and will govern, among other things, our potential liability for illegal services or content on our platform, traceability of business users, and transparency measures. The DSA may increase our compliance costs and require changes to our processes and operations. Similar legislation is being considered and/ or is in process in other jurisdictions relevant to our business.
As the content of the UK Online Safety Bill is not yet confirmed, and as we will need time to analyze and implement the implications of this legislation, the DSA and other in-coming similar legislation, it is not yet clear what additional obligations will be imposed upon us. Although we already have internal mechanisms to track and react to inappropriate behavior by users we do not know if the mechanisms we have are sufficient to comply with each of the UK Online Safety Bill and the DSA. We may have to engage in expensive, time-consuming, disruptive and resource-intensive development of additional mechanisms and protections in order to ensure that we are compliant. These may result in substantial costs and may necessitate changes to our business practices which may compromise our growth strategy, adversely affect our ability to attract, monetize or retain players, and otherwise adversely affect our business, reputation, legal exposures, financial condition and results of operations. The improvements and changes we make may not be sufficient and we may find ourselves in breach of legislation, subject to audits and reviews by governmental authorities and subject to fines or penalties as a result of user content. Our brand and reputation may be damaged by reports of non-compliance.
Additionally, certain countries, such as the People’s Republic of China (the “PRC” or “China”), have laws that permit governmental entities to restrict marketing or distribution of interactive entertainment software products because of the content therein. For example, the government and regulatory authorities in China have adopted regulations governing content contained within videos, games, and other information over the internet. Under these regulations, internet content providers are prohibited from posting or displaying over the internet content that, among other things, violates the PRC laws and regulations, impairs the national dignity of China or the public interest, or is obscene, superstitious, fraudulent, violent or defamatory. Internet content providers are also prohibited from displaying content that may be deemed by relevant government authorities as “socially destabilizing” or leaking “state secrets” of China. Such regulations may extend to a prohibition on certain state flags, or scrutiny of in-game chat and messaging functions. These rules and regulations could limit our growth potential in China and may damage our reputation, any of which could have a material adverse effect on our business. See “— Risk Related to the Company’s International Operations and Ownership — Expansion into new international markets, such as China, would subject us to increased regulatory oversight and regulatory, economic, social, health and political uncertainties, which could cause a material adverse effect on our business, financial position, and results of operations.”
Furthermore, the future implementation of similar laws or regulations in the jurisdictions in which we operate may restrict or prohibit the sale of our games or may require modifications to our games that are costly to implement, degrade the consumer experience to the point where users cease to play the affected games, or are not feasible at all. Further changes in the regulations, their interpretation or their enforcement could have a material adverse effect on our business and results of operations.
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Risks Related to the Company’s Intellectual Property
Our intellectual property rights and proprietary information help protect our business. If we are unable to obtain, maintain and enforce intellectual property protection for our games, or if the scope of intellectual property protection is not sufficiently broad, others may be able to develop and commercialize games substantially similar to ours, and our ability to successfully commercialize our games may be compromised.
We believe that our success depends, in part, on protecting our owned and licensed intellectual property rights in the United States and in other countries, and we strive to protect such intellectual property rights by relying on applicable law in such jurisdictions, including federal, state and common law rights, as well as contractual restrictions. Our intellectual property includes certain trademarks, copyrights and trade secrets relating to our games or technology we operate, and other proprietary or confidential information. Our success may depend, in part, on our and our licensors’ ability to protect the trademarks, trade dress, names, logos or symbols under which we market our games and other products and to obtain and maintain copyright, trade secret and other intellectual property protection for the technologies, designs, software and innovations used in our games and our business. It is possible that third parties, including our competitors, may develop similar technology to ours that overlap or compete with our technology. If we are unable to adequately protect our intellectual property and other proprietary rights, our competitive position and our business could be harmed. If third parties obtain patent protection with respect to such technologies, they may assert that our technology infringes their patents and seek to charge us a licensing fee or otherwise preclude the use of our technology. We do not own any patents or pending patent applications, and may not own any in the future. Accordingly, we are not able to assert any infringement claims against any third party. Furthermore there is a risk that third parties may assert that our technology infringes their patents, and we may not be able successfully to defend such claims or to counterclaim in order to invalidate such third party patents.
We have pursued and continue to pursue the filing and registration of trademarks in the United States and certain other jurisdictions, a process that is expensive and time-consuming, particularly when it is likely that not all trademark applications will be successful. We may not pursue infringement claims or be able to obtain protection for our intellectual property rights in all jurisdictions. Our copyright may not be recognized and our trademarks applications may be denied in certain jurisdictions because they are determined, pursuant to the applicable law, not to fulfill the criteria for copyright or trademark protection. In some cases, to the extent that a trademark is not registered within a certain class or region, a third party may attempt to have a ‘competing’ trademark registered in such class or region thus diluting our trademark and damaging our goodwill. Even if we are successful in obtaining registered trademark and, where applicable, registered copyright protection, it is expensive to maintain these rights and the costs of defending our rights could be substantial. Moreover, our failure to develop and properly manage new intellectual property could hurt our market position and limit or eliminate our business opportunities. Furthermore, changes to intellectual property laws may jeopardize the enforceability and validity of our existing intellectual property portfolio and harm our ability to obtain protection for future intellectual property rights.
In addition, we cannot assure you that we will be able to maintain consumer value in our trademarks, copyrights or other intellectual property rights in our technologies, designs, software and innovations. The measures we take to protect our intellectual property rights may not provide us with a competitive advantage and our competitive position and our business could be harmed. Any of our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed, misappropriated or otherwise violated, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, or our intellectual property rights may not be sufficient to permit us to take advantage of current market trends, which could result in competitive harm.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We rely on maintaining as confidential our trade secrets and other proprietary information, including our know-how, software source code and technology, to maintain our competitive position. We enter into agreements containing obligations of confidentiality with our employees and independent contractors in order to limit access to, and disclosure and use of, our trade secrets and proprietary information, but we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information. Further, we cannot assure you that the obligation to maintain the confidentiality of our trade secrets and proprietary information will be honored. Any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Additionally, even if parties to whom we intentionally disclose our trade secrets and other proprietary information maintain the confidentiality of that information, third party actions may result in a breach of our cybersecurity or information technology systems, or those of the persons
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to whom we disclosed our trade secrets or proprietary information, which could result in the loss of confidentiality of our trade secrets and proprietary information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets, including absent properly drafted legal regime to that effect. Trade secrets do not provide a monopoly protection right, so if any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us, which could harm our competitive position, business, financial condition, results of operations, and prospects.
We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants and advisors are currently or were previously employed at other companies in our field, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us by including standard provisions in our employment agreements and contracts with consultants, advisors and independent contractors, as well as by entering into non-disclosure agreements, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer in the performance of their work for us. If any such claims are asserted, whether they are made with or without basis, we may need to engage in litigation to defend against them. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel and the right to use valuable intellectual property rights or proprietary information. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and our employees.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects.
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.
Third parties, including our competitors, could be infringing, misappropriating or otherwise violating our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly. The steps we have taken to protect our proprietary rights may not be adequate to enforce our rights against infringement, misappropriation or other violation of our intellectual property. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our games.
In the future, we may make claims of infringement against third parties, or make claims that third-party intellectual property rights are invalid or unenforceable. These claims could:
| ● | cause us to incur greater costs and expenses in the protection of our intellectual property; |
| ● | potentially negatively impact our intellectual property rights, for example, by causing one or more of our intellectual property rights to be ruled or rendered unenforceable or invalid; |
| ● | potentially negatively impact our position vis-à-vis third-party intellectual property rights if they are determined to be valid and enforceable; or |
| ● | divert management’s attention and our resources. |
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In any lawsuit we bring to enforce our intellectual property rights, a court may refuse to stop the other party from using the technology at issue on grounds that our intellectual property rights do not cover the technology in question or that certain use which we believe to be harmful is a fair use. Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights. The outcome in any such lawsuits are unpredictable.
Litigation or other legal proceedings could result in public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of intellectual property proceedings could harm our ability to compete in the marketplace. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Although disclosures made in the course of litigation are usually subject to non-disclosure and non-compete obligations, if a recipient of such disclosures did choose to use the information in its business it may be difficult for us to prove that any developments made by such recipient is as a direct result of unauthorized use of our confidential information. Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects.
We license certain intellectual property rights from third parties and, in the future, we may enter into additional agreements that provide us with licenses to valuable intellectual property rights or technology.
We license certain intellectual property rights from third parties related to the operations of our business, including those needed to develop our own intellectual property and non-exclusive licenses with respect to the use of certain intellectual property rights of the platforms on which our games are offered. Even if games based on licensed content or brands remain popular, any of our licensors could decide not to renew our existing licenses or not to license additional intellectual property rights to us and instead license to our competitors or develop and publish its own games or other applications, competing with us in the marketplace. Many of these licensors already develop games for other platforms, and may have significant experience and development resources available to them should they decide to compete with us rather than license to us.
Failure to maintain or renew our existing licenses or to obtain additional licenses would impair our ability to introduce new games or to continue to offer our current games, which would materially harm our business, results of operations and financial condition. If we breach our obligations under existing or future licenses, we may be required to pay damages and our licensors might have the right to terminate the license. Termination by a licensor would cause us to lose valuable rights and could inhibit our ability to commercialize future games, which would harm our business, results of operations and financial condition. In addition, most of our licensed intellectual property rights are licensed to us on a non-exclusive basis. The owners of nonexclusively licensed intellectual property rights are free to license such rights to third parties, including our competitors, on terms that may be more advantageous than those offered to us, which could place us at a competitive disadvantage. In addition, the agreements under which we license intellectual property rights or technology from third parties are generally complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
In the future, we may identify additional third-party intellectual property rights we may need to license in order to engage in our business, including to develop or commercialize new games. However, such licenses may not be available on acceptable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater development or commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if such licenses are available, we may be required to pay the licensor substantial royalties based on our net sales. Moreover, such licenses may be non-exclusive, which could give our competitors access to the same intellectual property rights licensed to us. If we are unable to enter into the necessary licenses on acceptable terms or at all, if any necessary licenses are subsequently terminated, if our licensors fail to abide by the terms of the licenses, if our licensors fail to prevent infringement by third parties, or if the licensed intellectual property rights are found to be invalid or unenforceable, our business, financial condition, results of operations and prospects could be materially and adversely affected.
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Even if we are successful in gaining new licenses or extending existing licenses, we may fail to anticipate the entertainment preferences of our players when making choices about which brands or other content to license. If the entertainment preferences of players shift to content or brands owned or developed by companies with which we do not have relationships, we may be unable to establish and maintain successful relationships with these developers and owners, which would materially harm our business, results of operations and financial condition. In addition, some rights are licensed from licensors that have or may develop financial difficulties, and may enter into bankruptcy protection under U.S. federal law or the laws of other countries. We do not have source code escrow arrangements in place with any of these licensors and, as such, if any of our licensors files for bankruptcy, (i) our licenses might be impaired or voided, and (ii) we would not be provided with access to the proprietary source code which would enable us to keep running the software without the permission or assistance of the licensor, each of which could materially harm our business, results of operations and financial condition.
We use open source software in connection with certain of our games, which may pose particular risks to our proprietary software, games and services in a manner that could have a negative impact on our business.
We use open source software in connection with our technology and games. The original developers of the open source code provide no warranties on such code and open source software may have unknown bugs, malfunctions and other security vulnerabilities which could impact the performance and information security of our technology. Some open source software licenses impose significant limitations on the use of their proprietary software, including, among other things, a limitation on the number of free copies that may be distributed as well as the requirement to publicly disclose all or part of the source code to such proprietary software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. Although we believe we are in compliance with the license terms of the open source software that we use, from time to time, we may face claims from the copyright holders of open source software alleging copyright infringement and breach of contract for failure to meet the open source license terms, such as the failure to publicly disclose our proprietary code that is a derivative work of the open source software. Additionally, the copyright holders of certain open source software could demand release of the source code of any of our proprietary code that is a derivative work of the open source software, or otherwise seek to enforce, have us specifically perform, or recover damages for the alleged infringement or breach of, the terms of the applicable open source license. While we would not expect there to be a basis for such claims or for them to succeed, there is a risk that these types of claims may be brought and it is possible that such claims could succeed. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our games and replace problematic open source software with third party licensed software or our proprietary software. The terms of various open source licenses have been interpreted by courts to a very limited extent, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions, obligations or restrictions on our use of the open source software. We endeavor to use open source software in a manner that complies with the terms of the open source licenses while at the same time not requiring the disclosure of the source code of our proprietary software. Any failure to comply with the terms of the open source licenses could result in our being enjoined from using certain software and require us to replace certain code used in our games, pay a royalty or license fee to use some open source code, make the source code of our games publicly available, pay damages for copyright infringement or breach of contract of open source licenses, or temporarily or permanently discontinue certain games. The above risks could have a material adverse effect on our competitive position, business, reputation, legal exposures, financial condition, results of operations and prospects.
The intellectual property rights of others may prevent us from developing new games and services or entering new markets or may expose us to liability or costly litigation.
Our success depends in part on our ability to continually adapt our games to incorporate new technologies, as well as intellectual property related to game mechanics and procedures, and to expand into markets that may be created by these new developments. If technologies are protected by the intellectual property rights of others, including our competitors, we may be prevented from introducing games based on these technologies or expanding into markets created by these technologies.
We cannot assure you that our business activities and games will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us. We may in the future be subject to litigation alleging that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including our competitors, non-practicing entities and former employers of our personnel. A successful claim of infringement by a third party against us, our games or one of our licensees in connection with the use of our technologies, game mechanics or procedures, or an unsuccessful claim of infringement
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made by us against a third party or its products or games, could adversely affect our business or cause us financial harm. Any such claim and any resulting litigation, should it occur, could:
| ● | be expensive and time consuming to defend or require us to pay significant amounts in damages; |
| ● | result in invalidation of our proprietary rights or render our proprietary rights unenforceable; |
| ● | cause us to cease making, licensing or using games that incorporate the subject intellectual property; |
| ● | require us to redesign, reengineer or rebrand our games or other products or services or limit our ability to bring new games or other products or services to the market in the future; |
| ● | require us to enter into costly or burdensome royalty, licensing or settlement agreements in order to obtain the right to use a product or process; |
| ● | impact the commercial viability of the games that are the subject of the claim during the pendency of such claim; or |
| ● | require us to stop offering the infringing games or other products or services. |
If any of our technologies or games are found to infringe, misappropriate or otherwise violate a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing or using such technology or game. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could also be forced, including by court order, to cease the commercialization or use of the infringing, misappropriating or otherwise violating technology, game or game element. Accordingly, we may be forced to design around such infringed, misappropriated or otherwise violated intellectual property, which may be expensive, time-consuming or infeasible. In addition, we could be found liable for significant monetary damages, including enhanced damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated the confidential information or trade secrets of third parties could similarly harm our business. If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement, misappropriation or other violation claims against us, such payments, costs or actions could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects.
We may not be able to enforce our intellectual property rights throughout the world.
We may be required to protect our intellectual property and proprietary information in an increasing number of jurisdictions, a process that is expensive and may not be successful. Or we may not pursue protection of our intellectual property in every jurisdiction in which we or our licensees operate. Filing, prosecuting, maintaining, defending, and enforcing our intellectual property rights in all jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some jurisdictions outside the United States may be less extensive than those in the United States. Competitors may use what we regard as our intellectual property in jurisdictions where we have not obtained protection over that intellectual property to develop their own games and, further, may export otherwise violating games to territories where we have protection. These games may compete with our games, and our intellectual property rights may not be effective or sufficient to prevent such competition. In addition, the laws of some foreign jurisdictions do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant challenges in establishing and enforcing their intellectual property and other proprietary rights outside of the United States. These challenges can be caused by the absence or inconsistency of the application of rules and methods for the establishment and enforcement of intellectual property rights outside of the United States. In addition, the legal systems of some jurisdictions, particularly developing countries, do not favor the enforcement of intellectual property protection. This could make it difficult for us to stop the infringement, misappropriation or other violation of our intellectual property rights. Accordingly, we may choose not to seek protection in certain jurisdictions, and we will not have the benefit of protection in such jurisdictions. Proceedings to enforce our intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such jurisdictions may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign jurisdictions may affect our
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ability to obtain adequate protection for our games or enforce our intellectual property rights. Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.
The registered or unregistered trademarks or trade names that we own or use may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other trademarks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition. In addition, third parties have filed, and may in the future file, for registration of trademarks similar or identical to our trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion and trademark dilution. If third parties succeed in registering or developing common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to develop brand recognition of our games. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively, which could harm our competitive position, business, financial condition, results of operations and prospects.
If we are not able to maintain and enhance our brand, our business and operating results may be adversely affected.
Our brand name, image and the goodwill that exists in both are integral to the growth of our business and to the implementation of our strategies for expanding our business. We believe that our brand image has significantly contributed to the success of our business and is critical to maintaining and expanding our customer base. Maintaining and enhancing our brand and goodwill may require us to make substantial investments in areas such as research and development, marketing and customer experience, and these investments may not be successful. Acquisitions of new businesses in accordance with our acquisition strategy may put additional pressure on our existing and newly acquired brands, and require us to invest more resources in developing, maintaining and further enhancing our brands.
We anticipate that, as our business expands into new markets, we launch new game offerings and the industry in which we operate becomes increasingly competitive, maintaining and enhancing our brand may become difficult and expensive. For example, consumers in any new international markets into which we expand may not know our brand and/or may not accept our brand, resulting in increased costs to market and attract customers to our brand. Our brand may also be adversely affected if our public image or reputation is tarnished by negative publicity, including negative social media campaigns, poor reviews of our products or negative customer experiences. For example, we receive complaints from users regarding various aspect of our games, our policies or practices. In particular, we have received complaints regarding inappropriate behavior and content posted in our in-game chats and via private messages among game players. Although we have implemented internal mechanisms to track and react to inappropriate behavior by our customers, we can provide no assurance that we will be able to react to such behavior in a timely manner in the future. This inability to react to such behavior in a timely manner may become increasingly problematic as legislation is being implemented in various jurisdictions in order to implement controls over harmful online behavior and increase the responsibility of platforms (see “— Risks Related to the Company’s Information Technology and Data Security — Our business, products, and distribution are subject to increasing regulation of content. If we do not successfully respond to these regulations, our business, financial condition and results of operations could be materially adversely affected” above for further detail). In addition, we can provide no assurance that we will not be party to further claims and actions by either the customers affected by any inappropriate behavior or the customers who have been restricted or banned from our in-game chats for such behavior.
Additionally, in light of Russia’s ongoing military conflict in Ukraine, our brand may be adversely affected by our historical association with Russia. Our nexus to Russia was limited even prior to the Ukraine conflict, and we believe we have substantially minimized our exposure to Russia in the intervening months. The Issuer is incorporated in the British Virgin Islands and maintains its principal place of business in Cyprus. Moreover, the senior management team functions and the majority of the critical operations for the Company are conducted from Cyprus. While the Company draws upon personnel located in many other jurisdictions, which historically included Russia, the Company has relocated all personnel to jurisdictions outside Russia, Ukraine and Belarus and has divested itself of all subsidiaries in Russia. Additionally, the Company is diligently working to eliminate, to the maximum extent possible within its control, all remaining connections to Russia. Notwithstanding these facts, any action or inaction taken by the Company arising from or relating to the Russian military conflict in Ukraine, including in respect of our former presence in Russia or
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our past association with Russia, could adversely affect our brand and could be negatively viewed by our investors, users or employees. Any of the foregoing could have a material adverse effect on our business, financial condition (including our liquidity position) and results of operations.
Furthermore, ineffective marketing, product diversion to unauthorized distribution channels, product defects, unfair labor practices and failure to protect our intellectual property rights are among the potential threats to the strength of our brand, and those and other factors could rapidly and severely diminish consumer confidence in us and our brand. Failure to maintain the strength of our brand could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to the Company’s International Operations and Ownership
We face added business, political, regulatory, operational, financial and economic risks as a result of our operations and distribution in a variety of countries, any of which could increase our costs and hinder our growth.
A significant portion of our operations are outside of the United States, including our principal executive offices in Cyprus and development centers in Armenia and Kazakhstan, and we generate a significant portion of our revenues from operations outside of the United States. For the first six months of 2023 and 2022, we derived 64% and 68%, respectively, of our revenues from sales to players outside of the United States, and for each of the years ended December 31, 2022, 2021 and 2020, 67%, 69% and 63%, respectively. Our operations in foreign jurisdictions may subject us to additional risks customarily associated with such operations, including:
| ● | challenges caused by distance, language and cultural differences; |
| ● | the complexity of foreign laws, regulations and markets; |
| ● | the uncertainty of enforcement of remedies in foreign jurisdictions; |
| ● | higher costs associated with doing business internationally; |
| ● | the effect of currency exchange rate fluctuations; |
| ● | difficulties in staffing and managing international operations; |
| ● | the impact of foreign labor laws and disputes; |
| ● | the ability to attract and retain key personnel in foreign jurisdictions; |
| ● | protectionist laws and business practices that favor local businesses in some countries; |
| ● | the economic, tax and regulatory policies of local governments; |
| ● | the general economic and political situation in such jurisdictions; |
| ● | compliance with applicable anti-money laundering, anti-bribery and anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or the FCPA, and other anti-corruption laws that generally prohibit U.S. persons and companies and their agents from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtaining or retaining business; |
| ● | economic tensions between governments and changes in international trade policies and/or the economic and trade sanctions programs administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury; |
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| ● | difficulty of verifying end-user information, including for the purposes of complying with the verification requirements of certain countries and with the economic and trade sanctions programs administered by OFAC; |
| ● | compliance with local data protection laws; |
| ● | limitations on and costs related to the repatriation of funds; |
| ● | compliance with applicable sanctions regimes regarding dealings with certain persons or countries; |
| ● | restrictions on the export or import of technology; |
| ● | trade and tariff restrictions; |
| ● | variations in tariffs, quotas, taxes and other market barriers; and |
| ● | difficulties in obtaining and enforcing intellectual property rights in countries other than the United States. |
Certain of these laws also contain provisions that require accurate record keeping and further require companies to devise and maintain an adequate system of internal accounting controls. Although we have implemented policies and controls that are designed to ensure compliance with these laws, if those controls are ineffective or an employee or intermediary fails to comply with the applicable regulations, we may be subject to criminal and civil sanctions and other penalties. Any such violation could disrupt our business and adversely affect our reputation, results of operations, cash flows and financial condition.
Further, violations of the complex laws and regulations that apply to our business’ international operations in the various countries in which we operate may result in fines, criminal actions or sanctions against us, our officers or our employees; prohibitions on the conduct of our business; and damage to our reputation. Although we have implemented policies and procedures designed to promote compliance with these laws, there can be no assurance that our employees, contractors or agents will not violate our policies. These risks inherent in our international operations and expansion increase our costs of doing business internationally and could harm our business.
Lastly, our ability to expand successfully in foreign jurisdictions involves other risks, including difficulties in integrating foreign operations, risks associated with entering jurisdictions in which we may have little experience and the day-to-day management of a growing and increasingly geographically diverse company. We may not realize the operating efficiencies, competitive advantages or financial results that we anticipate from our investments in foreign jurisdictions. In addition, our international business operations could be interrupted and negatively affected by terrorist activity, political unrest or other economic or political uncertainties. Moreover, foreign jurisdictions could impose tariffs, quotas, trade barriers and other similar restrictions on our international sales.
Our business may be adversely affected by the Company’s historical association with Russia.
The Company’s association with Russia could expose the Company to political or other risks related to Russia. While the Company believes its nexus to Russia is minimal, especially in light of the substantial measures we have taken to minimize our exposure to Russian country risk in the intervening months since the outbreak of the Russian military conflict in Ukraine, the Company’s historical association with Russia could continue to subject us to certain risks associated with Russia. Furthermore, for the first six months of 2023 and for the year ended December 31, 2022, we derived 9% and 11%, respectively, of our total revenue from the Former Soviet Union countries.
While all of our vital infrastructure, including our servers and licenses, as well as the majority of our most critical personnel, including top management, department heads, producers of game development and operation, project managers and product owners, are located outside Russia, we have historically conducted what we consider to be non-vital business operations within Russia. Our board of directors determined that it is in the best interests of the Company, our player community and our investors to eliminate — to the maximum extent possible within the Company’s control — our exposure to country risks related to Russia, and developed plans to implement this strategy. To this end, on July 11, 2022, the Company’s board of directors formally approved the divestment of the Russia-based subsidiaries, which were not considered to be vital to the Company’s business operations, and the relocation plans of the
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critical personnel still located in Russia, Ukraine and Belarus. Accordingly, our strategic plan to minimize our risks related to Russia included: (i) the reallocation of the revenue streams associated with our Bookings generated through Russian social networks to a Russian subsidiary (the “Russian Network Subsidiary”) in conjunction with the disposition of the entirety of our Russian-based subsidiaries, including the Russian Network Subsidiary, and (ii) the relocation of the vast majority of critical personnel to Cyprus, Armenia and certain other “safe-harbor” countries.
| ● | The reallocation of our Bookings generated through the Russian social networks to the Russian Network Subsidiary permitted the Company to isolate the revenue streams its derived from its contractual relationships with Russian counterparties into a single subsidiary. With the disposition of the entirety of the Company’s Russian-based subsidiaries, including the Russian Network Subsidiary, to their respective management teams located within Russia, the Company decoupled itself from all revenue-generating contracts with Russian counterparties and, thereby, the risks associated with those counterparties, including the potential imposition of sanctions on such counterparties (or persons associated with such counterparties), as well as the perception of indirect support for Russia through the transacting of business with Russian entities. |
| ● | The relocation program is intended to ensure that the Company is not dependent upon any critical personnel located within Russia, thereby mitigating risks associated with the need to make payments in Russian rubles to those individuals, including the perception of indirectly supporting Russia through those payments, as well as the potential for losing access to those critical employees as a consequence of the potential imposition of regulatory or other measures, including market pressure. |
As of the date of this prospectus, we have largely completed the execution of our strategic plan. In particular, we have (i) completed the reallocation of our Bookings generated through the Russian social networks to the Russian Network Subsidiary, (ii) fully divested ourselves of our (former) Russian-based subsidiaries, including the Russian Network Subsidiary, (iii) discontinued offering of our games through Russian social networks, (iv) relocated or laid-off all employees in Russia, and (v) moved all our former Russian business operations to other countries. Nevertheless, although we have largely implemented all of our strategic plans to eliminate our risks related to Russia, the Company remains subject, either directly or indirectly, to the additional or heightened risks associated with Russia’s military conflict in Ukraine, including risks related to sanctions, export or capital controls and currency exchange limitations. We have recorded losses on disposal of our (former) Russian based-subsidiaries in the amount of $5 million. For further details please refer to Note 8 to our audited consolidated financial statements as of and for the year ended December 31, 2022, included elsewhere in this prospectus. As of the date of this prospectus we have largely completed the relocation program and therefore do not expect any impact of the relocation expenses in 2023 and beyond, though we expect a certain increase in labor costs per employee starting from 2022 and going forward resulting from our policy of providing salary increases and various compensations on an ongoing basis to our employees to support them during the relocation process and to assist them with settling in their new locations. We believe these increased labor costs will continue to affect our financial position and results of operation in the future.
We are actively monitoring the situation in Ukraine and assessing its impact on our business. To date we have not experienced any material interruptions in our infrastructure, supplies, technology systems or networks needed to support our operations. We have no way to predict the progress or outcome of the conflict in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government reactions, are rapidly developing and beyond our control. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. Any of the abovementioned factors could impact our revenue stream from paying users in Russia and could have a material adverse impact on our business, prospects, financial condition and operating results. Any such disruptions may also magnify the impact of other risks described in this prospectus.
Additionally, our acquisition strategy targeting independent studios primarily in Europe and the Former Soviet Union exposes us to a higher risk of potential violations of sanctions related to Russia due to the higher potential for those studios to have ties to such sanctioned persons. While we undertake a customary level of due diligence in respect of every company we target for acquisition, we can provide no assurance that our due diligence investigation of these companies will always be sufficient to uncover every potential violation of sanctioned activities or relationships with sanctioned persons. In the event that we should be or become in violation of compliance with existing or future sanctions in connection with our acquisition strategy or otherwise, we could be subject to significant penalties, including substantial monetary fines, and reputational harm. See “—Any failure to comply with the anti-corruption, trade compliance and economic sanctions laws and regulations of the United States and applicable jurisdictions could materially adversely affect our reputation and results of operations.”
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Any failure to comply with the anti-corruption, trade compliance and economic sanctions laws and regulations of the United States and applicable jurisdictions could materially adversely affect our reputation and results of operations.
Because we operate internationally, we must comply with anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, which may include the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and the U.K. Bribery Act 2010 (the “Bribery Act”), as well as the laws of the countries where we do business. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. Where they apply, the FCPA and the Bribery Act prohibit us and our officers, directors, employees and business partners acting on our behalf, including joint venture partners and agents, from corruptly offering, promising, authorizing or providing anything of value to public officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The Bribery Act also prohibits non-governmental “commercial” bribery and accepting bribes. As part of our business, we may deal with governments and state-owned business enterprises, the employees and representatives of which may be considered public officials for purposes of the FCPA and the Bribery Act. We also are subject to the jurisdiction of various governments and regulatory agencies around the world, which may bring our personnel and agents into contact with public officials responsible for issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption.
Our business also must be conducted in compliance with applicable economic and trade sanctions and export control laws and regulations, such as those administered and enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council, and other relevant authorities. Our global operations expose us to the risk of violating, or being accused of violating, anti-corruption, economic and trade sanction, and export control laws and regulations. Any failure to comply with these laws and regulations may expose us to reputational harm as well as significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive. Despite our compliance efforts and activities we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.
We do not currently have contracts directly with persons, entities, or businesses that are the target of comprehensive U.S. or other applicable sanctions, such as parties on the Specially Designated Nationals and Blocked Persons List maintained by OFAC, or similar sanctions-related lists of designated persons maintained by other relevant sanctions authorities. We continuously review and monitor our third-party relationships to confirm that our business partners and contractual counterparties, as well as any beneficial owners of our securities of which we are aware (“Business Contacts”) are not the target of such sanctions. In the event that we were to determine that a party with which we have an existing relationship became the target of comprehensive sanctions, we would immediately activate a legal analysis to determine the most appropriate course of action to comply with the sanction regulations, together with the impact of a contractual termination according to the applicable law, and then proceed as required by the regulatory authorities. To the extent that a Business Contact were to become the target of comprehensive sanctions, the existence of this relationship (including the past association with the Company) could materially adversely affect our reputation, which may materially and adversely affect our business, results of operations and financial condition.
Furthermore, even if an entity is not formally targeted by sanctions by the United States, the European Union, the United Kingdom or other jurisdictions, customers and business partners of such entity may decide to reevaluate or cancel projects with such entity for reputational or other reasons. As result of the ongoing conflict in Ukraine, many U.S. and other multi-national businesses across a variety of industries, including consumer goods and retail, food, energy, finance, media and entertainment, technology, travel and logistics, manufacturing and others, have indefinitely suspended their operations and paused commercial activities in Russia and Belarus. For example, Apple and Google, two of the primary platforms that distribute our games, have been suspended their respective digital wallet and mobile payment services, Apple Pay and Google Pay, in relation to credit cards issued by Russian financial institutions that are the subject of sanctions. Players who access our games via these platforms in Russia (that use credit cards issued by such financial institutions) will therefore be disconnected from the primary means to make in-game purchases. We therefore expect a significant decline in Bookings, and therefore revenues, derived from players located in Russia, which may materially and adversely affect our business, results of operations and financial condition.
Further, because end-users may download our games on third-party platforms that we do not control, our games may be downloaded and played by persons that are the target, or individuals in countries or territories that are the target, of economic
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sanctions administered by the United States, the European Union and other governmental authorities. Although we have taken steps to limit the ability of end-users to download our games from sanctioned countries, we cannot eliminate the risk that our games will be played in countries or territories that are the target of economic sanctions administered by the United States, the European Union and other governmental authorities.
It may be difficult to enforce a judgment of a U.S. court against us and our officers and directors, to assert U.S. securities laws claims in Cyprus or to serve process on our officers and directors.
We maintain offices in Cyprus and many of our employees and officers and directors are residents of Cyprus. Certain of our assets and the assets of these persons are located in Cyprus. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by a Cypriot court. It also may be difficult to affect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Cyprus. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Cyprus. Cypriot courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Cyprus is not the most appropriate forum in which to bring such a claim. In addition, even if a Cypriot court agrees to hear a claim, it may determine that Cypriot law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Cypriot law. There is little binding case law in Cyprus that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Cyprus, you may not be able to collect any damages awarded by either a U.S. or foreign court.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
Our functional currency is the U.S. Dollar and our expenses are primarily denominated in U.S. Dollars. However, a substantial portion of our revenue are denominated in euros, Japanese yen and other currencies. This foreign currency exposure gives rise to market risk associated with weakening of these other currencies versus the U.S. Dollar.
In addition, increased international sales in the future may result in greater foreign currency denominated sales, increasing our foreign currency risk. Moreover, operating expenses incurred outside the United States and denominated in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations could be adversely affected. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations.
We are subject to various laws and regulations in the jurisdictions in which we operate, many of which are unsettled or are subject to change. We may be unable to identify or address regulatory changes in timely manner or at all, which could lead to additional compliance costs, customer claims and investigations by regulators, which in turn, can have a material adverse effect on our financial condition and results of operations.
We are subject to a variety of laws in the jurisdictions in which we operate, including laws regarding advertising, consumer protection and intellectual property, which are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside the United States. For example, in 2022, we received notification from regulators in Canada, Australia and Germany alleging that certain of our advertising was misleading or inappropriate. While we have discontinued the adverts referenced in the notices and do not expect further action from the relevant regulators, we may be subject to further complaints and, as a result, our reputation may be harmed and our business, prospects, financial condition and results of operations could be materially and adversely affected.
Additionally, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the adverts posted or the content provided by users. It is also likely that as our business grows and evolves and our games are played in a greater number
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of countries, we will become subject to laws and regulations in additional jurisdictions. We are potentially subject to a number of foreign and domestic laws and regulations that affect the offering of certain types of content, such as that which depicts violence, many of which are ambiguous, still evolving and could be interpreted in ways that could harm our business or expose us to liability. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject.
We may be unable to identify or address regulatory changes in a timely manner or at all, which could lead to additional compliance costs, customer claims and investigations by regulators, which in turn, can have a material adverse effect on our financial condition and results of operations. We may be forced to implement new measures to address regulatory changes, which may require us to expend substantial resources or to modify our games, which would harm our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.
We have no controlling shareholders, however, the loss of one or more of our largest shareholders could significantly harm our business.
We are held by a diverse group of shareholders. Our largest shareholders include our co-founders, Andrey Fadeev and Boris Gertsovskiy and Everix Investments Limited, who beneficially own an aggregate of approximately 20%, 20% and 38%, respectively, of our currently outstanding ordinary shares, and whose individual interests will influence the decision-making process of the Company by means of their representation on our Board of Directors. As a result, we have no single controlling shareholder able to influence key decision making and therefore any disagreements among our largest shareholders could potentially adversely affect the key decision-making process, which could result in significant disruptions to our business and may materially adversely affect our business, results of operations, cash flows or financial condition. For example, in 2018 one of the shareholders of Nexters Global filed a petition in a Cypriot court for the appointment of an interim receiver and/or liquidator to protect and preserve the value of the assets of the company. The petition was dismissed by the court following resolution.
Conversely, these largest shareholders, acting together, could have significant influence over the outcome of matters submitted to our shareholders for approval, including the election or removal of directors; any amendments to our articles of incorporation or bylaws; any merger, consolidation or sale of all or substantially all of our assets; and over the management and affairs of the Company. Furthermore, our articles of association contain provisions requiring certain matters to be approved by a supermajority vote of directors (all directors minus one) that effectively allow any two directors to block actions that the other directors believe are in the best interests of the Company and may materially adversely affect our business, results of operations, cash flows or financial condition. Matters that require the approval of a supermajority of directors include:
| (a) | redemption or repurchase of the shares of the Company (subject to the approval of the shareholder whose shares are to be acquired or redeemed, save in circumstances where the Companies Act permits the compulsory redemption or repurchase of shares); |
| (b) | creating new classes of shares and setting the rights and privileges attaching thereto; |
| (c) | amending the Amended and Restated Memorandum and Articles of Association of the Company (subject to certain limitations imposed by the Companies Act, set out below), and/or giving prior approval to amendments to the Amended and Restated Memorandum and Articles of Association which are subsequently approved by the shareholders of the Company; |
| (d) | issuance of shares with an aggregate value greater than 5% of the revenue of the Company; |
| (e) | declaring dividends, and adopting or amending any dividend policy; |
| (f) | setting the size of the board of directors of the Company; |
| (g) | incurring indebtedness of the Company in an amount greater than 5% of the revenue of the Company; |
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| (h) | the Company extending credit or making any advance or capital contribution to or in any third party (other than in connection with working capital matters or ordinary-course employee advances) for an amount in excess of 0.5% of the revenue of the Company; |
| (i) | the acquisition by the Company or its subsidiaries of share stakes in other companies (other than ordinary course treasury operations of the relevant entity) or the acquisition of assets constituting a business, in each case where the value of such acquisition (whether completed in one transaction or a series of related transactions) exceeds $1,000,000 (one million US dollars); |
| (j) | the Company or any of its subsidiaries entering into joint ventures with any person; |
| (k) | the Company or any of its subsidiaries establishing or amending any profit-sharing, share-option or other similar incentive scheme for directors, officers or employees (save where such scheme has been previously approved); |
| (l) | the Company adopting the strategy and business plan and any changes or modifications thereto (subject to certain dispute resolution mechanisms set out in the Amended and Restated Memorandum and Articles of Association of the Company); |
| (m) | any sale of all or substantially all of the business or assets of the Company or its subsidiaries; |
| (n) | any actions to be decided by the Company in relation to exercising warrants over shares in the Company; |
| (o) | the appointment or removal of a Chief Executive Officer; and |
| (p) | the appointment of a voluntary liquidator or the initiation of any dissolution, bankruptcy filing or similar action of the Company or any of its subsidiaries. |
The limitations on the ability of the directors to amend the Amended and Restated Memorandum and Articles of Association are set out below. The directors do not have the power to amend the Amended and Restated Memorandum and Articles of Association:
| (a) | to restrict the rights or powers of the shareholders to amend the memorandum or articles of association; |
| (b) | to change the percentage of shareholders required to pass a resolution to amend the memorandum or articles; or |
| (c) | in circumstances where the memorandum or articles cannot be amended by the shareholders. |
The beneficial owners of Everix Investments Limited are Igor Bukhman and Dmitrii Bukhman, founders of Playrix (a leading global mobile games developer), which is a competitor of the Company. As a result, they may have a conflict of interest in certain decision-making processes, which may be adverse to that of the Company or our shareholders.
Our largest shareholders have particular expertise in various aspects essential to the ongoing operations and growth plans of the Company. Any loss of any particular group of shareholders that contributes its expertise to the Company, either by way of disposition of shares and/or discontinuation of their representation on our Board of Directors, could result in the loss of expertise essential to the ongoing operations and growth plans of the Company and could result in significant disruptions to our business, and therefore be materially adverse.
Expansion into new international markets, such as China, would subject us to increased regulatory oversight and regulatory, economic, social, health and political uncertainties, which could cause a material adverse effect on our business, financial position and results of operations.
We may in the future expand our business and operations into new international jurisdictions in which we have limited operating experience, including with respect to seeking regulatory approvals and marketing and selling our games, products and services. For example, our growth in China could be limited by the available legal protections and uncertain aspects of the PRC legal system.
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Furthermore, under the PRC legal system, the government’s intervention power can be more expansive than in other jurisdictions. The PRC legal system is a civil law system based on written statutes. Unlike common law systems, decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. For example, with respect to data protection and cybersecurity, China has recently passed its Cybersecurity Law, Data Security Law and Personal Information Protection Law, all of which aim to regulate the processing of and activities related to data and personal data. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. The PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection available than in other legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Additionally, the Chinese central government exercises significant control over the Chinese economy, including through controlling capital, foreign currency exchange, foreign exchange rates and tax regulations, providing preferential treatment to certain industry segments or companies and issuing required licenses to conduct business. These uncertainties could limit our growth potential in China, which could have a material adverse effect on our business.
Changes in tax law and differences in interpretation of tax laws and regulations may adversely impact our financial statements.
We operate in multiple jurisdictions and are subject to tax laws and regulations of the U.S. federal, state and local and non-U.S. governments. U.S. federal, state and local and non-U.S. tax laws and regulations are complex and subject to varying interpretations. U.S. federal, state and local and non-U.S. tax authorities may interpret tax laws and regulations differently than we do and challenge tax positions that we have taken. This may result in differences in the treatment of revenues, deductions, credits and/or differences in the timing of these items. The differences in treatment may result in payment of additional taxes, interest or penalties that could have an adverse effect on our financial condition and results of operations. Further, future changes to U.S. federal, state and local and non-U.S. tax laws and regulations could increase our tax obligations in jurisdictions where we do business, or are deemed to do business, for tax purposes, or require us to change the manner in which we conduct some aspects of our business.
Due to the nature of our business, we are likely subject to significant taxes and fees that could increase at any time and could materially affect our financial condition and results of operations.
The gaming industry represents a significant source of tax revenue to many jurisdictions. Gaming companies are currently subject to significant taxes and fees in addition to normal corporate income taxes, and such taxes and fees are subject to increase at any time. From time to time, various legislators and other government officials have proposed and adopted changes in tax laws, or in the administration or interpretation of such laws, affecting the gaming industry. In addition, any worsening of economic conditions and the large number of jurisdictions with significant current or projected budget deficits could intensify the efforts of governments to raise revenues through increases in gaming taxes and/or other taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration or interpretation or enforcement of such laws. Any material increase in tax rates, or the adoption of additional taxes or fees, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Additionally, tax authorities may impose indirect taxes on internet-related commercial activity based on existing statutes and regulations or newly enacted law. Tax authorities may interpret existing tax laws originally enacted for commercial activities that are physically carried out and apply it to internet-based activities as well. The application of such laws may be inconsistent from jurisdiction to jurisdiction. Our in-jurisdiction activities may vary from period to period which could result in differences in nexus from period to period.
Risks Related to the Company’s Securities and the Offering
The price of our ordinary shares and warrants may be volatile.
The price of our ordinary shares and warrants may fluctuate due to a variety of factors, including:
| ● | actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in the industry; |
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| ● | mergers and strategic alliances in the industry in which we operate; |
| ● | market prices and conditions in the industry in which it operates; |
| ● | changes in government regulation; |
| ● | potential or actual military conflicts or acts of terrorism; |
| ● | the failure of securities analysts to publish research about us, or shortfalls in our operating results compared to levels forecast by securities analysts; |
| ● | announcements concerning the Company or our competitors; and |
| ● | the general state of the securities markets. |
Additionally, prompted by sanctions imposed in response to geopolitical developments between Russia and Ukraine, on February 28, 2022, Nasdaq imposed a suspension of trading in GDEV’s ordinary shares and warrants. Since that date, the Company has substantially minimized its exposure to Russia, which was limited even prior to the Ukraine conflict, and trading of our securities resumed on Nasdaq as of March 16, 2023, over one year following the imposition of the trading suspension. Since the time it has resumed, trading of GDEV’s ordinary shares and warrants on Nasdaq has been highly volatile, and it may continue to experience significant pressure for some time as a result of the lack of liquidity during the prolonged period in which trading was suspended.
These market and industry factors may materially reduce the market price of our ordinary shares and warrants, regardless of our operating performance. Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may also negatively impact the market price of our ordinary shares and warrants. In addition, technology stocks have historically experienced high levels of volatility. In the past, companies who have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
Sales of a substantial number of our ordinary shares in the public market by the Selling Securityholders and/or by our other securityholders could cause the price of our ordinary shares to fall, and the Sponsor may still experience a positive rate of return on its resale of our ordinary shares.
Sales of a substantial number of ordinary shares in the public market by the Selling Securityholders and/or by our other securityholders, or the perception that those sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our ordinary shares.
Upon Kismet’s initial public offering (the “IPO”), the Sponsor held an aggregate of 6,750,000 Kismet founder shares which it had acquired against a capital contribution of $25,000, representing an acquisition price of approximately $0.0037 per share. In the IPO, Kismet issued 25,000,000 units to public holders at a price of $10.00 per unit, with each unit consisting of one Kismet ordinary share and one-half of one Kismet warrant. Simultaneously with the consummation of the IPO, the Sponsor purchased 6,750,000 Kismet private placement warrants at a purchase price of $6,750,000, or $1.00 per private placement warrant. Upon the consummation of the Transactions, (i) the Sponsor’s 6,750,000 Kismet founder shares were converted into 6,750,000 GDEV ordinary shares, (ii) 3,188,758 Kismet ordinary shares issued to public holders (following the redemption of 21,811,242 Kismet ordinary shares prior to the Merger) were converted to 3,188,758 GDEV ordinary shares, (iii) the Sponsor’s 6,750,000 Kismet private placement warrants were converted into 6,750,000 GDEV private placement warrants, (iv) the Sponsor acquired, pursuant to the terms of an amended and restated forward purchase agreement, 5,000,000 GDEV ordinary shares and 1,000,000 GDEV warrants for an aggregate purchase price of $50,000,000, or approximately $9.86 per GDEV ordinary share and approximately $0.72 per GDEV warrant (assuming an estimated purchase price allocation based upon the closing trading price of Kismet’s public warrants of $0.72 on August 27, 2021, the closing date of the Transactions), and (v) the Sponsor transferred, pursuant to the PIPE subscription financing, 1,625,000 GDEV private placement warrants to the PIPE investors, for which the Sponsor did not receive any consideration.
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The up to 47,102,791 ordinary shares being offered for resale pursuant to this prospectus by the Selling Securityholders represent approximately 21.5% of shares outstanding on a diluted basis assuming the exercise of all outstanding warrants and the exercise of all options vested as of the date of this prospectus or within 60 days hereof. Additionally, pursuant to other registration statements we have filed with the SEC, we have registered for resale by certain selling securityholders up to 175,413,828 ordinary shares. Furthermore, as of the date of this prospectus, 9,562,757 ordinary shares are registered and subject to issuance under our 2021 Employee Stock Option Plan, which ordinary shares may, upon issuance, be resold in the public market. In aggregate, the percentage of our ordinary shares being offered for resale under both this prospectus and our other registration statements amounts to approximately 98.9% of our shares outstanding on a fully diluted basis assuming both (a) the exercise of all outstanding warrants and the exercise of all options vested as of the date of this prospectus or within 60 days hereof and (b) the issuance of all ordinary shares issuable under our 2021 Employee Stock Option Plan (excluding ordinary shares associated with such vested options). Given the substantial number of ordinary shares registered for potential resale by selling securityholders (including the Selling Securityholders under this prospectus), the sale of ordinary shares by those selling securityholders, or the perception in the market that the selling securityholders of a large number of shares intend to sell shares, could increase the volatility of the market price of our ordinary shares or result in a significant decline in the public trading price of our ordinary shares. Even if our trading price is significantly below $10.00, the offering price of the Kismet units offered in its IPO, the Sponsor, one of the Selling Securityholders named in this prospectus, may still have an incentive to sell our ordinary shares because it acquired 6,750,000 ordinary shares relating to the 6,750,000 Kismet founder shares at prices lower than the public investors or the last reported trading price of our ordinary shares. For example, based on the last reported sale price of our ordinary shares of $2.74 on September 28, 2023, the Sponsor would experience a potential profit in respect of 6,750,000 of its GDEV ordinary shares relating to the 6,750,000 Kismet founder shares of up to approximately $2.736 per share, or approximately $18.5 million in the aggregate. While the Sponsor may experience a positive rate of return based on the trading price of our ordinary shares, the public holders of our ordinary shares may not experience a similar rate of return on the ordinary shares they purchase due to differences in the applicable purchase price and trading price. Ivan Tavrin, a former director of the Company and the former sole owner of the Sponsor who maintains sole dispositive power over all of GDEV ordinary shares held by the Sponsor until February 15, 2025, has caused the Sponsor to offer its entire holding in GDEV securities, comprising 11,750,000 ordinary shares and 6,125,000 warrants, in the offering to which this prospectus relates.
Furthermore, while a significant portion of our total outstanding shares were restricted from immediate resale immediately after the consummation of the Transactions, those shares may, as of the date of this prospectus, now permitted to be sold in the market. Immediately after the consummation of the Transactions, the Sponsor held 6% of the Company’s aggregate ordinary shares currently outstanding and the Key Company Shareholders — Andrey Fadeev, Boris Gertsovskiy and Everix Investments Limited — held 20%, 20% and 38%, respectively. The Sponsor — as one of the Selling Securityholders named in this prospectus — is permitted to offer and sell its holding of our ordinary shares under this prospectus. Furthermore, pursuant to the Registration Rights Agreement, we have registered the shares held by the Key Company Shareholders, permitting the Key Company Shareholders to offer and sell their respective holdings of our ordinary shares. The Sponsor or any of the Key Company Shareholders could dispose of a significant number of ordinary shares in a single offering or in multiple offerings within a short period of time, and for reasons completely unrelated to the performance of the Company including, but not limited to, the financing of business ventures related or unrelated to the Company, the payment of outstanding obligations or for any other reason. The availability of such a significant number of securities by the Sponsor and/or any or all of the Key Company Shareholders for trading in the public market may have an adverse effect on the market price of our ordinary shares.
We will be able to issue additional ordinary shares upon the exercise of our outstanding warrants, the exercise of the options granted to Kismet’s former independent directors, and issuances pursuant to an equity incentive plan, all of which would increase the number of shares eligible for future resale in the public market and result in dilution to our shareholders.
Upon consummation of the Transactions, we had 20,249,993 warrants outstanding, each of which entitles the holder thereof to one Company ordinary share upon exercise, as well as options entitling Kismet’s former independent directors to 120,000 Company ordinary shares upon exercise. Furthermore, our 2021 Employment Stock Option Plan has a total size equaling 5% of our total ordinary shares outstanding upon the consummation of the Transactions. Our warrants became exercisable commencing on September 25, 2021 and will expire at 5:00 p.m., New York City time, on August 26, 2026 or earlier upon redemption or liquidation, and the options granted to Kismet’s former independent directors are immediately exercisable. To the extent the warrants or options are exercised, or awards are made under our 2021 Employment Stock Option Plan, additional Company ordinary shares will be issued, which will result in dilution to our shareholders and increase the number of our ordinary shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such securities may be exercised could adversely affect the market price of our ordinary shares.
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Furthermore, we may issue additional equity or convertible debt securities in the future which may dilute our existing shareholders’ holdings. In accordance with our Amended and Restated Memorandum and Articles of Association, we are authorized us to issue an unlimited number of ordinary shares, and existing shareholders will have no pre-emptive rights in connection with such further issuances. We cannot predict the size or nature of future issuances or the effect that future issuances and sales of our ordinary shares will have on the market price of our ordinary shares. Issuances of a substantial number of additional ordinary shares, including in connection with acquisitions of new businesses in accordance with our acquisition strategy, or the perception that such issuances could occur, may adversely affect prevailing market prices for our ordinary shares. With any additional issuance of our ordinary shares, our investors will suffer dilution to their voting power and economic interest.
Certain Company Shareholders control the Company and their interests may conflict with ours or those of our shareholders in the future.
Approximately 78% of our currently outstanding ordinary shares are beneficially owned by the three Key Company Shareholders. Moreover, these shareholders have the right to designate directors subject to the maintenance of certain ownership requirements in the Company. See “Description of Securities” and “Major Shareholders.” Even if and when these shareholders cease to own a majority of our outstanding ordinary shares, for so long as they continue to own a significant percentage of our ordinary shares, they will still be able to significantly influence or effectively control the composition of our board of directors and the approval of actions requirement shareholder approval through their voting power. Accordingly, for such period of time, these will have significant influence with respect to the Company’s management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as these shareholders continue to own a significant percentage of our outstanding ordinary shares, these will be able to cause or prevent a change of control of the Company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of the Company. The concentration of ownership could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of the Company and ultimately might affect the market price of our ordinary shares.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a U.S. public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations of the applicable listing standards of Nasdaq subject to applicable exemptions as long as we qualify as a foreign private issuer and emerging growth company. Our management expects that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In particular, Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. As an emerging growth company, our management expects to avail itself of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of its internal control over financial reporting under Section 404. See “—As an ‘emerging growth company,’ we cannot be certain if the reduced disclosure requirements applicable to ‘emerging growth companies’ will make our ordinary shares less attractive to investors.” However, we may no longer avail ourselves of this exemption when we cease to be an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. As a public company, we were required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 20-F. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our ordinary shares.
In connection with the preparation of the Company’s financial statements as of and for each of the years ended December 31, 2022, 2021 and 2020, we identified material weaknesses in our internal controls over financial reporting.
We have a relatively short history of operations and, as a private company prior to the consummation of the Transactions, had limited resources to dedicate towards addressing our internal controls and procedures. Although the Company is not yet subject to the
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attestation requirements of Section 404 of the Sarbanes-Oxley Act, in connection with the audit of the Company’s financial statements as of and for the years ended December 31, 2021 and 2020, our management and our prior independent registered public accounting firm that conducted those audits identified deficiencies that we concluded represented material weaknesses in our internal control over financial reporting. The Public Company Accounting Oversight Board, or PCAOB, has defined a material weakness as “a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.” The material weaknesses that were identified related to (i) our lack of an effective control structure and oversight over the financial reporting process (the “Oversight Deficiencies”); (ii) lack of sufficient risk assessment over the share-based payments, indirect tax, treasury and procurement processes to identify, assess and manage risks, including the development of formalized policies and procedures with adequate segregation of duties and the development of control activities to mitigate risks (the “Risk Deficiencies”); and (iii) lack of sufficient general controls over information technology systems relating to change management and controls over access within certain information systems (the “IT Deficiencies”). We developed, initiated and implemented a plan to remediate each of the Oversight Deficiencies, the Risk Deficiencies and the IT Deficiencies. As a result of the actions taken, management considers that the Risk Deficiencies and the IT Deficiencies were remediated such that neither were considered to constitute a material weakness in our internal control over financial reporting as of December 31, 2022.
Notwithstanding the progress that we have made to enhance our internal control over financial reporting, in connection with the audit of the Company’s financial statements as of and for the year ended December 31, 2022, our management and our current independent registered public accounting firm that conducted that audit concluded that our lack of an effective control structure and oversight over the financial reporting process represent a material weakness in our internal control over financial reporting, as the Company lacked an official process and had limited dedicated resources to ensure complete and accurate financial reporting for complex transactions. Also in connection with that audit, our management and our independent registered public accounting firm identified a further deficiency representing a material weakness in our internal controls over financial reporting arising from an inadequate review of valuation assumptions used to determine fair value for purposes of goodwill impairments by a competent individual with an appropriate level of training and experience. Furthermore, our management and our independent registered public accounting firm concluded that certain deficiencies regarding our controls over information technology systems relating to retention of log files of user activities qualified as a significant deficiency in our internal controls over financial reporting as of December 31, 2022. A “significant deficiency” is defined by the PCAOB as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.
We have developed a plan to remediate the aforementioned material weaknesses and significant deficiency, but will not be able to fully remediate them until our plan has been completed and the new controls and procedures have been operating effectively for a sufficient period of time. Furthermore, we can give no assurance that additional material weaknesses and/or significant deficiencies in our internal control over financial reporting will not be identified in the future. Failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could lead to a restatement of our financial statements, cause the Company to fail to meet its reporting obligations and cause investors to lose confidence in our reported financial information, which may result in a decline in the market price of our shares.
As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and is permitted to file less information with the SEC than a U.S. company. This may limit the information available to holders of our ordinary shares.
We are a foreign private issuer, as such term is defined in Rule 405 under the Securities Act. However, under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to the Company on June 30, 2023.
As a foreign private issuer, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act (including the requirement applicable to emerging growth companies to disclose the compensation of its Chief Executive Officer and the other two most highly compensated executive officers on an individual, rather than an aggregate, basis). In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while our management expects to submit quarterly interim consolidated financial data
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to the SEC under cover of the SEC’s Form 6-K, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies, and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Furthermore, our ordinary shares are not listed on any market in BVI and we do not currently intend to list our ordinary shares on any market in BVI, the Company’s home country. As a result, we are not subject to the reporting and other requirements of companies listed in BVI. Accordingly, there may be less publicly available information concerning our business than there would be if the Company were a public company organized in the United States.
We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.
In the future, the Company would lose its foreign private issuer status if a majority of its shareholders, directors or management are U.S. citizens or residents and it fails to meet additional requirements necessary to avoid loss of foreign private issuer status. Although our management has elected to comply with certain U.S. regulatory provisions, the loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to the Company under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, and equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the annual report on Form 20-F permits foreign private issuers to disclose compensation information on an aggregate basis. We would also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors, and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
We incur costs and obligations as a result of being a public company.
As a privately held company, Nexters Global was not required to comply with certain corporate governance and financial reporting practices and policies required of a publicly traded company. As a publicly traded company following the consummation of the Transactions, we incur significant legal, accounting and other expenses that we were not required to incur in the recent past, and will incur additional expenses after we are no longer an “emerging growth company” as defined under the JOBS Act. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act, and the rules and regulations of the SEC and national securities exchanges have created uncertainty for public companies and increased the costs and the time that our board of directors and management must devote to complying with these rules and regulations. Our management expects these rules and regulations to increase our legal and financial compliance costs and lead to a diversion of management time and attention from revenues generating activities.
Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from its focus on our business strategy, which could prevent the Company from improving its business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a publicly traded company. However, the measures it takes may not be sufficient to satisfy our obligations as a publicly traded company.
For as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We may remain an “emerging growth company” until the fifth anniversary of the date on which our ordinary shares were offered in connection with the Transactions or until such earlier time that the Company has more than $1.07 billion in annual revenues, has more than $700 million in market value of its ordinary shares held by non-affiliates, or issues more than $1.00 billion of non-convertible debt over a three-year period. Further, there is no guarantee that the exemptions available to us under the JOBS Act will result in significant savings. To the extent that our management chooses not to use exemptions from various reporting requirements under the JOBS Act, we will incur additional compliance costs, which may impact earnings.
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As an “emerging growth company”, we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our ordinary shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to obtain an assessment of the effectiveness of our internal controls over financial reporting from our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Our management cannot predict if investors will find our ordinary shares less attractive because we will rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active market for our ordinary shares and the Company’s share price may be more volatile.
Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our ordinary shares.
Our management currently expects that securities research analysts will establish and publish their own periodic projections for the Company’s business. These projections may vary widely and may not accurately predict the results we actually achieve. The Company’s share price may decline if its actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on the Company downgrades its stock or publishes inaccurate or unfavorable research about its business, its share price could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on it regularly, our share price or trading volume could decline. While our management expects research analyst coverage, if no analysts commence coverage of the Company, the trading price and volume for our ordinary shares could be adversely affected.
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If we or any of our subsidiaries are characterized as a passive foreign investment company for U.S. federal income tax purposes, U.S. holders may suffer adverse U.S. federal income tax consequences.
A non-U.S. corporation generally will be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. Based on the composition of the income, assets (including goodwill) and operations of GDEV and its subsidiaries during the relevant period, GDEV does not believe it was a PFIC for the taxable year ending on December 31, 2022. However, there can be no assurances in this regard, nor can there be any assurances that GDEV will not be treated as a PFIC in the current taxable year or any future taxable year. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and we can make no assurances that the IRS will not take a contrary position or that a court will not sustain such a challenge by the IRS.
Whether we are or any of our subsidiaries is treated as a PFIC is determined on an annual basis after the close of each taxable year. The determination of whether we are or any of our subsidiaries is a PFIC is a factual determination that depends on, among other things, the composition of our income and assets (including goodwill), and the fair market value of our and our subsidiaries’ shares and assets. In this regard, changes in the fair market value of its shares could cause GDEV to become treated as a PFIC because such changes would generally result in changes in the value of goodwill of GDEV for the purposes of determining the PFIC status of GDEV under applicable U.S. federal income tax law. Similarly, changes in the composition of our or any of our subsidiaries’ income or assets may cause us to be or become a PFIC for the current or subsequent taxable years as well.
If we are a PFIC for any taxable year, a U.S. holder of our ordinary shares and/or warrants may be subject to adverse tax consequences and may incur certain information reporting obligations. For a further discussion, see “Taxation—Certain Material U.S. Federal Income Tax Considerations—U.S. Holders—Passive Foreign Investment Company Rules.” U.S. holders of our ordinary shares and/or warrants are strongly encouraged to consult their own advisors regarding the potential application of these rules to us and the ownership of our ordinary shares.
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USE OF PROCEEDS
All of the ordinary shares and warrants offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective amounts. We will not receive any of the proceeds from these sales.
We will receive up to an aggregate of $89,125,000 from the exercise of the warrants being offered for sale in this prospectus at an exercise price of $11.50 per ordinary share, assuming the exercise in full of all 7,750,000 such warrants for cash. There is no assurance that the holders of the warrants will elect to exercise any or all of such warrants. To the extent that any warrants are exercised on a “cashless basis” under the limited circumstances in which such exercises are permitted, the amount of cash we would receive from the exercise of the warrants will decrease. We expect to use the net proceeds from the exercise of the warrants, if any, for general corporate purposes, which may include acquisitions or other strategic investments. We will have broad discretion over the use of any proceeds from the exercise of the warrants.
The Selling Securityholders will pay any underwriting discounts and commissions and expenses incurred by the Selling Securityholders for brokerage, accounting, tax or legal services or any other expenses incurred by the Selling Securityholders in disposing of the securities. We will bear the costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and filing fees, Nasdaq listing fees and fees and expenses of our counsel and our independent registered public accounting firm.
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DIVIDEND POLICY
GDEV has never declared or paid any cash dividends. GDEV’s board of directors will consider whether or not to institute a dividend policy. It is presently intended that GDEV will retain its earnings for use in business operations and, accordingly, it is not anticipated that GDEV’s board of directors will declare dividends in the foreseeable future. GDEV has not identified a paying agent.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2023. The information in this table should be read in conjunction with the financial statements and notes thereto and other financial information included in this prospectus and any prospectus supplement and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Our historical results do not necessarily indicate our expected results for any future periods.
| As of June 30, 2023 |
| |
(US$in thousands) | |||
Cash(1) | 68,581 | ||
Total indebtedness | — | ||
Shareholders’ equity/(deficit) | |||
Additional paid-in capital | 24,000 | ||
Share-based payments reserve | 144,608 | ||
Translation reserve | 4,474 | ||
Accumulated deficit | (308,851) | ||
Total shareholders’ equity/(deficit) | (135,769) | ||
Total capitalization(2) | (135,769) |
| (1) | As reported on the Company’s unaudited interim condensed consolidated statement of financial position as at June 30, 2023, included elsewhere in this prospectus. |
| (2) | Total capitalization is the sum of total indebtedness and total shareholders’ equity/deficit. |
As of the date of this prospectus, there have been no material changes in the Company’s capitalization from that set forth in the table above.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this prospectus. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We build mobile, web and social games for millions of players to enjoy globally. We are one of the top five independent mobile game developers in Europe (excluding developers owned and controlled by other companies active in the gaming market) based on in-game purchases in 2022, net of platform fees, according to data provided by data.ai. Our games are free to play, and we continuously innovate our games to provide novel, curated in-game content to our users at optimal points in their game journeys.
Our core product offering, Hero Wars, offers a suite of games across mobile, social and web-based platforms and has, since its launch in 2016, evolved into a well-recognized global gaming franchise in the RPG genre, with 3.5 million MAUs across more than 75 countries in 2022. In 2022, Hero Wars ranked 10th on Android and 8th on iOS according to the top grossing charts in the RPG genre in the United States.
Continuous improvements in game content and focus on customer engagement has allowed us to monetize on the popularity of our games and achieve attractive key performance metrics. In particular, between 2018 and 2021, we achieved 13 times’ growth in Bookings and as of December 31, 2022, our cumulative all time Bookings crossed the $1.5 billion mark. We benefit from predictable cohorts and a loyal base of core players, which supports our ability to sustain our monetization per user. In the year ended December 31, 2022, cohorts from previous periods accounted for approximately 81.7% of our Bookings for our core product, Hero Wars.
Since our formation over a decade ago, we have developed a sizeable built-to-scale platform, enabling us to streamline content development and offering a value-enhancing opportunity for potential newly acquired games and companies. For example, in 2022, we entered into agreements to acquire four separate gaming studios to expand our portfolio of midcore games, enlarge our player base and expand into new genres. We plan to further expand gameplays within our current products as well as work towards new game offerings.
Our headquarters are in Cyprus. As of June 30, 2023, we had 777 employees. Our revenue and for the first six months of 2023 and for the years ended December 31, 2022 and 2021 was $234 million, $479.7 million and $434.1 million, respectively, and our Bookings2 for the same periods were $214 million, $449.4 million and $562 million, respectively. We recorded net cash flows used in operating activities of $0.1 million for the first six months of 2023 and net cash flows generated from operating activities of $116.1 million and $105.5 million for the years ended December 31, 2022 and 2021, respectively. Our total comprehensive income/loss net of tax for the first six months of 2023 and for the years ended December 31, 2022 and 2021 was an income of $12.4 million, income of $10.7 million, and loss of $117.4 million, respectively.
Key Performance Metrics
We manage our business by tracking several key performance metrics through our internal analytics systems. Our key performance metrics are impacted by several factors that could cause them to fluctuate on a quarterly basis, such as platform providers’ policies and restrictions, seasonality, user connectivity, conversion of users to paying users and the addition of new content to certain games, and, in certain cases, our operating metrics may not necessarily correlate directly to quarterly revenues trends. Future growth in players and engagement will depend on our ability to retain current players, attract new players, acquire or launch new games and features, and expand into new markets and distribution platforms.
2 | For a definition of Bookings, see “—Key performance metrics—Bookings.” |
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Daily Active Users
We define Daily Active Users, or DAUs, as the number of individuals who played one of our games during a particular day. Under this metric, an individual who plays two different games on the same day is counted as two DAUs. Similarly, an individual who plays the same game on two different platforms (for example, web and mobile) or on two different social networks on the same day would be counted as two DAUs. Average Daily Active Users for a particular period is the average of the DAUs for each day during that period. We believe that Daily Active Users is a useful metric to measure the scale and usage of our games.
Daily Active Users (in thousands)
Monthly Active Users
We define Monthly Active Users, or MAUs, as the number of individuals who played a particular game in the 30-day period ending with the measurement date. Under this metric, an individual who plays two different games in the same 30-day period is counted as two MAUs. Similarly, an individual who plays the same game on two different platforms (for example, web and mobile) or on two different social networks during the same 30-day period would be counted as two MAUs. Average Monthly Active Users for a particular period is the average of the MAUs for each month during that period. We believe that Monthly Active Users is a useful metric to measure the scale and usage of our games, but base our business decisions primarily on daily performance metrics, which we believe more accurately reflect user engagement with our games.
Monthly Paying Users
We define Monthly Paying Users, or MPUs, as the number of individuals who made a purchase of a virtual item at least once on a particular platform in the 30-day period ending with the measurement date. Under this metric, an individual who makes a purchase of virtual items in two different games in the same 30-day period is counted as two MPUs. Similarly, an individual who makes a purchase of virtual items in any of our games on two different platforms (for example, web and mobile) or on two different social
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networks in the same 30-day period could be counted as two MPUs. Average MPUs for a particular period is the average of the MPUs for each month during that period. We believe that Monthly Paying Users is a useful metric to measure game monetization.
Average Monthly Paying Users (in thousands)
The first half of 2021 was characterized by a record high investment in marketing, which led to high growth in MPUs during 2021. However, the decrease in marketing investments in 2022 resulted in a corresponding decrease in MPUs during 2022, especially in the second half of 2022.
In the first half of 2023, our significant investment into marketing resulted in MPU of 387 thousand, an increase of 8% compared to MPU of 359 thousand in the first half of 2022. We expect this investment to positively impact our Bookings in the future.
Monthly Payer Conversion
We define Monthly Payer Conversion as the total number of MPUs, divided by the number of MAUs. We believe that Monthly Payer Conversion is a useful metric to describe the monetization of our users.
Monthly Payer Conversion
| H1 2021 |
| H2 2021 |
| H1 2022 |
| H2 2022 |
| |
Monthly Payer Conversion |
| 5.2 | % | 7.3 | % | 4.7 | % | 4.1 | % |
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Average Bookings Per Paying User
We define Average Bookings Per Paying User, or ABPPU, as our total Bookings attributable to in-game purchases in a given period, divided by the number of months in that period, divided by the average number of MPUs during the period. We believe that ABPPU is a useful metric to describe monetization.
ABPPU (in $/month)
In the first half of 2023, ABPPU amounted to $85, a decrease of 20% compared to the first half of 2022.
Bookings
We define Bookings as sales contracts generated from in-game purchases and advertising in a given period. Bookings is a fundamental metric we use to manage our business. We use it to evaluate the results of our operations and the effectiveness of our business strategies, generate future operating plans, including budgeting decisions, and assess the performance of our company against other peer companies using similar measures. We evaluate Bookings in conjunction with our results according to IFRS because we believe it provides investors and analysts a more complete understanding of factors and trends affecting our business than IFRS measures alone. Over the long-term, the factors impacting our revenue and Bookings are the same. However, in the short term, there are various factors that may cause revenue to exceed or be less than Bookings in any period, in particular as a result of accounting for deferral of certain revenue attributable to purchases of durable virtual items. See “— A. Operating Results — Components of Our Results of Operations — Revenue” below.
In the first half of 2023, our Bookings were $213.8 million, a decrease of 11% compared to Booking of $239.4 million in the first half of 2022, as the second half of 2022 (as well as the entire 2022 in general) was characterized by significantly lower marketing investments into the acquisition of new players who could potentially provide support to Bookings in the first half of 2023.
In 2022 Bookings amounted to $449.4 million compared to $562 million in 2021. The share of advertisement sales as a percentage of total bookings stayed relatively stable in 2022 at 4.5% compared to 4.9% 2021, a decrease of 0.4 percentage points.
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Key Factors Affecting Our Business
There are a number of factors that affect the performance of our business, and the comparability of our results from period to period, including:
| ● | Conversion of players into paying users and ongoing monetization. While our games are free-to-play, we generate a substantial majority of our revenues from players’ purchases of in-game virtual items. Revenues from in-game purchases accounted for 93.4%, 95.8% and 93.7% of revenues in the first six months of 2023 and in the years ended December 31, 2022 and 2021, respectively. Our financial performance is dependent, in part, on our ability to convert more active players into paying players and to grow or maintain user spend over the long term. These two strategies may not always be successfully implemented simultaneously. Therefore, we may, during certain periods of time, concentrate more on increasing the number of paying users, while allocating more of our resources to increasing average spend per user during other periods depending on a number of external and internal factors. In the year ended December 31, 2022, our average Monthly Payer Conversion was 4.4%, reflecting a decrease from 6.1% in the prior year that we attribute primarily to the Monthly Payer Conversion associated with Pixel Gun 3D, which we acquired in 2022. Excluding the effects of Pixel Gun 3D, our Monthly Payer Conversion would have increased to 7.0% in comparison to 2021. Our players’ willingness to consistently make in-game purchases is impacted by our ability to deliver engaging content and personalized user experiences, which we assess based on historical data analysis and series of A/B tests. |
| ● | Release of new content, offers, and features. Our revenue growth has been driven by improving the content, offers, and features in our existing games. In order to enhance the content, offers, and features in our existing games, we must invest a significant amount of our technological and creative resources, ensuring that we support a consistent cadence of novel content creation that drives conversion and continued monetization. These expenditures generally occur months in advance of the release of new content. |
| ● | Successfully acquiring new users and retaining our new and existing users. Establishing and maintaining a loyal network of users and paying users is vital for our business. In order to grow our user network, we incur marketing expenses across various user acquisition channels and maintain a substantial focus on content development for our existing games to attract, engage and retain users. During the year ended December 31, 2022, we had 1,186 thousand average DAUs, representing an increase of 138 thousand average DAUs compared to the prior year. We developed a comprehensive data driven approach towards marketing and user acquisition, which, we believe, helps us to acquire new users in an efficient way. We intend to continue to seek new opportunities to enhance and refine marketing efforts to acquire new users, including further refining our data driven approach and identifying potential technologies and channels to enhance our marketing and advertising capabilities. |
General Economic Conditions
Our games may be sensitive to general economic conditions and economic cycles. Difficult economic conditions in the markets in which we compete or seek to expand, such as decreases in per capita income and level of disposable income driven by increases in inflation, energy costs, income (and other) taxes and the cost of living, increased and prolonged unemployment or a decline in consumer confidence, in each case, as a result of worldwide or regional recession, the COVID-19 pandemic, the Russia-Ukraine conflict or other geopolitical tension, political instability or other country-specific factors, or other economic disruptions, could negatively affect the demand for our games and therefore have a material adverse effect on our Bookings or results of operations.
In fact, 2022 was the first year over the past decade when the worldwide gaming revenue decreased year-over-year, with a 5.1% decrease of the total gaming market in 2022 as compared with 2021, according to Newzoo. While one of the key reasons for the negative market dynamics in 2022 was, we believe, a result of the easing of the COVID-19 restrictions, which brought consumers’ spending in online games back to historical normal levels in 2022 as compared with the earlier years impacted by the COVID-19 pandemic. We also attribute part of the decrease to more difficult economic conditions brought on by inflation, which limited consumers’ disposable income. Correlating with the general negative development in the gaming market, the Company’s Bookings declined by 11% in the first six months of 2023 compared to the first six months of 2022, and by 20% in the year ended December 31,
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2022 compared to the year ended December 31, 2021, with the significant reduction in our marketing budget in 2022 contributing to the decline. Furthermore, MPUs for Hero Wars for 2022 decreased by 24% compared to 2021.
COVID-19
The global pandemic associated with COVID-19 has caused major disruption to all aspects of the global economy and daily life over the past few years, particularly as a result of the quarantine and stay-at-home orders that were imposed by all levels of government. We have followed guidance by Cyprus and other applicable foreign and local governments to protect our employees and operations during the pandemic and have implemented a remote environment for certain aspects of our business. While the outbreak recently appeared to be trending downward as vaccination rates increased, resulting in the easing of restrictions, new variants of COVID-19 continue emerging, spreading globally and continuing to cause significant uncertainty. We cannot predict the potential impacts of the COVID-19 pandemic on our business or operations, but we continuously monitor performance and other industry reports to assess the risk of future negative impacts should the disruptions of the COVID-19 pandemic or similar health epidemics continue to evolve.
Despite the challenges we have faced in light of the COVID-19 pandemic, we observed a positive correlation on our Bookings and number of DAUs while the stay-at-home orders were in place across the various jurisdictions in which our users are located. As individuals spent more time at home in 2020 and 2021, we saw an increase in time spent with digital entertainment, including casual gaming and games involving socially interactive experiences. With the easing of these restrictions, the gaming industry has generally experienced a decline in Bookings. Our Bookings decreased by 11% in the first six months of 2023 compared to the first six months of 2022, and by 20% in the year ended December 31, 2022 compared to the year ended December 31, 2021, correlating to this trend and certain other negative effects in the market. As our marketing investments tapered back to historical normal levels, we could experience a further decrease in user activity or spending in line with the general industry trend, which could adversely impact our cash flows, operating results, and financial condition. Furthermore, there can be no assurance that any re-imposition of restrictive measures in a renewed effort to control the spread of COVID-19 variants will result in the effects we have experienced in the past.
The COVID-19 pandemic has resulted and may continue to result in consumers’ spending a greater portion of their time at home and sustained demand for entertainment options. However, the COVID-19 pandemic has caused an economic recession, high unemployment rates, and other disruptions, both in the United States and the rest of the world. We cannot predict the potential longer-term impacts of the COVID-19 pandemic on our business or operations, and there is no guarantee that any near-term trends will continue, particularly if the COVID-19 pandemic increases and the adverse consequences thereof in severity or continues for a protracted period of time, which could disrupt our operations, or put greater financial pressure on the economy and users’ discretionary income or spending habits. See “Risk Factors — Risks Related to the Company’s Business and Operations — The recent COVID-19 pandemic and similar health epidemics, contagious disease outbreaks and public perception thereof, could significantly disrupt our operations and adversely affect our business, results of operations, cash flows or financial condition” for more information.
Seasonality
Our business experiences the effects of seasonality. We usually experience certain decreases in the efficiency of our marketing and user acquisition towards the end of the year as a result of competition for the same users from retail advertising campaigns during Halloween, Thanksgiving and Christmas, as well as during summer months due to the decrease in time spent online by our players during the summer vacation season. We typically benefit from the increased efficiency in this respect during the first quarter of each year. To address seasonality, our strategy is to (i) decrease the intensity of our user acquisition and marketing campaigns in summer and towards the end of the year; (ii) only utilize those channels and instruments that we believe are less saturated with the competing marketing campaigns; and (iii) increase the intensity of our user acquisition and marketing activities in the first quarter of each year.
Russian Geopolitical and Economic Risks
As a result of the military actions in Ukraine, a number of governments, including those of the United States, United Kingdom and European Union, have imposed unprecedented sanctions on specified persons and entities in Russia. While the situation remains highly fluid and additional sanctions are possible, neither we, nor any of our subsidiaries are currently subject to any sanctions that have been imposed. Nevertheless, as result of the ongoing conflict in Ukraine, many U.S. and other multi-national businesses across a
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variety of industries, including consumer goods and retail, food, energy, finance, media and entertainment, tech, travel and logistics, manufacturing and others, have indefinitely suspended their operations and paused all commercial activities in Russia and Belarus. For example, Apple and Google, two of the primary platforms that distribute our games, have been suspended their respective digital wallet and mobile payment services, Apple Pay and Google Pay, in relation to credit cards issued by Russian financial institutions that are the subject of sanctions. Players who access our games via these platforms in Russia may therefore be disconnected from the primary means to make in-game purchases. Based on our current geographical distribution of Bookings, management believes that the latest geopolitical developments will have certain residual negative effects on the Company’s future financial performance, limited to the share of Bookings deriving from the markets of the former Soviet Union (FSU), which stood at 9% of our total for the first six months of the 2023 and 11% of our total for 2022, and which, as a percentage of our total Bookings, has been declining over the past few years. The exact effects cannot currently be reliably estimated due to the constantly changing environment.
Our board of directors determined that it is in the best interests of the Company, our player community and our investors to eliminate — to the maximum extent possible within the Company’s control — our exposure to country risks related to Russia. To this end, in 2022 we disposed of our Russian subsidiaries, relocated or laid-off all employees in Russia, and moved all our former Russian business operations to other countries and discontinued offering of our games through Russian social networks.
We do not expect these measures to have a material impact on the Company, as none of the divested subsidiaries currently represent a revenue-generating asset. The divestment has no effect on the Company’s ability to continue to offer its full suite of games through its primary third-party platforms which are not based in Russia: Apple, Facebook, Google, Xsolla and Huawei. We have recorded losses on disposal in respect of our divestment of our (former) Russian based-subsidiaries in the amount of $5.0 million. For further details please refer to Note 8 to our audited consolidated financial statements as of and for the year ended December 31, 2022, included elsewhere in this prospectus.
Additionally, the Company has incurred additional expenses as a consequence of the Russian military conflict in Ukraine. For example, we have incurred costs related to the relocation of critical personnel from Russia, Ukraine and Belarus to Cyprus, Armenia, Kazakhstan and certain other “safe-harbor” countries. Furthermore, prior to the disposition of our Russian-based subsidiaries, we supplemented the compensation paid to our employees located in Russia with additional amounts designed to safeguard these employees against the devaluation of the Russian Ruble and high inflation of consumer prices in Russia that was seen since March of 2022. As of the date of this prospectus, we have largely completed the relocation program and therefore do not expect any impact of the relocation expenses in 2023 and beyond, though we expect a certain increase in labor costs per employee starting from 2022 and going forward resulting from our policy of providing salary increases and various compensations on an ongoing basis to our employees to support them during the relocation process and to assist them with settling in their new locations.
Components of Our Results of Operations
Revenue
We primarily derive revenue from the sale of virtual items associated with online games. We also receive revenue from in-game advertising.
In-game purchases
We distribute our games to the end customer through various web and mobile platforms, such as Apple, Google, Facebook and Huawei. Through these platforms, users can download our free-to-play games, access our games operated through the web and purchase virtual items to enhance their game-playing experience. Players can purchase virtual items through various widely accepted payment methods offered in the games. Payments from players for virtual items are non-refundable and relate to non-cancellable contracts that specify our obligations and cannot be redeemed for cash nor exchanged for anything other than virtual items within our games.
There are two different kinds of in-game purchases in our games: consumables and durables. Consumables benefit the user immediately, while benefits from durables last over a certain period of time, which can be substantial. Consumable in-game purchases satisfy the performance obligation “at a point in time”. Durable in-game purchases revenue is recognized “over time” (i.e., across the user lifetime, lifetime of a game or any other approximations of the lifetime of a durable item as the case may be). Following the
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industry practice, we present in-game revenue on gross basis. Revenue share to web and mobile platforms such as Apple, Google, Facebook and Huawei is presented as platform commissions fees.
Advertising
Our advertising revenues are generated by displaying advertisements against a fee during gameplay. Revenue recognition is based on delivery of the advertisement product, which can for example be a viewed impression or clicked advertisement. Advertising network revenue is recognized as net in the month of purchase (“at a point in time”), based on revenue reports from the ad network indicating the number of products sold and payables due to us. Simultaneously to sending the revenue report, the advertisement network also commits to paying the money to us, and collection can be reasonably assured. Advertising revenues usually correlate with the number of new registrations as new players are associated with the majority of ad views and clicks, thus increasing efficiency of our user acquisition activities.
Platform commissions
Platform commissions consist of commission charged by platforms which we use to distribute our games. Platform providers (such as Apple, Meta (formerly Facebook), Google and Huawei) charge a transactional payment processing fee to accept payments from our players for the purchase of in-game virtual goods. Payment processing fees and other related expenses for in-app purchases made through platforms differ from country to country and from platform to platform, and change over time. Our platform commissions were 24.1% and 27.2% of revenues for the first six months of 2023 and 2022, respectively, and 28.2% and 28.8% for the years ended December 31, 2022 and 2021, respectively. We generally expect cost of revenue to fluctuate proportionately with revenues.
Game operating cost
Game operating cost consists mainly of employee benefit expenses and technical support services provided by third parties, both of which mainly relate to maintenance and upgrades of the Company’s software applications.
Other operating income
Other operating income relates to income associated with non-core activities of the group.
Selling and marketing expenses
Selling and marketing expenses consists of costs related to advertising and user acquisition. We plan to continue to invest in sales and marketing to acquire and retain our users. However, sales and marketing expenses may fluctuate as a percentage of revenues depending on the timing and efficiency of our marketing efforts.
General and administrative expenses
General and administrative expenses comprise employee benefits expenses, professional fees, loss on sale of disposal group, insurance liability expenses and other operating expenses. Employee benefits expenses consists of wages, salaries, bonuses, benefits, and other compensation including share based compensation as well as employer-paid payroll taxes depending on salaries. Professional fees represent primarily audit expenses, legal consulting fees and other consulting and similar services. Other operating expenses mainly consist of office rent and miscellaneous sundry expenses.
Goodwill and investments in equity-accounted associates impairment
Goodwill impairment relates to the impairment of goodwill when its carrying amount at the reporting date is higher than its recoverable amount and investment impairment relates to the impairment of the Company’s assets other than goodwill, such as intangible assets and investment in associates.
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Share listing expense
Share listing expense is a non-cash non-recurring expense incurred in connection with the business combination of the Issuer, Kismet and Nexters Global, which constituted a share-based transaction pursuant to IFRS 2. The share listing expense is determined as the excess of the fair value of the equity instruments issued by the Issuer over the fair value of the identified net assets contributed by Kismet in the business combination.
Impairment loss on trade receivables and loan receivables
Impairment loss on trade receivables and loan receivables comprise expected credit losses for loans receivable and expected credit losses for trade and other receivables.
Depreciation and amortization
Depreciation and amortization of tangible and intangible assets consists of the depreciation of tangible fixed assets and right-of-use assets, and amortization of intangible assets for the relevant period, based on the straight-line method over the useful life of the assets. Tangible fixed assets include property and equipment. Right-of-use assets are recognized in accordance with IFRS 16 in respect of our lease liabilities. Intangible fixed assets include software and capitalized development expenses. The asset’s residual values, useful lives and depreciation methods are reviewed, and adjusted as appropriate, at each financial year-end.
Finance income
Finance income comprises interest income, net foreign exchange gain and other financial income.
Finance expenses
Finance expenses comprise net foreign exchange loss, bank charges, financial transaction costs, unwinding of discount on the financial liabilities and interest expense.
Change in fair value of share warrant obligations and other financial instruments
Change in fair value of share warrant obligations and other financial instruments includes changes in the fair values of financial assets and liabilities accounted at fair value through profit or loss in accordance with IFRS 9, such as warrants exercisable for our ordinary shares, put and call options in respect of our ordinary shares and shares of our equity associates, and earn-outs granted in connection with the acquisition of associates.
Tax
Income tax consists of corporation tax and Special Contribution for the Defence of the Republic of Cyprus and certain overseas income taxes imposed by several jurisdictions where we distribute our products and where certain legal entities of our Company’s group operate. In Cyprus, where our holding company and the major operating company have tax presence, there are no substantial differences between the tax and accounting bases of assets and liabilities acquired or incurred, respectively, in the ordinary course of business; and, therefore, these assets and liabilities should not result in substantial deferred tax assets or liabilities. Deferred tax assets and liabilities arise, however, in the case of temporary differences attributable to certain other legal entities in our Company’s group.
The tax treatment of interest received by a Cyprus company depends on the nature of the activities of the company receiving the interest and is in practice classified as active (trading) or passive (non-trading) income. Passive interest income is exempt from (Corporate) Income Tax, but the whole gross interest income is subject to Special Contribution for the Defence of the Republic (“SCD”) at the rate of 30%. Dividend income received by a Cyprus company from abroad is exempt from Cyprus (Corporate) Income Tax to the extent that this income is not tax deductible by the paying company, but may be taxable under SCD at the rate of 17%, subject to certain participation exemption rules.
The payment of dividends to non-Cyprus tax resident shareholders (companies or individuals) or tax resident individuals who are not Cyprus domiciled, is exempt from taxation in Cyprus. On December 9, 2021, the Cyprus Parliament passed into law a bill that
63
aims to strengthen the Cyprus tax framework for the prevention of tax abuse. Effective as from December 31, 2022, withholding taxes at the rate of 17% were introduced on dividend payments to companies in jurisdictions included in the EU Blacklist of non-cooperative jurisdictions (“EU Blacklist”) at the rate of 17% if those companies are:
| ● | resident in jurisdictions included in the EU Backlist, or |
| ● | incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist. |
For the withholding taxes to apply, the following conditions should also be met:
| ● | The company receiving the dividend holds directly, either alone or jointly with associated companies, over 50% of the capital, voting rights, or is entitled to receive more than 50% of the profits in the company paying the dividends. |
| ● | The associated companies should also be resident in an EU blacklisted jurisdiction or incorporated / registered in an EU blacklisted jurisdiction and are not tax resident in any other jurisdiction that is not included in the EU Blacklist. |
The withholding taxes will not apply in the case of dividend payments on shares listed on a recognized stock exchange.
In addition, Cyprus has provisions in its Income Tax Law 118(I)/2002 as amended, with respect to intellectual property (the “Cyprus old IP Regime”), which allowed for an 80% deemed expense deduction on income from the right of use of intellectual property (“IP”), gains from the sale of IP and damages for IP infringements (after the deduction of any expenses for the acquisition or development of the IP, including directly related costs and amortization of the acquisition or development cost over a 5 year period). Applying the provisions of the Cyprus old IP Regime may have resulted in an effective tax rate for IP companies of 2.5%.
Under a transition rule, and with a view to protect the owners of IP assets that qualify under the Cyprus old IP Regime, taxpayers benefitting from the Cyprus IP Regime could continue to apply its provisions through June 30, 2021.
In October of 2016, Cyprus passed new IP provisions (the “Cyprus new IP Regime”), which are in line with the OECD “modified nexus approach.” While the range of qualifying assets and categories of expenditure qualifying for relief under the Cyprus new IP Regime are more restrictive than the Cyprus old IP Regime (for example, exclude trademarks and marketing intangibles), the Cyprus new IP Regime also allows for an 80% deemed expense deduction which is applied on, the overall profit derived from qualifying IP.
Amendments were also voted into the Income Tax Law, introducing capital allowances for all intangible assets (excluding goodwill and assets qualifying for the Cyprus old IP regime). In accordance with these amendments, the capital costs of the assets are tax deductible (as a capital allowance / tax amortization) and are spread over the useful life of the asset, as determined by generally acceptable accounting principles (with a maximum useful life of 20 years). Upon disposal of such an intangible asset, no balancing statement is prepared and as such the capital allowances previously claimed are not recaptured and taxed on disposal. The taxpayer has the option not to claim capital allowances for an intangible asset in a particular tax year. In such case the capital allowances on the tax written down value of the intangible asset can be claimed in future years over the remaining useful economic life.
Starting from January 1, 2019 we changed our tax reporting principles, judgments and estimates in a few areas including, among others, revenue recognition for in-game purchases and software development costs, which resulted in a substantial amount of revenues related to in-game purchases made by our consumers in 2019 being deferred to 2020 and beyond, as well as software costs being expensed as incurred. As a consequence, we booked substantial tax losses in 2019, 2020 and 2021, as opposed to profits recorded in the prior periods and in 2022.
Since, up to June 30, 2021, we were claiming the provisions of the Cyprus old IP regime, which were more beneficial than the provisions of the Cyprus new IP regime applying as of July 1, 2021, the deferral of revenue and the expensing of the software development costs did not give rise to any tax benefit for us and, as such, we do not expect that we will be exposed to any tax risks in relation to these new principles and estimates when our tax records are assessed by the tax authorities. However, the possibility of certain transactions like indirect taxes to be challenged by the relevant tax authorities cannot be ruled out.
64
We have not recognized any tax expense in respect of these uncertainties as we believe that our tax records are in compliance with the existing laws and regulations and that our accruals for tax liabilities are sufficient and adequate for all open tax years based on our assessment of many factors, including interpretations of tax law and prior experience. Overseas tax in excess of credit claims used during the year represents withholding income tax charges imposed in respect of our Bookings in certain jurisdictions where our customers are located.
Other comprehensive income/(loss)
Other comprehensive income/(loss) relates to foreign currency translation differences in respect of foreign operations.
Results of Operations
The tables below show the results of our key financial and operating metrics for the periods indicated. Unless otherwise indicated, financial metrics are presented in thousands of U.S. Dollars, user statistics are presented in thousands of users, and ABPPU is presented in U.S. Dollars.
| Six months ended |
| |||
2023 | 2022 | ||||
(US$in thousands) | |||||
Revenue | 234,139 | 252,780 | |||
Costs and expenses, excluding depreciation and amortization | |||||
Cost of revenue: | |||||
Platform commissions | (56,428) | (68,839) | |||
Game operating cost | (26,785) | (20,540) | |||
Other operating income | 1,539 | 376 | |||
Selling and marketing expenses | (129,135) | (91,289) | |||
General and administrative expenses | (14,796) | (14,808) | |||
Impairment loss on trade receivables and loans receivable | (4,296) | (3,919) | |||
Total costs and expenses, excluding depreciation and amortization | (229,901) | (199,019) | |||
Depreciation and amortization | (2,903) | (3,617) | |||
Profit from operations | 1,335 | 50,144 | |||
Finance income | 3,042 | 335 | |||
Finance expenses | (1,992) | (1,279) | |||
Change in fair value of share warrant obligations and other financial instruments | 10,547 | 7,268 | |||
Share of loss of equity-accounted associates | (515) | (1,640) | |||
Profit before income tax | 12,417 | 54,828 | |||
Income tax expense | (1,074) | (2,090) | |||
Profit for the period, net of tax | 11,343 | 52,738 | |||
Attributable to equity holders of the Company | 11,343 | 53,063 | |||
Attributable to non-controlling interest | — | (325) | |||
Other comprehensive income | |||||
Items that are or may be reclassified subsequently to profit or loss | 1,007 | 3,177 | |||
Foreign currency translation difference | 981 | 3,177 | |||
Other | 26 | — | |||
Total comprehensive income for the year, net of tax | 12,350 | 55,915 | |||
Attributable to equity holders of the Company | 12,350 | 56,240 | |||
Attributable to non-controlling interest | — | (325) | |||
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| Year ended December 31, | |||||
2022 |
| 2021 |
| 2020(1) | ||
(US$in thousands) | ||||||
Revenue |
| 479,688 |
| 434,094 |
| 260,892 |
Costs and expenses, excluding depreciation and amortization |
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
Platform commissions |
| (129,623) |
| (117,229) |
| (75,163) |
Game operating cost |
| (44,036) |
| (18,945) |
| (17,390) |
Other operating income |
| 1,327 |
| — |
| — |
Selling and marketing expenses |
| (152,674) |
| (270,065) |
| (165,756) |
General and administrative expenses |
| (36,119) |
| (23,031) |
| (3,689) |
Goodwill and investments in equity accounted associates’ impairment |
| (62,828) |
| — |
| — |
Share Listing Expense |
| — |
| (125,438) |
| — |
Impairment loss on trade receivables and loans receivable |
| (29,987) |
| (102) |
| — |
Total costs and expenses, excluding depreciation and amortization |
| (453,940) |
| (554,810) |
| (261,998) |
Depreciation and amortization |
| (6,901) |
| (2,540) |
| (561) |
Profit/(loss) from operations |
| 18,847 |
| (123,256) |
| (1,667) |
Finance income |
| 1,868 |
| 79 |
| 1,998 |
Finance expenses |
| (2,191) |
| (3,220) |
| (220) |
Change in fair value of share warrant obligations and other financial instruments |
| 2,767 |
| 10,080 |
| — |
Share of loss of equity-accounted associates |
| (10,121) |
| — |
| — |
Profit/(loss) before income tax |
| 11,170 |
| (116,317) |
| 111 |
Income tax expense |
| (3,760) |
| (1,127) |
| (862) |
Profit/(loss) for the year, net of tax |
| 7,410 |
| (117,444) |
| (751) |
Attributable to equity holders of the Company |
| 7,303 |
| (117,455) |
| (751) |
Attributable to non-controlling interest |
| 107 |
| 11 |
| — |
Other comprehensive income/(loss) |
| |||||
Items that are or may be reclassified subsequently to profit or loss | 3,338 | 11 | 15 | |||
Foreign currency translation difference | 3,456 | 36 | — | |||
Other | (118) | (25) | 15 | |||
Total comprehensive income/(loss) for the year, net of tax |
| 10,748 |
| (117,433) |
| (736) |
Attributable to equity holders of the Company |
| 10,641 |
| (117,444) |
| (736) |
Attributable to non-controlling interest |
| 107 |
| 11 |
| — |
(1) | Reflects a correction to the amount reported in our audited consolidated statement of profit or loss for the year ended December 31, 2020 due to the identification of an error relating to the calculation of withholding taxes and an error relating to the calculation of complex share-based options for the periods ended on December 31, 2020. For further information, see Note 4 (Accounting judgments, estimates and assumptions — Correction of errors) to our consolidated financial statements for the year ended December 31, 2022, included elsewhere in this prospectus. |
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Non-financial performance metrics
Six months ended | Year ended | ||||||||||
| 2023 |
| 2022 |
| 2022 |
| 2021 |
| 2020 | ||
DAUs (in thousands)(1) | N/P | N/P | 1,186 | 1,048 | 896 |
| |||||
MAUs (in millions) (2) | N/P | N/P | 7.6 | 5.9 | 5.7 | ||||||
MPUs (in thousands)(3) | 387 | 359 | 335 | 362 | 284 | ||||||
Monthly Payer Conversion(4) | N/P | N/P | 4.4 | % | 6.1 | % | 5.0 | % | |||
ABPPU (US$)(5) | 85 | 106 | 107 | 123 | 126 | ||||||
Bookings (US$in thousands)(6) | 213,773 | 239,406 | 449,446 | 561,993 | 445,495 | (7) | |||||
N/P – not published
| (1) | The Company defines Daily Active Users, or DAUs, as the number of individuals who played one of its games during a particular day. |
| (2) | The Company define Monthly Active Users, or MAUs, as the number of individuals who played a particular game in the 30-day period ending with the measurement date. |
| (3) | The Company defines Monthly Paying Users, or MPUs, as the number of individuals who made a purchase of a virtual item at least once on a particular platform in the 30‐day period ending with the measurement date. |
| (4) | The Company defines Monthly Payer Conversion as the total number of MPUs, divided by the number of MAUs. |
| (5) | The Company defines Average Bookings Per Paying User, or ABPPU, as its total Bookings attributable to in-game purchases in a given period, divided by the number of months in that period, divided by the average number of MPUs during the period. |
| (6) | The Company defines Bookings as sales contracts generated from in-game purchases and advertising in a given period. |
| (7) | Reflects a correction to the amount previously reported due to the identification of an error relating to the calculation of withholding taxes. |
67
Comparison of the six months ended June 30, 2023 versus the six months ended June 30, 2022
Six months ended | Variance | ||||||||
| 2023 |
| 2022 |
| (US$ in |
| |||
(US$in thousands) | thousands) | (%) | |||||||
Revenue | 234,139 | 252,780 | (18,641) | (7) | % | ||||
Costs and expenses, excluding depreciation and amortization | |||||||||
Cost of revenue: | |||||||||
Platform commissions | (56,428) | (68,839) | 12,411 | (18) | % | ||||
Game operating cost | (26,785) | (20,540) | (6,245) | 30 | % | ||||
Other operating income | 1,539 | 376 | 1,163 | N/M | |||||
Selling and marketing expenses | (129,135) | (91,289) | (37,846) | 40 | % | ||||
General and administrative expenses | (14,796) | (14,808) | 12 | (0) | % | ||||
Impairment loss on trade receivables and loans receivable | (4,296) | (3,919) | (377) | 10 | % | ||||
Total costs and expenses, excluding depreciation and amortization | (229,901) | (199,019) | (30,882) | 16 | % | ||||
Depreciation and amortization | (2,903) | (3,617) | 714 | (20) | % | ||||
Profit from operations | 1,335 | 50,144 | (48,809) | (97) | % | ||||
Finance income | 3,042 | 335 | 2,707 | N/M | |||||
Finance expenses | (1,992) | (1,279) | (713) | 56 | % | ||||
Change in fair value of share warrant obligations and other financial instruments | 10,547 | 7,268 | 3,279 | 45 | % | ||||
Share of loss of equity-accounted associates | (515) | (1,640) | 1,125 | (69) | % | ||||
Profit before income tax | 12,417 | 54,828 | (42,411) | (77) | % | ||||
Income tax expense | (1,074) | (2,090) | 1,016 | (49) | % | ||||
Profit for the period, net of tax | 11,343 | 52,738 | (41,395) | (78) | % | ||||
Attributable to equity holders of the Company | 11,343 | 53,063 | (41,720) | (79) | % | ||||
Attributable to non-controlling interest | — | (325) | 325 | N/M | |||||
Other comprehensive income | |||||||||
Items that are or may be reclassified subsequently to profit or loss | 1,007 | 3,177 | (2,170) | (68) | % | ||||
Foreign currency translation difference | 981 | 3,177 | (2,196) | (69) | % | ||||
Other | 26 | — | 26 | N/M | |||||
Total comprehensive income for the year, net of tax | 12,350 | 55,915 | (43,565) | (78) | % | ||||
Attributable to equity holders of the Company | 12,350 | 56,240 | (43,890) | (78) | % | ||||
Attributable to non-controlling interest | — | (325) | 325 | N/M | |||||
N/M – not meaningful
68
Revenue
Six months ended | Variance | ||||||||
2023 |
| 2022 | (US$ in | ||||||
Revenue by type: |
| (US$in thousands) |
| thousands) |
| (%) | |||
In-game purchases | 218,339 | 241,958 | (23,619) | (10) | % | ||||
Advertising | 15,800 | 10,822 | 4,978 | 46 | % | ||||
Total | 234,139 | 252,780 | (18,641) | (7) | % | ||||
Revenue by geographic location of player: | |||||||||
United States | 84,436 | 81,385 | 3,051 | 4 | % | ||||
Europe | 55,729 | 53,485 | 2,244 | 4 | % | ||||
Asia | 57,421 | 68,367 | (10,946) | (16) | % | ||||
Other | 36,553 | 49,543 | (12,990) | (26) | % | ||||
Total | 234,139 | 252,780 | (18,641) | (7) | % | ||||
Revenue for the first six months of 2023 decreased by $18.6 million (or 7%) year-over-year and amounted to $234.1 million, driven primarily by a decrease in Bookings in the amount of $25.6 million (or 11%) year-over-year and partially offset by an increase of $7.0 million in change of deferred revenues during the first six months of 2023 compared to the same period in the prior year.
Platform commissions
Platform commissions decreased by 18% in the first six months of 2023 compared with the same period of 2022. The decrease in platform commissions was primarily due to a 10% decrease in the revenue generated from in-game purchases when compared to the prior period, amplified by an increasing portion of revenue derived from our web platform which is associated with lower commissions compared to mobile and social networks.
Game operating cost
Game operation cost increased by $6.2 million (or 30%) in the first six months of 2023 compared to the same period in 2022 to reach $26.8 million. The increase in game operating cost was primarily due to an increase in average salaries of our employees as a result of the relocation of personnel in the second half of 2022 from Russia.
Selling and marketing expenses
Selling and marketing expenses in the first six months of 2023 increased by $37.8 million and amounted to $129.1 million. The growth was mainly due to substantially increased investments into new players in the first half of 2023 compared to decreased marketing investments in 2022 resulting from market saturation.
General and administrative expenses
General and administrative expenses remained stable at $14.8 million in the first six months of 2023 and in the same period of 2022.
69
Comparison of the year ended December 31, 2022 versus the year ended December 31, 2021
Year ended December 31, | Variance |
| |||||||
| 2022 |
| 2021 |
| (US$ in | (%) |
| ||
| (US$in thousands) |
|
| ||||||
Revenue |
| 479,688 |
| 434,094 |
| 45,594 |
| 11 | % |
Costs and expenses, excluding depreciation and amortization |
|
|
|
|
|
|
|
| |
Cost of revenue: |
|
|
|
|
|
|
|
| |
Platform commissions |
| (129,623) |
| (117,229) |
| (12,394) |
| 11 | % |
Game operating cost |
| (44,036) |
| (18,945) |
| (25,091) |
| N/M | |
Other operating income |
| 1,327 |
| — |
| 1,327 |
| 100 | % |
Selling and marketing expenses |
| (152,674) |
| (270,065) |
| 117,391 |
| (43) | % |
General and administrative expenses |
| (36,119) |
| (23,031) |
| (13,088) |
| 57 | % |
Goodwill and investments in equity accounted associates’ impairment |
| (62,828) |
| — |
| (62,828) |
| 100 | % |
Share Listing Expense |
| — |
| (125,438) |
| 125,438 |
| (100) | % |
Impairment loss on trade receivables and loans receivable |
| (29,987) |
| (102) |
| (29,885) |
| N/M | |
Total costs and expenses, excluding depreciation and amortization |
| (453,940) |
| (554,810) |
| 100,870 |
| (18) | % |
Depreciation and amortization |
| (6,901) |
| (2,540) |
| (4,361) |
| N/M | |
Profit/(loss) from operations |
| 18,847 |
| (123,256) |
| 142,103 |
| N/M | |
Finance income |
| 1,868 |
| 79 |
| 1,789 |
| N/M | |
Finance expenses |
| (2,191) |
| (3,220) |
| 1,029 |
| (32) | % |
Change in fair value of share warrant obligations and other financial instruments |
| 2,767 |
| 10,080 |
| (7,313) |
| (73) | % |
Share of loss of equity-accounted associates |
| (10,121) |
| — |
| (10,121) |
| 100 | % |
Profit/(loss) before income tax |
| 11,170 |
| (116,317) |
| 127,487 |
| N/M | |
Income tax expense |
| (3,760) |
| (1,127) |
| (2,633) |
| N/M | |
Profit/(loss) for the year, net of tax |
| 7,410 |
| (117,444) |
| 124,854 |
| N/M | |
Attributable to equity holders of the Company |
| 7,303 |
| (117,455) |
| 124,758 |
| N/M | |
Attributable to non-controlling interest |
| 107 |
| 11 |
| 96 |
| N/M | |
Other comprehensive income/(loss) |
| ||||||||
Items that are or may be reclassified subsequently to profit or loss | 3,338 | 11 | 3,327 | N/M | |||||
Foreign currency translation difference | 3,456 | 36 | 3,420 | N/M | |||||
Other | (118) | (25) | (93) | N/M | |||||
Total comprehensive income/(loss) for the year, net of tax |
| 10,748 |
| (117,433) |
| 128,181 |
| N/M | |
Attributable to equity holders of the Company |
| 10,641 |
| (117,444) |
| 128,085 |
| N/M | |
Attributable to non-controlling interest |
| 107 |
| 11 |
| 96 |
| N/M | |
N/M — not meaningful
70
Revenue
| Year ended December 31, |
| Variance |
| |||||
2022 |
| 2021 | (US$ in | (%) |
| ||||
| (US$in thousands) |
|
|
| |||||
Revenue by type: | |||||||||
In-game purchases |
| 459,660 |
| 406,594 |
| 53,066 |
| 13 | % |
Advertising |
| 20,028 |
| 27,500 |
| (7,472) |
| (27) | % |
Total |
| 479,688 |
| 434,094 |
| 45,594 |
| 11 | % |
Revenue by geographic location of player: |
|
|
|
|
|
|
|
| |
United States |
| 160,314 |
| 136,570 |
| 23,744 |
| 17 | % |
Europe |
| 101,320 |
| 93,620 |
| 7,700 |
| 8 | % |
Asia |
| 124,322 |
| 106,404 |
| 17,918 |
| 17 | % |
Other |
| 93,732 |
| 97,500 |
| (3,768) |
| (4) | % |
Total |
| 479,688 |
| 434,094 |
| 45,594 |
| 11 | % |
Revenue for the year ended December 31, 2022 increased by $45.6 million when compared with the same period of 2021. The increase in revenue was primarily due to a $158.1 million decrease in change in deferred revenue in the year ended December 31, 2022 compared with the same period of 2021, partially offset by a $112.5 million decrease in Bookings.
Platform commissions
Platform commissions for the year ended December 31, 2022 increased by $12.4 million when compared with the same period of 2021. The increase in platform commissions was primarily due to a 11% increase in revenue generated from in-game purchases in the year ended December 31, 2022 when compared with the same period of 2021, as platform commissions generally deviate in line with deviations to our in-game purchases revenue.
Game operating cost
Game operating cost for the year ended December 31, 2022 increased by $25.1 million when compared with the same period of 2021. The increase in game operating cost was primarily due to the increase in the scale of our operations, the costs of the subsidiaries acquired in 2022 (which we did not incur in 2021), and special costs related to the relocation of personnel during 2022.
Other operating income
Other operating income for the year ended December 31, 2022 mainly consisted of income from the provision of technical support services by subsidiaries of the Company to the group’s associate, Castcrown Ltd.
Selling and marketing expenses
Selling and marketing expenses for the year ended December 31, 2022 decreased by $117.4 million when compared with the same period of 2021. The decrease in selling and marketing expenses was primarily due to the massive scaling of the investments into new players in 2021 amplified by a substantial decrease in the marketing investments in 2022 driven by the general saturation of the market, as well as the suspension of our marketing activities in Russia and Belarus due to geopolitical events.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2022 increased by $13.1 million when compared with the same period of 2021. The increase in general and administrative expenses was primarily due to (i) the loss on sale of disposal group in the amount of $5 million in 2022, which were not incurred in 2021; and (ii) an increase in personnel and other expenses resulting from the expansion of the scale of our operations during the second half of 2021 which affected our costs in 2022, as well as by special costs related to the relocation of personnel and costs related to the reduction in headcount in 2022, partially offset by a decrease in professional fees.
71
Goodwill and investments in equity accounted associates’ impairment
For the year ended December 31, 2022, we incurred an impairment loss in the amount of $46.9 million in relation to a goodwill impairment associated with the cash generating unit Lightmap Ltd. For further details please refer to Note 15 to our audited consolidated financial statements as of and for the year ended December 31, 2022, included elsewhere in this prospectus. We also incurred an impairment of one of our associates, MX Capital LTD, in the amount of $15.9 million. For further details please refer to Note 16 to our audited consolidated financial statements as of and for the year ended December 31, 2022, included elsewhere in this prospectus.
Share listing expense
In 2021, we incurred a non-cash non-recurring share listing expense in the amount of $125.4 million in relation to the consummation of the Transactions.
Impairment loss on trade receivables and loans receivable
Impairment loss on trade receivables and loans receivable for the year ended December 31, 2022 increased by $29.9 million. The increase was primarily driven by the expected credit losses for loans receivable of Castcrown Ltd and of MX Capital Ltd in the amount of $28.5 million in 2022, which were not incurred in 2021.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2022 increased by $4.4 million when compared with the same period of 2021. The increase in depreciation and amortization was primarily due to an amortization charge of the acquired intangible assets of Lightmap Ltd.
Finance income
Finance income for the year ended December 31, 2022 amounted to $1.9 million compared to the $0.1 million for the year ended December 31,2021, representing an increase of $1.8 million. The increase in finance income was primarily due to the interest income from the loans granted to MX Capital Ltd and Castcrown Ltd.
Finance expense
Finance expense for the year ended December 31, 2022 amounted to $2.2 million compared to the $3.2 million for the year ended December 31, 2021, representing a decrease of $1.0 million. The decrease in finance expense was primarily due to the decrease in foreign exchange losses, partially offset by an increase in bank charges in 2022 as compared to 2021, and the unwinding of a discount on the put option liability in 2022 which was not incurred in 2021.
Change in fair value of share warrant obligations and other financial instruments
Gain resulting from the change in fair value of share warrant obligations and other financial instruments for the year ended December 31, 2022 decreased by $7.3 million compared with 2021 due to a loss of $6.2 million resulting from the revaluation of earn-outs and options related to the Company’s investments in MX Capital Ltd and Castcrown Ltd which was not incurred in 2021, as well as a decrease of gain resulting from the revaluation of warrants in the amount of $1.1 million in 2022 as compared with 2021.
Share of loss of equity-accounted associates
We incurred an expense of $10.1 million arising from the Company’s share of losses of its associates, MX Capital Ltd and Castcrown Ltd, which were acquired in 2022.
72
Income tax expense
Income tax expense for the year ended December 31, 2022 increased by $2.6 million when compared with the same period of 2021. The increase in income tax expense was primarily due to income tax accrued by our core operating subsidiary, Nexters Global, resulting from its profits earned for the year ended December 31, 2022 as compared with a pre-tax loss recorded by Nexters Global in 2021.
Other comprehensive income/(loss)
Other comprehensive income for the year ended December 31, 2022 increased by $3.3 million in comparison with the same period of 2021, primarily due to the greater positive effects of the translation of foreign operations into U.S. dollars, the Company’s presentation currency, in the year ended December 31, 2022 in contrast to the effects reflected in the same period of 2021.
Comparison of the year ended December 31, 2021 versus the year ended December 31, 2020
| Year ended December 31, |
| Variance |
| |||||
2021 |
| 2020(1) | (US$ in | (%) |
| ||||
| (US$in thousands) |
|
|
| |||||
Revenue |
| 434,094 |
| 260,892 |
| 173,202 |
| 66 | % |
Costs and expenses, excluding depreciation and amortization |
|
|
|
|
|
|
|
| |
Cost of revenue: |
|
|
|
|
|
|
|
| |
Platform commissions |
| (117,229) |
| (75,163) |
| (42,066) |
| 56 | % |
Game operating cost |
| (18,945) |
| (17,390) |
| (1,555) |
| 9 | % |
Selling and marketing expenses |
| (270,167) |
| (165,756) |
| (104,411) |
| 63 | % |
General and administrative expenses |
| (23,031) |
| (3,689) |
| (19,342) |
| N/M | |
Share Listing Expense |
| (125,438) |
| — |
| (125,438) |
| 100 | % |
Total costs and expenses, excluding depreciation and amortization |
| (554,810) |
| (261,998) |
| (292,812) |
| N/M | |
Depreciation and amortization |
| (2,540) |
| (561) |
| (1,979) |
| N/M | |
Income/(loss) from operations |
| (123,256) |
| (1,667) |
| (121,589) |
| N/M | |
Net finance income/(costs) |
| 6,939 |
| 1,778 |
| 5,161 |
| N/M | |
Income/(loss) before income tax |
| (116,317) |
| 111 |
| (116,428) |
| N/M | |
Income tax expense |
| (1,127) |
| (862) |
| (265) |
| 31 | % |
Income/(loss) for the period net of tax |
| (117,444) |
| (751) |
| (116,693) |
| N/M | |
Attributable to equity holders of the Company |
| (117,455) |
| (751) |
| (116,704) |
| N/M | |
Attributable to non-controlling interest |
| 11 |
| — |
| 11 |
| 100 | % |
Other comprehensive income/(loss) |
| 11 |
| 15 |
| (4) |
| (27) | % |
Total comprehensive income/(loss) for the period net of tax |
| (117,433) |
| (736) |
| (116,697) |
| N/M | |
Attributable to equity holders of the Company |
| (117,444) |
| (736) |
| (116,708) |
| N/M | |
Attributable to non-controlling interest |
| 11 |
| — |
| 11 |
| 100 | % |
N/M — not meaningful
| (1) | Reflects a correction to the amount reported in our audited consolidated statement of profit or loss for the year ended December 31, 2020 due to the identification of an error relating to the calculation of withholding taxes and an error relating to the calculation of complex share-based options for the year ended December 31, 2020. For further information, see Note 4 (Accounting judgments, estimates and assumptions—Correction of errors) to our consolidated financial statements for the year ended December 31, 2022, included elsewhere in this prospectus. |
73
Revenue
| Year ended |
| Variance |
| |||||
2021 |
| 2020(1) | (US$ in | (%) |
| ||||
| (US$in thousands) |
|
|
| |||||
Revenue by type: | |||||||||
In-game purchases |
| 406,594 |
| 245,833 |
| 160,761 |
| 65 | % |
Advertising |
| 27,500 |
| 15,059 |
| 12,441 |
| 83 | % |
Total |
| 434,094 |
| 260,892 |
| 173,202 |
| 66 | % |
Revenue by geographic location of player: |
|
|
|
|
|
|
|
| |
United States |
| 136,570 |
| 97,470 |
| 39,100 |
| 40 | % |
Europe |
| 93,620 |
| 61,494 |
| 32,126 |
| 52 | % |
Asia |
| 106,404 |
| 42,382 |
| 64,022 |
| 151 | % |
Other |
| 97,500 |
| 59,546 |
| 37,954 |
| 64 | % |
Total |
| 434,094 |
| 260,892 |
| 173,202 |
| 66 | % |
| (1) | Reflects a correction to the amount reported in our audited consolidated statement of profit or loss for the year ended December 31, 2020 due to the identification of an error relating to the calculation of withholding taxes and an error relating to the calculation of complex share-based options for the year ended December 31, 2020. For further information, see Note 4 (Accounting judgments, estimates and assumptions — Correction of errors) to our consolidated financial statements for the year ended December 31, 2022, included elsewhere in this prospectus. |
Revenue for the year ended December 31, 2021 increased by $173.2 million when compared with the same period of 2020. The increase in revenue was primarily due to $116.5 million increase in Bookings and $56.7 million decrease in change of the deferred revenue in 2021 compared to 2020.
Platform commissions
Platform commissions for the year ended December 31, 2021 increased by $42.1 million when compared with the same period of 2020. The increase in platform commissions was primarily due to a 65% increase in the revenue generated from in-game purchases when compared to the prior period, as platform commissions generally deviate in line with our in-game purchases revenue.
Game operating cost
Game operating cost for the year ended December 31, 2021 increased by $1.6 million when compared with the same period of 2020. The increase in game operating cost was primarily due to an increase in the scale of our operations.
Selling and marketing expenses
Selling and marketing expenses for the year ended December 31, 2021 increased by $104.4 million when compared with the same period of 2020. The increase in selling and marketing expenses was primarily due to the substantial scaling of the investments into new players, with peak levels incurred in the second quarter of 2021 as part of the Company’s ongoing efforts to stimulate inflow of new paying users and increase Bookings.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2021 increased by $19.3 million when compared with the same period of 2020. The increase in general and administrative expenses was primarily due to an increase in personnel and other expenses resulting from our listing on Nasdaq, the consolidation of NX Studio LLC and NX Online LLC since the beginning of the 2021 and the increase in the scale of the Company’s operations.
Share listing expense
We incurred a non-cash non-recurring share listing expense in the amount of $125.4 million in relation to the consummation of the Transactions.
74
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2021 increased by $2.0 million when compared with the same period of 2020. The increase in depreciation and amortization was primarily due to an increase in the depreciation charge of right-of-use assets resulting from the consolidation of NX Studio LLC and NX Online LLC.
Net finance income/(costs)
Net finance income for the year ended December 31, 2021 amounted to $6.9 million compared to $1.8 million for the year ended December 31, 2020, representing an increase of $5.2 million. The increase in net finance income was primarily due to the income from a change in the fair value of share warrant obligations. The increase was partially offset by an increase in foreign exchange losses, mainly resulting from the appreciation of cash balances and accounts receivable denominated in euro against U.S. dollars (our functional and presentation currency).
Income tax expense
Income tax expense for the year ended December 31, 2021 increased by $0.3 million when compared with the same period of 2020. The increase in income tax expense was primarily due to an increase of income tax of our subsidiary, Nexters Global, resulting from an increase in its scale of operations and the ending of the Cyprus IP box regime in June 2021.
Other comprehensive income/(loss)
Other comprehensive income for the year ended December 31, 2021 decreased marginally in comparison to the same period of 2020, primarily due to the negative effects of the translation of foreign operations into the Company’s presentation currency in the year ended December 31, 2021 in contrast to positive effects reflected in the prior period.
Liquidity and Capital Resources
Capital Spending
One of the elements of our business strategy is to pursue certain M&A targets in the gaming space in Europe and other regions. Accordingly, we incurred substantial expenditures in 2022 associated with our M&A activities and we may anticipate substantial levels of expenditures as we continue to evaluate certain acquisition opportunities for additional businesses or games that meet our strategic and return on investment criteria. We also incur other capital expenditures in the normal course of business and perform ongoing enhancements and updates to our games and our IT infrastructure to maintain their quality standards. Cash used for capital expenditures in the normal course of business is typically made available from cash flows generated by operating activities. Capital needs for investment opportunities are evaluated on an individual opportunity basis and may require significant capital commitments.
Our capital expenditures — which we define as acquisitions of property, plant and equipment as well as intangible assets excluding expenditures associated with M&A activities — were $1.1 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively. In 2023, up to the date of this prospectus, we estimate that our capital expenditures amounted to approximately $0.1 million, primarily representing investments in property, plant and equipment and intangible assets.
Liquidity
Our primary sources of liquidity are the cash flows generated from our operations and currently available unrestricted cash and cash equivalents. Our cash and cash equivalents totaled $86.8 million at December 31, 2022. Payments of short-term and long-term debt obligations and other commitments are expected to be made from cash on hand and operating cash flows.
Our ability to fund our operations and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and disruptions in capital markets could impact our ability to secure additional funds through financing activities. We believe that our cash and cash equivalents balance and our cash flows from operations will be sufficient to meet our normal operating requirements during the next twelve months and the foreseeable future and to fund capital expenditures.
75
Cash flows
The following tables present our consolidated cash flows for the periods indicated:
Six months ended | |||||
| 2023 |
| 2022 | ||
(US$ in thousands) | |||||
Net cash flows (used in)/generated from operating activities | (86) | 39,564 |
| ||
Net cash flows used in investing activities | (18,348) | (83,306) | |||
Net cash flows used in financing activities | (787) | (1,350) | |||
Cash and cash equivalents at the end of the period | 68,581 | 99,077 | |||
| Year ended December 31, | |||||
| 2022 |
| 2021 |
| 2020(1) | |
(US$in thousands) | ||||||
Operating activities | ||||||
Profit/(loss) for the year, net of tax |
| 7,410 |
| (117,444) |
| (751) |
Adjustments for: | ||||||
Depreciation and amortization |
| 6,901 |
| 2,540 |
| 561 |
Share-based payments expense |
| 3,751 |
| 3,761 |
| 2,276 |
Goodwill and investments in equity accounted associates’ impairment |
| 62,828 |
| — |
| — |
Share listing expense |
| — |
| 125,438 |
| — |
Share of loss of equity-accounted associates |
| 10,121 |
| — |
| — |
Gain on acquisition |
| — |
| (79) |
| — |
Impairment loss on trade receivables and loans receivable |
| 29,987 |
| 102 |
| — |
Property and equipment write-off |
| 454 |
| — |
| — |
Impairment loss on Intangible assets | 547 | — | — | |||
Change in fair value of share warrant obligations and other financial instruments |
| (2,767) |
| (10,080) |
| — |
Unwinding of discount on the put option liability |
| 366 |
| — |
| — |
Transaction costs |
| 104 |
| — |
| — |
Interest income |
| (1,639) |
| — |
| — |
Interest expense |
| 116 |
| 91 |
| 38 |
Lease modification gain |
| (11) |
| — |
| — |
Loss on sale of disposal group |
| 4,969 |
| — |
| — |
Dividend on ETFs accrued |
| (231) |
| — |
| — |
Trade receivables write-off |
| 81 |
| — |
| — |
Foreign exchange (gain)/loss |
| 1,020 |
| 2,809 |
| (1,991) |
Income tax expense |
| 3,760 |
| 1,127 |
| 862 |
| 127,767 |
| 8,265 |
| 995 | |
Changes in working capital |
|
|
|
|
|
|
(Decrease)/Increase in deferred platform commissions |
| 21,851 |
| (26,946) |
| (52,465) |
(Decrease)/Increase in deferred revenue |
| (30,242) |
| 127,899 |
| 184,603 |
Increase in trade and other receivables |
| (4,498) |
| (12,682) |
| (7,490) |
Increase/(decrease) in trade and other payables |
| 2,282 |
| 9,600 |
| (1,060) |
| (10,607) |
| 97,871 |
| 123,588 | |
Income tax (paid) |
| (1,078) |
| (617) |
| (3,978) |
Interest received/(paid) |
| — |
| 7 |
| 19 |
Net cash flows generated from operating activities |
| 116,082 |
| 105,526 |
| 120,624 |
Investing activities |
|
|
|
|
|
|
Acquisition of intangible assets |
| (64) |
| (338) |
| — |
Acquisition of property and equipment |
| (994) |
| (1,099) |
| (147) |
Acquisition of subsidiary net of cash acquired |
| (54,113) |
| (1,159) |
| — |
Investments in equity accounted associates |
| (17,970) |
| — |
| — |
Loans granted |
| (31,659) |
| (123) |
| — |
Proceeds from repayment of loans |
| 746 |
| — |
| 508 |
Acquisition of other investments |
| (67,729) |
| — |
| — |
Net cash flows generated from/(used in) investing activities |
| (171,783) |
| (2,719) |
| 361 |
Financing activities |
|
|
|
|
|
|
Payments of lease liabilities |
| (2,013) |
| (2,132) |
| (341) |
Proceeds from loans receivable |
| 224 |
| — |
| — |
Repayment of borrowings |
| — |
| (49) |
| (3,980) |
Interest on lease |
| (115) |
| (90) |
| (26) |
Interest paid |
| — |
| — |
| (17) |
Dividends paid and distributions to shareholders |
| — |
| (160,366) |
| (51,683) |
Cash acquired in the Transaction |
| — |
| 119,659 |
| — |
Net cash flows used in financing activities |
| (1,904) |
| (42,978) |
| (56,047) |
76
Net increase in cash and cash equivalents for the period |
| (57,605) |
| 59,829 |
| 64,938 |
Cash and cash equivalents at the beginning of the period |
| 142,802 |
| 84,557 |
| 17,565 |
Effect of changes in exchange rates on cash held |
| 1,577 |
| (1,584) |
| 2,054 |
Cash and cash equivalents at the end of the period |
| 86,774 |
| 142,802 |
| 84,557 |
| (1) | Reflects a correction to the amount reported in our audited consolidated statement of financial position as of December 31, 2020 due to the identification of an error relating to the calculation of withholding taxes and an error relating to the calculation of complex share-based options for the periods ended on December 31, 2020. For further information, see Note 4 (Accounting judgments, estimates and assumptions — Correction of errors) to our consolidated financial statements for the year ended December 31, 2022, included elsewhere in this prospectus. |
Operating activities
Net cash flows used in operating activities for the six months ended June 30, 2023 amounted to $0.1 million compared to net cash flows generated from operating activities $39.6 million for the six months ended June 30, 2022. The change was driven by a decrease of proceeds from Bookings and substantially increased investments into new players in the first six months of 2023 as compared with the same period in 2022, when cash outflows associated with advertising and marketing expenses were decreased due to market saturation. Furthermore, cash outflows associated with payment of our employees’ salaries increased in the first six months of 2023 as a result of the relocation of personnel from Russia in the second half of 2022.
Net cash flows generated from operating activities for the year ended December 31, 2022 increased by $10.6 million when compared to the year ended December 31, 2021, primarily due to a decrease in cash outflows associated with advertising and marketing expenses, partially offset by a decrease of proceeds from Bookings and an increase in outflows associated with various expenses of the group.
Net cash flows generated from operating activities for the year ended December 31, 2021 decreased by $15.1 million when compared to the year ended December 31, 2020, primarily due to the substantial increase in cash outflows resulting from advertising and marketing expenses and platform commissions, partially offset by an increase in cash inflows resulting from Bookings for the year ended December 31, 2021 as compared with the prior year.
Investing activities
Net cash flows used in investing activities for the six months ended June 30, 2023 decreased by $65.0 million compared to the six months ended June 30, 2022, primarily attributable to significantly lower cash outflows associated with the acquisition of and equity investments in gaming studios and loans granted to our associates that were incurred in the prior year period, partially offset by investments in government bonds conducted in the first half of 2023.
Net cash flows used in investing activities for the year ended December 31, 2022 amounted to $171.8 million compared to $2.7 million of net cash flows used in investing activities for year ended December 31, 2021. The change was primarily attributable to the acquisitions of and investment in new gaming studios and loans granted to our associates as well as substantial cash outflows resulting from investments in securities in the year ended December 31, 2022 which were not incurred in 2021.
Net cash flows used in investing activities for the year ended December 31, 2021 amounted to $2.7 million compared to $0.4 million of net cash flows generated from investing activities for year ended December 31 2020. The change was primarily attributable to cash outflows in early 2021 relating to our acquisition of Nexters Online and Nexters Studio, two Russian game development studios, as well as cash outflows relating to the acquisition of property and equipment by Russian companies that were not consolidated in the previous period.
Financing activities
Net cash flows used in financing activities for the six months ended June 30, 2023 decreased slightly by $0.6 million compared to the six months ended June 30, 2022, driven by lower cash outflows associated with payments of leased office space.
77
Net cash flows used in financing activities for the year ended December 31, 2022 decreased by $41.1 million when compared to the year ended December 31, 2021. The decrease was primary driven by the significant outflow of cash in a form of dividend payments to the Nexters Global shareholders in 2021 in connection with Transactions, partially offset by the significant inflow of cash acquired by the Company in the Transactions, neither of which recurred in 2022.
Net cash flows used in financing activities for the year ended December 31, 2021 decreased by $13.1 million when compared to the year ended December 31, 2020. The decrease was primary driven by the significant inflow of cash acquired by the Company in the Transactions, which was partially offset by a significant increase in dividend payments to the Nexters Global shareholders in the first half of 2021 in connection with Transactions.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of June 30, 2023:
Payments due by period(1) | |||||||||||
| Carrying |
| Contractual |
| 3 months or |
| Between 3- |
| Between 1-5 | ||
Non-derivative financial liabilities | |||||||||||
Lease liabilities | 881 | 894 | 61 | 722 | 111 |
| |||||
Trade and other payables | 28,253 | 28,253 | 28,253 | — | — | ||||||
29,134 | 29,147 | 28,314 | 722 | 111 | |||||||
Derivative financial liabilities | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Share warrant obligation | 2,430 | — | — | — | 2,430 | ||||||
Put option liability | 28,245 | — | — | 21,560 | 6,685 | ||||||
30,675 | 0 | 0 | 21,560 | 9,115 | |||||||
| (1) | Amounts are gross and undiscounted, and include contractual interest payments. |
Qualitative and Quantitative Factors About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include credit risk, liquidity risk, and currency risk as follows:
Credit Risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. We are exposed to credit risk from our operating activities (primarily trade receivables), which is concentrated around the key platforms through which we distribute our games.
Credit risk related to trade receivables is considered immaterial, as almost all sales are generated through major companies, with consistently high credit ratings. These distributors pay the Company on a monthly basis, based on sales to the end-users, and payments are made one to two months after the sale to the end-user. The distributors are responsible for tracking and accounting of end-user sales, and send us monthly reports reflecting amounts to be paid. We do not have any material overdue or impaired accounts receivable, and the credit risk associated with the trade receivable that is neither due nor impaired is deemed to be small. For additional information on our credit risk, please see Note 29 (Financial instruments – fair values and risk management—B. Financial risk management—(i) Credit risk) to our unaudited interim condensed consolidated financial statements for the six months ended June 30, 2023 and Note 29 (Financial instruments – fair values and risk management—B. Financial risk management—(i) Credit risk) to our audited consolidated financial statements for the fiscal year ended December 31, 2022, in each case included elsewhere in this prospectus.
78
Liquidity Risk
Liquidity risk refers to the risk of being unable to fulfil payment obligations when they fall due. We have purposefully and consciously invested in growing and expanding our business and we intend to continue to make significant investments in growth and expansion. This requires us to carefully plan and monitor our capital needs. Our objective when managing liquidity is to ensure, as far as possible, that we will have sufficient liquidity to meet our liabilities when they are due, under both normal and stressed conditions without incurring unacceptable losses or risking damage to our reputation. For additional information on our liquidity risk, please see Note 29 (Financial instruments – fair values and risk management—B. Financial risk management—(ii) Liquidity risk) to our unaudited interim condensed consolidated financial statements for the six months ended June 30, 2023 and Note 29 (Financial instruments – fair values and risk management—B. Financial risk management—(ii) Liquidity risk) to our audited consolidated financial statements for the fiscal year ended December 31, 2022, in each case included elsewhere in this prospectus.
Currency Risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company’s functional currency. We are exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Euro, Russian Ruble, Armenian Dram and Kazakhstani Tenge. We monitor the exchange rate fluctuations on a continuous basis and act accordingly.
For the periods presented, our exposure to foreign currency risk, expressed in U.S. dollars, was as follows:
| For the six months ended June 30, 2023 | |||||||||||
Euro |
| Russian Ruble |
| Armenian Dram |
| Kazakhstani Tenge | ||||||
$ | ||||||||||||
Assets | ||||||||||||
Loans receivable | 4,309 | — | 19 | — |
| |||||||
Trade and other receivables | 10,217 | — | — | — | ||||||||
Cash and cash equivalents | 19,749 | 92 | 61 | 161 | ||||||||
34,275 | 92 | 80 | 161 | |||||||||
Liabilities | ||||||||||||
Lease liabilities | (734) | — | (95) | — | ||||||||
Trade and other payables | (7,099) | — | (2,210) | (207) | ||||||||
(7,833) | — | (2,305) | (207) | |||||||||
Net exposure | 26,442 | 92 | (2,225) | (46) | ||||||||
| For the year ended | |||||||
December 31, 2022 | ||||||||
Euro |
| Russian Ruble |
| Armenian Dram |
| Kazakhstani Tenge | ||
$ | ||||||||
Assets | ||||||||
Loans receivable |
| 476 |
| — |
| 39 |
| — |
Trade and other receivables |
| 9,411 |
| — |
| — |
| — |
Cash and cash equivalents |
| 17,057 |
| 1,078 |
| 26 |
| 95 |
| 26,944 |
| 1,078 |
| 65 |
| 95 | |
Liabilities |
|
|
|
|
|
|
|
|
Lease liabilities |
| (1,053) |
| — |
| (134) |
| — |
Trade and other payables |
| (8,017) |
| — |
| (614) |
| (33) |
| (9,070) |
| — |
| (748) |
| (33) | |
Net exposure |
| 17,874 |
| 1,078 |
| (683) |
| 62 |
79
A reasonably possible 10% strengthening or weakening of the U.S. dollar against the following currencies at June 30, 2023 and December 31, 2022 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
As of June 30, 2023 | As of December 31, 2022 | ||||||||
Strengthening | Weakening | Strengthening | Weakening | ||||||
$ | |||||||||
Euro |
| (2,644) |
| 2,644 |
| (1,787) |
| 1,787 |
|
Russian Ruble | (9) | 9 | (108) | 108 | |||||
Armenian Dram | 223 | (223) | 68 | (68) | |||||
Kazakhstani Tenge | 5 | (5) | (6) | 6 | |||||
(2,425) | 2,425 | (1,833) | 1,833 | ||||||
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with IFRS.
Certain accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments will be subject to an inherent degree of uncertainty. Our judgments are based upon our management’s historical experience, terms of existing contracts, observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate.
We consider accounting estimates to be critical accounting policies when:
| ● | the estimates involve matters that are highly uncertain at the time the accounting estimate is made; and |
| ● | different estimates or changes to estimates could have a material impact on the reported financial positions, changes in financial position or results of operations. |
When more than one accounting principle, or method of its application, is generally accepted, we select the principle or method that we consider to be the most appropriate when given the specific circumstances. Application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties. Due to the inherent uncertainty involving estimates, actual results reported in the future may differ from such estimates. For additional information on our critical accounting policies and estimates, please refer to Note 4 (Accounting judgments, estimates and assumptions) to our unaudited interim condensed consolidated financial statements for the six months ended June 30, 2023 and Note 4 (Accounting judgments, estimates and assumptions) to our audited consolidated financial statements for the fiscal year ended December 31, 2022, in each case included elsewhere in this prospectus.
We believe that our accounting policies in respect of revenue recognition and warrant obligations require a greater degree of judgment and complexity and are the most critical to understanding our financial condition and historical and future results of operations.
Revenue Recognition
The approach to in-game purchases, consumable and durable items
The satisfaction of our performance obligation is dependent on the nature of the virtual item purchased and as a result, we categorize our virtual items as either consumable or durable.
| ● | Consumable virtual items represent items that can be consumed by a specific player action. They can, for example, instantly refill certain stats like mana or health points or be used to skip cooldowns. Common characteristics of consumable virtual |
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| items are that they are no longer displayed on the player’s game board after a short period of time (usually within few days since the date of purchase), do not provide the player any continuing benefit following consumption (they cannot be used to improve the character), and often enable a player to perform an in-game action immediately. For the sale of consumable virtual items, we recognize revenue at a point in time. |
| ● | Durable virtual items represent items that enhance a player’s character or game inventory set over a certain period of time (e.g., that increase a player hero’s power in our Hero Wars game or enhance an island’s buildings in our Island Experiment game). These items are accessible to the player over an extended period of time or can be exchanged or used for obtaining different items or levels in the games, which in turn are associated with the players character for an extended period of time (e.g., “stars” influencing the specific hero power in the game). Considering the complexity of the gameplay, great variety of in-game items and different behavioral patterns of players on different levels of character development, it is impracticable to estimate the useful life of in-game items. Therefore, we recognize the revenue from the sale of durable virtual items ratably over the average playing period of players for the applicable game (player’s lifespan), which represents our best estimate of the average life of the durable virtual item. We use this approach for substantially all of our revenue. |
To separately account for consumable and durable virtual items, the Company either specifically identifies each purchase for the majority of virtual items purchased in our games or, for the remaining population of purchases, the Company estimates the amount of consumable and durable items proportionately to the majority of distributed items and relying on expertise in resource content analysis of our games.
Estimate of players lifespan
Since January 1, 2020 we determine the estimated weighted average playing period of payers by game on a quarterly basis (on an annual basis in 2019), beginning at the time of a player’s first purchase in the respective game and ending on a date when that paying player is deemed to be no longer playing. To determine when paying players are no longer playing a given game, we analyze the entire population of payers who made in-game payments in the relevant periods and determine whether each payer is an active or inactive player as at the date of our analysis. To determine which payers are inactive, we analyze the dates that each payer last logged into that game. We determine a player to be inactive once they have reached a period of inactivity for which it is probable that they will not return to a specific game. We use judgment to set a minimum period of inactivity to distinguish between active users and those that are deemed inactive at the date of evaluation, which is currently determined as 30 days after last login date for the majority of platforms/games. Based on the actual expired lifespans and projection for active players, we then project an average expected lifespan term of the population.
We use a statistical estimation model to arrive at the average playing period of the paying users for each platform. As at December 31, 2022, 2021 and 2020, player lifespan for Hero Wars averaged 28, 25 and 23 months, respectively.
The estimated player lifespan in our other games as at December 31, 2022, 2021 and 2020 averaged 14 months, 25 months and 34 months, respectively.
In our core game Hero Wars a significant portion of our revenues is produced by a relatively low percentage of our users, which pay substantially higher dollar amounts for in-game virtual items as compared to the average payment per user and tend to have substantially longer playing periods as compared with average playing periods for the entire population. Moreover, the average playing periods may differ substantially among different platforms through which we distribute our games. To account for these aspects, we estimate the average playing periods separately for each platform as soon as we have the indicators that the average playing periods for a particular platform may differ from the average periods for other platforms and adjust the average playing periods by assigning greater weight to higher spending payers versus average payers in the population. We use the Kaplan-Meyer survival model to arrive at the average playing period of the paying users for each platform.
Key factors of estimation uncertainty
We expect that in future periods, there may be changes in the mix of consumable and durable virtual items offered and sold, reduced virtual item sales in certain existing games, changes in estimates of the average playing period of players and/or changes in our ability to make such estimates. When such changes occur and, in particular, if more of our revenue in any period is derived from
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durable virtual items or the estimated average playing period of payers increases on average, the amount of revenue that we recognize in a current or future period may be reduced, perhaps significantly. Conversely, if the estimated average playing period of payers decreases on average, the amount of revenue that we recognize in a current or future period may be accelerated, perhaps significantly, and we would disclose the effects of such changes in our consolidated financial statements.
The length of the lifespan depends on the players’ behaviors, which vary across different game titles and across different platforms, where lifespans for social and web platforms tend to be longer than for mobile platforms. The length of the lifespans may also depend on the maturity of the game title and our ability to allocate necessary financial and intellectual resources to implement relevant strategies for player attraction and retention.
When a new game is launched and only a limited period of payer data is available for our analysis, then we need to consider other factors to determine the estimated average playing period of payers, such as the estimated average playing period of payers for our other game titles with similar characteristics and review of externally available information, including industry peers.
Sensitivity to input parameters
Our estimates are sensitive to input parameters, particularly to change in proportion between durable and consumable items and to change in estimated player’s lifespan. Below is the analysis of sensitivity to these parameters:
| ● | While other parameters remain constant, an increase/decrease of the share of durable items in total payments by 10% would decrease/increase reported revenues for 2022 and respectively increase/decrease deferred revenue balance as at December 31, 2022 by $23,789 thousand/$23,795 thousand. |
| ● | While other parameters remain constant, an increase/decrease of the share of consumable items in total payments by 10% would increase/decrease reported revenues for 2022 and respectively decrease/increase deferred revenue balance as at December 31, 2022 by $6,757 thousand. |
| ● | While other parameters remain constant, an increase in the estimated lifespans applied in 2022 by 10% would decrease reported revenues for 2022 and respectively increase deferred revenue balance as at December 31, 2022 by $33,760 thousand. |
| ● | While other parameters remain constant, a decrease in the estimated lifespans applied in 2022 by 10% would increase reported revenues for 2022 and respectively decrease deferred revenue balance as at December 31, 2022 by $38,659 thousand. |
Warrants’ Valuation
Upon completion of the Transaction on August 26, 2021, each outstanding warrant to purchase Kismet’s ordinary shares was converted into a warrant to acquire one ordinary share of the Company, at a price of $11.50 per share. A total of 20,250,000 Kismet warrants were converted into 20,249,993 warrants of the Company, 13,499,993 of which are public and 6,750,000 of which are private.
The Company accounts for the warrants in its financial statements as a liability in accordance with IAS 32 — Financial Instruments: Presentation and IFRS 9 — Financial Instruments, based on the fact that the fixed-for-fixed criteria is not met. This is due to the fact that, as soon as certain conditions are met, investors can exercise their warrants on a cashless basis according to make-whole table, where warrants are exchanged into a fractional number of shares depending on the price of the ordinary shares at time of redemption and remaining time to warrant expiration. The warrants are initially recorded at fair value and then remeasured at each reporting date until exercised or expired, with any change in fair value to be recognized in profit or loss within the line item Change in fair value of share warrant obligation and other financial instruments.
Management exercised judgment in applying the Monte-Carlo simulation for the purpose of estimating the fair value of the private warrants and, in 2022, for the public warrants as well, as there was no active market for the public warrants in 2022.
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The fair value of the private warrants as at December 31, 2022 and 2021 and the fair value of the public warrants as at December 31, 2022 was determined using Level 3 inputs within the fair value hierarchy and is measured using the Monte-Carlo simulation. The fair value of public warrants as at December 31, 2021 is determined using quoted market prices (Level 1) as they were traded in an active market.
Key assumptions of the Monte Carlo model
| December 31, 2021 |
| December 31, 2022 | |
Risk free rate |
| forward USD overnight index swap (OIS) rates (curve 42) |
| forward USD overnight index swap (OIS) rates (curve 42) |
Volatility |
| forward implied volatility rates based on volatilities of publicly traded peers |
| forward implied volatility rates based on volatilities of publicly traded peers |
Starting share price |
| 8.06 |
| 4.63 |
Expected warrant life (years) |
| 4.7 |
| 3.7 |
Key input parameter of the model is starting share price. As the trading of the Company's shares was halted as at December 31, 2022, the Company used multiples of the enterprise value (EV) to Bookings and EV to EBITDA based on valuation of our publicly traded peers to estimate the enterprise value and, accordingly, the starting share price by dividing enterprise value with the number of shares outstanding as follows:
| ● | Implied multiples were calculated using the last quoted share price before the trading halt was introduced to estimate a discount/(premium) to median multiples of peer group (30% for EV/Bookings and 2% for EV/EBITDA); |
| ● | Median EV/Bookings and EV/EBITDA multiples of peer group were calculated as at the reporting date; |
| ● | Discounts/(premiums) from the multiples calculated in the first step were applied to estimate our multiples as at the reporting date; |
| ● | Based on the above multiples and our actual number of our earnings and EBITDA during the year we estimated our enterprise value and, based on the number of outstanding shares as at the reporting date, the starting price of our shares. |
These methods provided as at December 31, 2022 the range of the starting share price from $3.58 based on EV/Bookings multiple to $5.68 based on EV/EBITDA multiple.
An average of prices determined by multiples above was used as a starting share price for the warrants model.
Sensitivity to input parameters
Our estimates are sensitive to certain input parameters, particularly to change in volatility, starting share price (estimated using methods described above) and the risk-free rate. Below is the analysis of the estimate’s sensitivity to reasonably possible changes in these parameters:
Volatility:
| ● | While other parameters remain constant, an increase of volatility by 10% would increase the fair value of public and private warrants as at December 31, 2022 by $3,235 thousand. |
| ● | While other parameters remain constant, a decrease of volatility by 10% would decrease the fair value of public and private warrants as at December 31, 2022 by $2,187 thousand. |
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Starting share price:
| ● | While other parameters remain constant, an increase of starting share price by 10% would increase the fair value of public and private warrants as at December 31, 2022 by $2,168 thousand. |
| ● | While other parameters remain constant, a decrease of starting share price by 10% would decrease the fair value of public and private warrants as at December 31, 2022 by $2,078 thousand. |
Risk-free rate:
| ● | While other parameters remain constant, an increase of risk-free rate by 10% would increase the fair value of public and private warrants as at December 31, 2022 by $154 thousand. |
| ● | While other parameters remain constant, a decrease of risk-free rate by 10% would decrease the fair value of public and private warrants as at December 31, 2022 by $112 thousand. |
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to remain an emerging growth company at least through the end of the 2023 fiscal year and to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
Recent Changes in Accounting Pronouncements
A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 (Basis of accounting — Changes in accounting policies) to our audited consolidated financial statements for the fiscal year ended December 31, 2022, included elsewhere in this prospectus.
Internal Control over Financial Reporting
In connection with the audit of the Company’s financial statements as of and for the year ended December 31, 2022, our management and our current independent registered public accounting firm that conducted that audit identified deficiencies representing material weaknesses in our internal control over financial reporting. The material weaknesses identified were primarily attributable to (i) our lack of an effective control structure and oversight over the financial reporting process, as the Company lacked an official process and had limited dedicated resources to ensure complete and accurate financial reporting for complex transactions; and (ii) an inadequate review of valuation assumptions used to determine fair value for purposes of goodwill impairments by a competent individual with an appropriate level of training and experience. Furthermore, our management and our independent registered public accounting firm concluded that certain deficiencies regarding our controls over information technology systems relating to retention of log files of user activities qualified as a significant deficiency in our internal controls over financial reporting as of December 31, 2022. We have developed a plan to remediate the aforementioned material weaknesses and significant deficiency, but will not be able to fully remediate them until our plan has been completed and the new controls and procedures have been operating effectively for a sufficient period of time.
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In 2022, we made the following changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:
| ● | Enhanced the controls over the financial reporting closing process including, but not limited to: |
| ● | implementation of the automated closing check-lists for certain entities of the group established in 2022, and |
| ● | implementation of the controls over revenue recognition and accounting for deferred revenue for the subsidiaries acquired in 2022; |
| ● | Performed the analysis of the procurement process and developed the “to-be” processes in this area to establish proper segregation of duties; and |
| ● | Enhanced the controls over our IT infrastructure including, but not limited to: |
| ● | implementation of regular IT risks assessment procedures, |
| ● | implementation of certain IT policies and procedures covering access rights granting/revocation and password policies, and |
| ● | remediated deficiencies around administrative level of access on server/database/application levels for major IT systems. |
While certain progress has been made to enhance our internal control over financial reporting, we are still in the process of implementing, documenting and testing these processes, procedures and controls. The process of implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. Additional time is required to complete the implementation as well as to assess and ensure the sustainability of these procedures. We believe these actions will be effective in remediating the material weaknesses and significant deficiency described above and we will continue to devote significant time and attention to these remediation efforts. However, the material weaknesses and/or significant deficiency cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above.
For risks relating to these material weaknesses, see “Risk Factors—Risks Related to the Company’s Securities and the Offering—If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired” and “In connection with the preparation of GDEV Inc.’s consolidated financial statements as of and for each of the years ended December 31, 2022, 2021 and 2020, we identified material weaknesses in our internal controls over financial reporting.”
Change in Certifying Accountant
Effective as of January 11, 2023 (the “Succession Date”), the Company appointed KPMG Certified Auditors S.A., Athens, Greece (“KPMG”) as the Company’s independent registered public accounting firm, succeeding JSC “Kept” (formerly JSC “KPMG”), Moscow, Russia (“Kept”), the Company’s former independent registered public accounting firm. The change of the Company’s independent registered public accounting firm was made in light of geopolitical developments driven by the Russian military action in Ukraine, after careful consideration and evaluation process, and was approved by the audit committee of the board of directors of the Company. KPMG is a public accounting firm registered with the Public Company Accounting Oversight Board of the United States (the “PCAOB”). KPMG is subject to the PCAOB’s oversight and has conducted its audit of the Company in accordance with the standards established by the PCAOB.
Kept has served as the Company’s independent registered public accounting firm since its formation on January 27, 2021. On July 6, 2022, the Company notified Kept of its intention to dismiss Kept as the Company’s independent registered public accounting firm.
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Kept’s audit reports on the Company’s consolidated financial statements as of and for the years ended December 31, 2020 and 2021 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
On the Succession Date, the Company dismissed Kept.
During each of the years ended December 31, 2020 and 2021, and in the subsequent interim period through the Succession Date, there has been (i) no disagreements (as defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto) between the Company and Kept on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Kept, would have caused Kept to make reference to the subject matter of the disagreements in connection with its reports on the consolidated financial statements for such periods, and (ii) no “reportable events” (as defined in Item 16F(a)(1)(v) of Form 20-F).
During the Company’s two most recent fiscal years ended December 31, 2021, and in the subsequent interim period prior to the engagement of KPMG on the Succession Date, neither the Company nor anyone acting on its behalf consulted with KPMG regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company that KPMG concluded was an important factor considered by the Company in reaching a decision as to any accounting, audit or financial reporting issue, (ii) any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of Form 20-F and the related instructions thereto, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of Form 20-F.
JOBS Act
We are an emerging growth company, as defined in the JOBS Act. We intend to rely on certain of the exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).
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BUSINESS
We build mobile, web and social games for millions of players to enjoy globally. We are one of the top five independent mobile game developers in Europe (excluding developers owned and controlled by other companies active in the gaming market) based on in-game purchases in 2022, net of platform fees, according to data provided by data.ai. Our games are free to play, and we continuously innovate our games to provide novel, curated in-game content to our users at optimal points in their game journeys.
Our core product offering, Hero Wars, offers a suite of games across mobile, social and web-based platforms and has, since its launch in 2016, evolved into a well-recognized global gaming franchise in the RPG genre, with 3.5 million MAUs across more than 75 countries in 2022. In 2022, Hero Wars ranked 10th on Android and 8th on iOS according to the top grossing charts in the RPG genre in the United States.
Continuous improvements in game content and focus on customer engagement has allowed us to monetize on the popularity of our games and achieve attractive key performance metrics. In particular, between 2018 and 2021, we achieved 13 times’ growth in Bookings and as of December 31, 2022, our cumulative all time Bookings crossed the $1.5 billion mark. We benefit from predictable cohorts and a loyal base of core players, which supports our ability to sustain our monetization per user. In the year ended December 31, 2022, cohorts from previous periods accounted for approximately 81.7% of our Bookings for our core product, Hero Wars.
Since our formation over a decade ago, we have developed a sizeable built-to-scale platform, enabling us to streamline content development and offering a value-enhancing opportunity for potential newly acquired games and companies. For example, in 2022, we entered into agreements to acquire four separate gaming studios to expand our portfolio of midcore games, enlarge our player base and expand into new genres. We plan to further expand gameplays within our current products as well as work towards new game offerings.
Our headquarters are in Cyprus. As of June 30, 2023, we had 777 employees. Our revenue and for the first six months of 2023 and for the years ended December 31, 2022 and 2021 was $234 million, $479.7 million and $434.1 million, respectively, and our Bookings3 for the same periods were $214 million, $449.4 million and $562 million, respectively. We recorded net cash flows used in operating activities of $0.1 million for the first six months of 2023 and net cash flows generated from operating activities of $116.1 million and $105.5 million for the years ended December 31, 2022 and 2021, respectively. Our total comprehensive income/loss net of tax for the first six months of 2023 and for the years ended December 31, 2022 and 2021 was an income of $12.4 million, income of $10.7 million, and loss of $117.4 million, respectively.
Our Industry
We operate in the global digital gaming market, a large and strategically important component of the overall entertainment market. The global digital gaming market attracted approximately $182.9 billion of consumer spending in 2022 according to Newzoo. Also according to Newzoo, the global gaming population amounted to 3.2 billion people in 2022, which is 4.9% higher than 2021’s player number. These “gamers” were active across a variety of platforms, including both traditional PC and console as well as newer formats such as mobile, tablet, and cloud. The digital gaming market is also a truly global market, with the Asia-Pacific region accounting for 46% of the global players in 2022, and the Americas and Europe accounting for 32% and 18%, respectively, according to Newzoo.
Driven by the expansion of mobile broadband and the proliferation of smartphones, games today can be enjoyed whenever and wherever players desire. According to NewZoo, the mobile gaming market is the largest segment within the gaming industry, amounting to an estimated $91.8 billion in consumer spend in 2022 representing approximately 50% of the total gaming market.
3 | For a definition of Bookings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key performance metrics — Bookings.” |
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2022 was the first year over the past decade in which the worldwide gaming revenue decreased year-over-year, with a 5.1% decrease of the total gaming market in 2022 as compared with 2021, according to Newzoo. The primary driver of this decrease was the mobile gaming market, which decreased by approximately 6.7% in 2022 in comparison with 2021 according to Newzoo. We believe there are a few key reasons for the negative market dynamics in 2022, among others: inflation, which limited consumers’ disposable income; easing of the COVID-19 restrictions brought consumers’ spending in online games back to historical normal levels in 2022 as compared with the earlier years impacted by the COVID-19 pandemic; and increasingly expensive user acquisition across all major channels, which limited the ability of gaming companies to invest in their growth. While we expect that these negative trends may continue to influence the market going forward to a certain degree, the overall prospects remain positive: according to Newzoo, the gaming market is expected to grow from $179.1 billion in 2020 to $206.4 billion by 2025, growing at a +2.9% CAGR over this period.
We believe that mobile gaming will continue to be the largest segment of the market and therefore view it as a priority market in which we intend to direct the majority of our managerial and financial resources in both content development and user acquisition.
Casual vs. Hardcore and Mid-Core games
Based on the intensity and complexity of the game content and their breadth of appeal, games can be sub-divided into casual, hardcore and mid-core. The Company defines Hero Wars as mid-core and its new title Island Questaway as casual.
Casual games cover the widest range of games, targeting a broad audience and requiring only a light learning curve and strategizing. Casual games are low intensity in both time commitment, mechanics and strategizing. Gameplay is intended to be fun and easy to understand for large audience of players, with gaming mechanics usually controlled by a few buttons or a simple tap-and-swipe interface on a mobile phone. Casual games have diverse monetization strategies but are primarily based on a free-to-play model with in-app purchases and in-app ads.
Hardcore games are characterized by their high intensity in terms of time commitment and strategizing. The player base of hardcore games tends to be overwhelmingly male, with games usually targeted at niche markets. Mid-core games take the basic theme and narrative acts of hardcore games, but make them more accessible to a broader audience. Storylines may be easier to follow and gaming mechanics simpler to control. Whereas hardcore games are designed primarily for highly committed gamers who have large amounts of time to dedicate to mastering the game, mid-core games are much less demanding in their appeal. Nevertheless, mid-core games are more immersive and require more hours of game time than casual games, which are specifically designed to be picked up and put down sporadically.
RPG genre
RPG (role-playing game) is a game in which players control a fictional character or characters that undertake a quest in an imaginary world. RPG games often share the following key elements:
| ● | the ability to improve a character over the course of the game by increasing its statistics or levels; |
| ● | a menu-based combat system with several choices of skills, spells and active powers as well as an active inventory system with wearable equipment such as armors and weapons; |
| ● | a central quest that runs throughout the game as a storyline and additional side quests; |
| ● | the ability to interact with elements of the environment or storyline through additional abilities; and |
| ● | the existence of certain character classes that define the characteristics, skills, abilities and spells of the character. |
RPG games exist in different sub-genres: Team Battle RPG, Puzzle RPG, MMORPG (massive multiplayer online role-playing game) and other sub-genres. RPG games are typically characterized by a relatively narrow audience, but much higher player retention and higher payer ratios (conversion of users into payers) and, accordingly, higher relative monetization potential per user compared to casual games.
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According to data.ai, the mobile RPG market amounted to $25.5 billion of in-app purchases spend in 2022, amounting to approximately 31% of the total in-app purchases spend, comprising only 3% of all game downloads.
Competition
We believe the industry in which we operate is characterized by significant competition. Our primary competitors are mobile gaming companies operating in similar sub-genres. With respect to Hero Wars, we define the sub-genre as hero-collection mid-core RPG. With respect to our new title Island Questaway, we define the sub-genre as casual farming adventure game. However, given the global nature of the industry and our main distribution platforms, we essentially compete with a broader set of mobile games and also social and PC-based games. Ultimately, we also compete for the leisure time, attention and discretionary spending of our players against other forms of offline and online entertainment — including social media, OTT video, books and music — on the basis of a number of factors, including quality of player experience, breadth and depth of gameplay, ability to create or license compelling content, brand awareness and reputation and access to distribution channels.
Our games are free-to-play and are predominantly monetized through in-app purchases, therefore we mainly compete on the basis of quality and depth of content, graphics, sophistication of storyline, diversity and creativity of in-game events and promotions, visual effects and other features which enable prolonged user engagement encouraging in-game purchases. Marketing and user acquisition is another key competitive factor in the gaming industry, given that most competitors have access to substantially the same marketing channels, and applying advanced user acquisition techniques and “smart” marketing spend becomes essential to generate a quality user and payer base on a sustainable basis.
Although the barriers to entry in mobile gaming can be considered to be relatively low, barriers to success and achieving critical scale are substantially higher. While the total number of mobile games is in thousands, only a relatively small fraction of those reach the scale that allows them to sustainably compete on a global level. According to data.ai, in 2022 there were only 164 games with global annual consumer spend over $100 million, therefore, a significantly limited number having a scale comparable to ours.
Some of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition, longer operating histories, and greater financial and technical resources. Internationally, local competitors may have greater brand recognition than we do in their home countries and a stronger understanding of local culture and commerce. However, we believe we have proven our ability to successfully compete against both major international gaming companies as well as local players, which is manifested through our strong growth across a large number of geographies in which we compete as well as our expansion into new countries and regions.
Our History
In 2010, our co-founders, Andrey Fadeev and Boris Gertsovskiy, met and decided to join forces, acting through their own companies at that time, to launch an independent gaming studio. We saw the opportunity to develop mobile and social games that could be enjoyed across the globe. The list below provides an overview of key events in our history:
2010 | The Company’s story dates back to 2010 when the future friends and founders of the Company first met. At that time, Andrey Fadeev (co-founder and CEO of Nexters Global) was running Progrestar, a social games development studio, and Boris Gertsovskiy (co-founder of Nexters Global) was shaping his plans on starting a game business. |
2012 | Boris Gertsovskiy became the president of Crazy Bit, a social games development studio. Progrestar and Crazy Bit began their partnership and both teams moved to new offices in the same office center. The studios held regular mutual events and shared best practices. |
2013 | Progrestar released Throne Rush, a strategy game which later became one of the most popular social games on Facebook and VK. Later that year, Throne Rush became a part of the new company’s portfolio. |
2014 | Andrey and Boris decided to combine efforts and continue their gaming business under a new brand: “Nexters.” |
Island Experiment, the Company’s first casual game was released on social networks.
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2016 | The Company began to grow its presence with a new office in Cyprus and launched Hero Wars, an action RPG which became a blockbuster with dozens of millions fans around the world. |
2018 | The Company took a strategic decision to switch its focus on mobile platforms and started scaling mobile versions of its games. |
Igor and Dmitrii Bukhman, founders of Playrix, a global top three mobile gaming company, acquired shares at Nexters Global.
2019 | The Company drove an almost four times growth in Bookings and total install base within a year and was ranked as one of top ten mobile game developer in Europe, based on in-game purchases net of platform fees between January and December 2019, according to data provided by AppMagic. |
2020 | The Company expanded on the international market and became one of the top five independent mobile games developer in Europe (excluding developers owned and controlled by other companies active in the gaming market), based on in-game purchases net of platform fees between January and November 2020, according to data provided by data.ai. |
U.S. share became the largest and exceeded one-third of the Nexter Global’s revenue, while the total install base reached almost 100 million players.
2021 | The Company officially released two new casual games, Chibi Island, a new farm and adventure game and Island Questaway. |
On August 26, 2021, we consummated our business combination with Kismet.
In September 2021, the Company launched its first program under its broader mergers and acquisition strategy, Nexters Boost, to identify and support new or small game makers in their early stages of development and growth.
2022 | In January 2022, the Company entered into agreements to acquire three gaming studios to expand its portfolio of midcore games and enlarge its player base: Cubic Games, the publisher of Pixel Gun 3D, one of the world’s largest mobile first-person shooter (“FPS”) by monthly audience; RJ Games, the publisher of Puzzle Breakers, a puzzle RPG; and Royal Ark, the publisher of the survival RPG titles Dawn of Zombies and Shelter Wars. |
In March 2022, the Company acquired Game Positive, a developer of cross-platform games for mobile and other platforms with three midcore titles in development that would allow the Company to expand into new genres.
In July 2022, we informed the players of Throne Rush that updates of the game will no longer be provided. The game continues to function, and all in-game mechanics continue to operate, but the development of the game has been suspended and game support is working in a limited mode only.
2023 | In June 2023, the Company changed its name from “Nexters Inc.” to “GDEV Inc.” to reflect the Company’s evolution as a holding company focused on the growth of its diversified portfolio of studios and franchises. |
Legal Structure
GDEV Inc. (formerly, Nexters Inc.), “GDEV” of the “Issuer”, is a business company incorporated under the laws of the British Virgin Islands on January 27, 2021. GDEV was formed for the sole purpose of effectuating the Transactions contemplated by the Business Combination Agreement, including the merger of Kismet Acquisition One Corp. (“Kismet”) into the Issuer and the acquisition by the Issuer of all of the issued and outstanding share capital of Nexters Global Ltd. (“Nexters Global”). The Transactions were consummated on August 26, 2021.
Prior to the Transactions, GDEV had no material assets and did not conduct any material activities other than those incidental to its formation and the matters contemplated by the Business Combination Agreement, such as the making of certain required securities law filings. Upon the closing of the Transactions, the Issuer became the direct parent of GDEV Global, a developer of mobile, web, and social games.
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On June 21, 2023, GDEV filed a Certificate of Name Change with the Registrar of Corporate Affairs of the British Virgin Islands to change its name from “Nexters Inc.” to “GDEV Inc.” The name change was effective as of the date of filing of the Certificate of Name Change. The name change reflects the evolution of the Company as a holding company focused on the growth of its diversified portfolio of studios and franchises. GDEV’s ordinary shares and warrants continue to trade on Nasdaq as “GDEV” and “GDEVW”, respectively, under the same CUSIPs and ISIN numbers as prior to the name change.
The principal executive office of GDEV is 55, Griva Digeni, 3101, Limassol, Cyprus, and the telephone number of GDEV is +35722580040. The website address of GDEV is: https://gdev.inc. The information contained on the website does not form a part of, and is not incorporated by reference into, this prospectus.
Below is an overview of the legal structure of the Company and its subsidiaries as of the date of this prospectus.
Our Strengths
Portfolio of strong-performing games with a leading blockbuster mid-core RPG title, Hero Wars.
Our core product offering, Hero Wars, offers a suite of games across mobile and desktop (including social and web-based) platforms and has, since its launch in 2016, evolved into a well-recognized global gaming franchise in the RPG genre, with 3.5 million MAUs across more than 75 countries in 2022. We are one of the top five independent game developers in Europe (excluding developers owned and controlled by other companies active in the gaming market) based on in-game purchases in 2022, net of platform fees, according to data provided by data.ai. In 2022, Hero Wars ranked 10th on Android and 8th on iOS according to the top grossing charts in RPG genre in the United States. In 2021, we launched Island Questaway and in 2022, we acquired Pixel Gun 3D, thus diversifying the genres of games offered to our players and bringing with them a nonoverlapping target audience, art style and monetization models.
While games we offer on mobile represent the core part of our franchise, we offer a suite of games on both mobile and desktop, which allows us to reduce risk of over-dependence on a single platform. The desktop versions of our games enable us to access a wider audience and expand our addressable market. In the first half of 2023, 63% of our Bookings was attributable to mobile and 37% to desktop, compared to 64% mobile and 36% desktop in the first half of 2022. In the year ended December 31, 2022, 63% of our Bookings was attributable to mobile and 37% to desktop, compared to 69% mobile and 31% desktop in 2021.
We believe that the positioning of our games enables us both to enhance content offerings inside the main products as well as to grow into different genres and add adjacent markets such as, among other things, multimedia and merchandize.
Highly diversified global user and revenue base underpinning the quality of earnings.
We have developed a highly diversified customer base and proven ability to adapt and localize our games across regions and countries. Originally launched in Russian, Hero Wars is currently available in twelve languages and in more than 75 countries across the world, including major markets such as the United States, the European Union, Japan and South Korea. Developed markets
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account for the majority of our revenue base, with United States accounting for 36% of our revenue in the first half of 2023 while Europe and Asia accounted for 24% and 25%, respectively, in the same period. In the year ended December 31, 2022, the United States accounted for 33% of our revenue, with Europe and Asia accounting for 21% and 26%, respectively. Such diversification further serves as a protection against currency fluctuations, as well as any adverse country-specific events in terms of consumer behavior, local regulations, access to social networks, and other factors. Our multi-language capabilities, technological edge and proven success across multiple jurisdictions serves as a strong foundation for further expansion in other major markets where we are currently not or underrepresented.
In 2022, we diversified our game offerings into new genres, casual and first-person shooter, and plan to further expand gameplays within our current products as well as work towards new game offerings.
Superior data-driven user acquisition, engagement, and monetization.
Over the last three years, our marketing and user acquisition strategy allowed us to significantly increase our user base and Bookings. As of June 30, 2023, we had a marketing team of approximately 100 professionals (including creative, marketing analytics, user acquisition, and marketing growth) and pursue broad user acquisition strategy across multiple channels, platforms, and social networks (such as YouTube and Facebook) utilizing proprietary user acquisition technology and data-driven decision-making that focuses on getting players directly into the game. We primarily target potential active users and payers with a breakeven period of not more than two years from install. We believe that we have been particularly successful in identifying and attracting a core base of frequent payers in the game who generate superior revenue flow and form loyal and predictable cohorts.
Continuous improvements in game content and focus on customer engagement has allowed us to monetize on the popularity of our games and achieve attractive key performance metrics. In particular, between 2018 and 2021, we achieved thirteen times’ growth in Bookings and as of December 31, 2022, our cumulative all time Bookings crossed the $1.5 billion mark. We benefit from predictable cohorts and a loyal base of core players, which supports our ability to sustain our monetization per user. In the year ended December 31, 2022, cohorts from previous periods accounted for approximately 81.7% of our Bookings for our core product, Hero Wars.
Technology platform built to scale, fueling our content development strategy.
Since our formation over a decade ago, we have developed a sizeable built-to-scale platform, enabling us to streamline content development and offering a value-enhancing opportunity for boosting content offerings in current games as well as creating new content for potential newly launched and acquired games and companies. As of June 30, 2023, we had a team of 436 experienced developers and data scientists (including artists and game designers) as well as 71 specialists covering in-game social network and customer support. We incorporate data-driven decision-making into our entire game development process and use proprietary predictive models to assess the likelihood of success of new product launches and allocate our production team resources to focus on building features to improve the return on our investment in our games. Our strong analytics team is one of the key service functions in the company that not only helps us to determine new opportunities for growth and provides predictions for efficient marketing but also plays an important role in establishing key performance indicators and ultimately allows us to make data-informed decisions. Unlike some of our peers who focus exclusively on mobile segment of the market, our multi-platform capabilities allow us to reach out to a broader target audience and offer a more diversified and sophisticated gaming experience as well as supports ongoing innovation and improvement of game content. Our platform also allows us to release new titles and integrate acquired ones.
For example, in 2022, we entered into agreements to acquire four separate gaming studios to expand our portfolio of midcore games, enlarge our player base and expand into new genres. We plan to further expand gameplays within our current products as well as work towards new game offerings.
Strong potential for profitability and cash flow generation
Our financially sound and cash generative business model has enabled us to achieve sustainable self-funded growth without attracting material external financing since our inception. In particular, between 2018 and 2021, we achieved thirteen times growth in Bookings, with our cumulative all time Bookings having crossed the $1.5 billion mark as of December 31, 2022, while generating $116.1 million and $105.5 million in net cash flows generated from operating activities for the years ended December 31, 2022 and 2021, respectively (though in the first half of 2023, we experienced a net cash outflow of $0.1 million from operating activities, driven
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by substantially increased investments into new players during the period). Our core game offering, Hero Wars, had an average of 263 thousand MPUs for the year ended December 31, 2022 and 345 thousand MPUs for the year ended December 31, 2021, generating an average Monthly Payer Conversion of 7.4% and 6.3%, respectively, over the same periods.
Our consistent revenue generation is underpinned by predictable cohorts and a loyal base of core players. As such in 2022, cohorts from previous periods accounted for approximately 81.7% of our Bookings for our core product, Hero Wars, and the ABPPU for all of our game offerings was $107/month. We view Armenia and Kazakhstan as a cost-advantaged locations for our offices due to the relatively low cost of living and the cost effectiveness of running a technology business that employs high-skilled professionals compared to many developed markets such as the United States or the United Kingdom. A combination of global revenue base and relatively low cost base underpins strong profitability and creates significant operating leverage in our business.
Founder-led management team supported by the complementary expertise of core shareholders.
We were founded by Andrey Fadeev and Boris Gertsovskiy, who have led our Company from its inception to becoming a top five independent mobile game developers in Europe (excluding developers owned and controlled by other companies active in the gaming market), based on in-game purchases net of platform fees for 2022, according to data provided by data.ai. For the six months ended June 30, 2023 and for the years ended December 31, 2022 and 2021, we generated $213.8 million, $449.4 million and $562 million, respectively, in Bookings. As of June 30, 2023, we had 777 employees. As software developers by training, our founders are, among other things, the key architects behind our game development and content strategy. Our core management team has been highly stable and comprises a diverse team of skillful professionals who have proven to be among the best in the industry through the years. We believe our management’s core competencies are well complemented by the strategic relationship with Bukhman brothers, founders of Playrix (a leading global mobile games developer), who acquired a large minority stake in Nexters Global in 2018 and have been instrumental in our industry-leading expertise.
Well-positioned M&A consolidation platform.
We believe we are well placed to selectively pursue potential acquisitions in Europe and potentially other regions. We have an established value creation playbook comprising marketing and a user acquisition toolkit, data-driven approach to monetization, and other services that may allow us to enhance and accelerate the growth of potential acquisition targets.
Accordingly, since being a publicly traded company, we have already entered into agreements to acquire a few gaming studios in the midcore segment, with a view to expanding our portfolio of midcore games and enlarging our player base: Cubic Games, the publisher of Pixel Gun 3D, one of the world’s largest mobile FPS by monthly audience; RJ Games, the publisher of Puzzle Breakers, a puzzle RPG; Royal Ark, the publisher of the survival RPG titles Dawn of Zombies and Shelter Wars; and Game Positive, a developer of cross-platform games for mobile and other platforms with three midcore titles in development.
Our Strategies
Our vision is to become one of the leading global multi-genre gaming companies, both through the continuous organic development and growth investments as well as through selective M&A expansion. To this end, we intend to further build on the success of our Hero Wars platform that has a strong potential to become a “forever franchise,” develop our pipeline of new platforms, and evaluate certain acquisition opportunities.
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Focus on our existing IP, enhancement of our product offering and monetization.
Our strategy is to focus on our core game offerings (i.e., a number of games in which we see high potential) and on continuing building strong brands to expand our target audience and increase their awareness and engagement in our products. We plan to focus on brand awareness and brand recognition for our core game offerings by enhancing our brand advertising, offering new content across our games as well as creating rich and interesting worlds around our existing IPs to attract and retain more dedicated and engaged users.
We believe that through our data-driven game development approach, our experience in building LiveOps at scale, continued introduction of new game mechanics and new content across all of our game titles, augmented by our user acquisition model, we can continue to attract new players into our existing as well as new games and sustain monetization of our players. We plan to continue improving current monetization models as well as adding new ones with a view to increasing the lifetime value of our players.
In addition, under each IP, we plan to build portfolios of complementary games having a common identity to offer the best fit and to maximize value for each player. Furthermore, we plan to offer non-gaming products to create more value for existing players and touch points for potential new target audiences.
Improve and expand available traffic channels to effectively acquire paying users and expand our target audience.
While we distribute our games through a diversified suite of platforms and use a broad variety of channels to attract the players, we will be flexibly adapting to market conditions and re-directing our marketing budgets to channels and platforms that offer the most attractive LTV/CAC (Customer Lifetime Value to Customer Acquisition Cost) returns profile in any specific period. We intend to continue to seek new opportunities to enhance and refine our marketing efforts to acquire users, including identifying potential technologies to enhance our marketing and advertising capabilities.
We plan to continue restructuring our marketing and product development departments to enhance their cooperation in creation of game content and marketing of our titles with a view to utilizing best initiatives in each sphere for both reducing our costs associated with players and increasing their lifetime value.
Expand into new geographies, with particular focus on Asian markets.
While we plan to grow our user and payer base across substantially all geographies in which we currently operate, we, in particular, plan to expand our footprint in Asia. We believe successful localization of our Hero Wars franchise and marketing activities in such countries as Japan, Taiwan and Korea has provided a solid foundation for expansion in the region as we managed to build substantial scale to date and aim to further extend our footprint in this region. We have managed to create a well-diversified geographical portfolio, with Asia reaching 26% of our total Bookings for the year ended December 31, 2022, compared to 25% for the year ended December 31, 2021.
Build on selective M&A opportunities.
We intend to evaluate certain acquisition opportunities primarily targeting the wide pool of independent studios across Europe. We plan to capitalize on our competitive advantages as a potential acquirer due to our ability to offer U.S.-listed equity as acquisition currency, provide complementary operating and financial expertise, as well as ample synergetic effects.
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We intend to primarily target games that are complementary to our existing IP to enhance our existing portfolio while being able to extract synergies and apply our value creation playbook comprising marketing and user acquisition competences as well as a data-driven approach to title selection and monetization. Our integration strategy with respect to potential targets envisages granting autonomy to the incumbent management teams in content development combined with providing extensive support in financing, marketing, data analytics and knowledge sharing, enabling targets to focus on building great games, while maximizing ROI.
Since being a publicly traded company, we have already entered into agreements to acquire four gaming studios in the midcore segment, with a view to expanding our portfolio of midcore games and enlarging our player base.
Attracting best-in-class talent.
Throughout our history, we have focused considerable time and resources on building a team with diverse experience and backgrounds and a positive inclusive business culture, which has been an integral part of our success. We will continue to place significant emphasis on attracting talented developers and managers from across the world. We believe our global business franchise and attractively located headquarters and development hub in Cyprus serve as a strong attraction and makes us an attractive employer for experienced professionals in the region.
Description of Our Principal Business Activities
We build mobile, web, and social games for millions of players to enjoy globally. We are one of the top five independent game developers in Europe (excluding developers owned and controlled by other companies active in the gaming market) based on in-game purchases for 2022, net of platform fees, according to data provided by data.ai. Our portfolio includes three games that we actively manage. Our portfolio includes casual, RPG and FPS (through acquisition of Cubic Games’ Pixel Gun 3D), which are all distributed through mobile, social, and web-based platforms and are free to play, generating revenue through in app purchases and advertising. We frequently introduce new features, offers, and content, including quests, rewards, challenges, player vs. player (“PvP”) competitions, customizations, and promotions that enhance the overall player experience.
Game Portfolio
Our core game offering is Hero Wars, which was downloaded 16.3 million times in 2022 on iOS and Android and has an average rating of 4.4 among users. Island Questaway was soft launched in November 2021 and has new registered users of 4 million in 2022. Through our acquisitions in January 2022, we added Pixel Gun 3D and Block City Wars to our portfolio of gaming titles.
As of and for the six months ended June 30, 2023, we generated $213.8 million in Bookings, 90% of which were attributable to Hero Wars and 10% attributable to our other titles.
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We plan to further expand gameplays within our current products as well as work on new offerings.
Hero Wars
Genre: | RPG | |
Launch: | 2016 | |
Rating4: | 4.4/5 | |
DAUs (in thousands)5: | 711 | |
MAUs (in millions)6: | 3.5 | |
MPUs (in thousands)7: | 263 | |
Monthly Payer Conversion8: | 7.4% | |
ABPPU9: | $131.9/month ($164 /month | |
from the web platform) |
4 | Rating for current version in the United States’ Apple App Store and Google Play Store as of June 30, 2023. |
5 | Determined as of December 31, 2022. For a definition of DAUs, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key performance metrics — Daily Active Users.” |
6 | Determined as of December 31, 2022. For a definition of MAUs, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key performance metrics — Monthly Active Users.” |
7 | Determined as of December 31, 2022. For a definition of MPUs, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key performance metrics — Monthly Paying Users.” |
8 | Determined as of December 31, 2022. For a definition of monthly payer conversion, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key performance metrics — Monthly Payer Conversion.” |
9 | Determined as of December 31, 2022. For a definition of ABPPU, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key performance metrics — Average Bookings Per Paying User. |
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Launched in 2016, Hero Wars is our blockbuster mid-core multi-platform RPG. It is an adventure game, where players start with a single hero and progress through the game by collecting new heroes, battling enemies, powering up heroes, unlocking skills and training their hero pack. The game allows players to fight epic multiplayer PvP battles against enemies, characters and bosses for power, rewards, or rare items. Players are able to purchase virtual items, including boosts and other items within the game to further their progression and unlock more virtual rewards. In 2022, Hero Wars was in the top 100 grossing worldwide mobile app, according to data provided by AppMagic. For the year ended December 31, 2022, we generated $116.1 million in net cash flows generated from operating activities, with Hero Wars being the major contributor.
For the year ended December 31, 2022, Hero Wars generated $432.9 million in Bookings, representing a decline of 22% in comparison to its Bookings in 2021 due to overall negative trend in the gaming market in 2022. The following graphic illustrates the split of our Hero Wars Bookings by geography in 2022.
Other — Includes Bookings not allocated to any specific geography.
By distribution platform for the year ended December 31, 2022, 63% of our Bookings were generated from mobile (representing a 4% decrease in the portion of our total Bookings attributable to mobile compared to the previous year, resulting from a shift towards desktop), 37% from desktop (including social and web) (representing a 4% increase compared to the previous year, resulting from shift towards desktop).
For the year ended December 31, 2022, Hero Wars had DAUs of 711 thousand (representing a decline of 25% over the previous year), with 57% on mobile and 43% on desktop (including social and web), and MAUs of 3.5 million. Hero Wars’ MPUs were 263 thousand for
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the year ended December 31, 2022 (representing decline of 24% over the previous year). The ABPPU was $131.9/month for the year ended December 31, 2022 (representing a slight increase compared to $127.4/month in 2021).
We adjust the gameplay, the user interface, difficulty levels and the available in-game items and features depending on the platform on which our games are distributed in accordance with A/B test results (which tests users’ responses to variant A versus variant B, and concluding which of the two variants is more effective), other analytical data, user surveys and our understanding of user preference per platform. Accordingly, the versions of Hero Wars distributed through the mobile platforms Apple App Store, Google Play and Huawei are similarly configured, whereas the versions of Hero Wars distributed through web and social networks differ substantially from the mobile versions. We are continuously adjusting Hero Wars for both platforms, taking into account different marketing strategies and different user behavior. For example, paying web players tend to spend more money and time in game, due in part to less competition among web-based games as well as the fact that the game can stay idle on PCs and laptops. By contrast, competition is high in mobile games and time in game is restricted by user screen time. As a result, we build and continuously develop the web-based Hero Wars as a separate product with deeper monetization mechanics and separate marketing instruments, and allocate separate teams to its development. Correspondingly, in mid-2023, we conducted a soft rebranding of Hero Wars with the names of the mobile and PC browser versions of the game being changed to “Hero Wars: Alliance” and “Hero Wars: Dominion Era”, respectively. The rebranding is designed to differentiate the two versions of the game and create a more distinct identity for each version in the future.
Island Questaway
Genre: | Farming game with puzzles |
Launch: | 2021 (Android and iOS) |
Rating10: | 4.2/5 on Google Play and 4.6/5 on the Apple App Store |
Launched in 2021, Island Questaway is a new, important expansion of GDEV’s portfolio into casual gaming. Island Questaway offers fresh and unique gameplay through a blend of different genres with a farming game that features an engaging storyline as well as a variety of puzzles to solve for an exciting, fun gaming experience.
10 | Rating for current version in the United States’ Apple App Store and Google Play Store as of June 30, 2023. |
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Pixel Gun 3D
Genre: | First-person shooter |
Launch: | 2013 (iOS); 2014 (Android, Amazon), 2020 (Huawei) |
Rating11: | 4.2/5 on Google Play and 4.7/5 on the Apple App Store |
Acquired in 2022, Pixel Gun 3D is one of the world’s largest mobile first-person shooter by monthly audience with more than 180 million cumulative downloads. Pixel Gun 3D is an online action battle royale game with a large player base. Pixel Gun 3D offers multiple modes in which players pit themselves against real opponents online.
Block City Wars
Genre: | Action, adventure, simulation |
Launch: | 2014 (Android and iOS); 2015 (Amazon) |
Rating12: | 4.0/5 on Google Play and 4.2/5 on the Apple App Store |
Acquired in 2022, Block City Wars is a legacy title of Gracevale Ltd. with more than 50 million cumulative downloads. Block City Wars is a multiplayer shooter, which offers gamers an open world map with the ability to compete with other players, drive cars and choose guns among an arsenal of weapons.
Monetization
Our games are based on the free-to-play monetization model, whereby we generate revenues through in-game purchases (the sale of virtual goods within the game) and in-game advertising. We strive to enhance our games by offering players the option to accelerate their progress and deepen the gaming experience through in-game purchases. As of and for the six months ended June 30, 2023, we generated $213.8 million in Bookings, 90% of which were attributable to Hero Wars and 10% attributable to our other titles and newly acquired ones. As of and for the year ended December 31, 2022, we generated $449.4 million in Bookings, 96% of which were attributable to Hero Wars and 4% attributable to our other titles and newly acquired ones.
11 | Rating for current version in the United States’ Apple App Store and Google Play Store as of June 30, 2023. |
12 | Rating for current version in the United States’ Apple App Store and Google Play Store as of June 30, 2023. |
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Virtual goods are a fundamental part of free-to-play monetization. We aim to maximize the revenue potential of our games by using various monetization models and designing a range of virtual goods that our players value. Our games offer many in-game purchase options, which include, for example, the following:
| ● | In-game currencies: users can purchase in-game currencies (various types of coins, stones, etc.) that are used for purchasing different items within the games. |
| ● | Virtual goods: users can purchase in-game items that enhance various game attributes or accelerate progress. Virtual goods can broadly be divided into consumable and durable items. Consumable virtual items can be consumed by a specific player action. Durable virtual items are accessible to the player over an extended period of time or can be exchanged or used for obtaining different items or levels in the games. |
Advertising
In addition to in-game purchases, we monetize our games through in-game advertising, including special offers and rewarded ads. In-game advertising enables monetization of users who are not spending on in-game purchases and provides extra value for players through special offers without cannibalizing in-game payments. Special offers enable users to acquire virtual goods without paying cash but instead by taking specified actions, such as downloading other applications, watching a short video, subscribing to a service or completing a survey. We work with third parties to provide these special offers and receive a payment from the third-party offer provider based on the response of our players to these offers. We also work with third-party advertising aggregators that embed advertising. The aggregators typically pay us a fee based on the number of impressions, which is the number of times an advertisement is shown to a player.
Distribution Platforms
We offer our games across mobile, social, and web platforms. For the six months ended June 30, 2023 as well as the year ended December 31, 2022, 63% of our Bookings were generated from mobile and 37% from desktop (including social and web-based).
Our mobile gaming offering is split between two operating systems: Apple iOS, with games distributed in the Apple App Store and Google Android, with games distributed mainly in Google Play. We also distribute our offering through social media channels, primarily Facebook. Players discover games within the distribution platforms by searching games using the built-in search tools, browsing the top charts, trending downloads, and various other category lists, and by using other marketplace features. There are also various built-in promotional campaign placements within each marketplace. We strive to maintain good relationships with each marketplace to access this high-visibility promotional inventory. Ultimately, internal decision-making between the marketplace stakeholders determines which games are featured in these placements and the various other promotional categories. In addition to serving as distribution platforms, the online marketplaces offer integrated payment systems that allow users to make recurring in-game purchases, using a reliable trusted infrastructure. As at the date of this prospectus, the distribution platforms charge us commissions which vary by platform and by country. Our platform commissions were 25.8%, 28% and 29% of revenues earned through in-game purchases for the six months ended June 30, 2023 and for the years ended December 31, 2022 and 2021, respectively.
Our web-based gaming offering is distributed through our own platforms, where we rely on Xsolla, a third-party online payment service provider, to process any payments generated in games accessed through our website. Previously, we had licensed Savva Vangelina to distribute Puzzle Island, the development-stage predecessor of Island Questaway, via their platform and we received licensing revenue from such distribution. With the soft launch of Island Questaway in November 2021, we terminated the licensing agreement with Savva Vangelina.
Technology
We have invested in developing our technology stack to support the growth of our business. We operate on a cloud-based technology platform, which we believe is sufficiently scalable, flexible and stable to handle our scale of operations. Our platform has the ability to handle millions of users accessing our games each month with sufficient levels of performance and reliability. For the years ended December 31, 2022 and December 31, 2021 our average MAU was 7.6 million and 5.9 million, respectively.
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Our architecture is designed for high availability and fault tolerance while accommodating the demands of social game play. We have developed our architecture to work effectively in a flexible cloud environment that has a high degree of elasticity, providing our developers with standardized tools and technologies that enable collaboration and focus on crafting the games.
Our analytics infrastructure is key to the development and improvement of our product offering. Our analytics team collects and stores user data in all stages of game development and in live operations. We regularly conduct quantitative and qualitative research about social interactions that helps us produce better social experiences. We have developed survey and experimentation systems that allow us to collect direct feedback from our players, and we use that feedback to improve our games.
Analytics
We have invested in building a strong analytical infrastructure, which we use to back up our product and investment decisions. We use aggregated behavioral data to create new product features and events, to assess new product launches and to forecast our marketing spending. We use analytics to conduct and process A/B tests, play tests and user surveys. We then apply the collected quantitative and qualitative data to improve our existing products. Additionally, we use modelling to forecast cohort paying behavior for marketing activities and product updates.
Research and Development
We are focused on continuing to implement and enhance features that keep games fresh and increase user engagement, including in-game virtual items, providing engaging new game themes, motifs, challenges and in-game missions. We serve these features to our users based on their preferences and the optimal timing during each player’s gameplay.
Throughout the lifecycle of our games, we dedicate substantial operational resources and team members to support a constant cadence of novel content and feature creation that drives conversion and continued monetization. Our research and development team has extensive expertise in creating new content and gameplay features as well as tools and systems to enable the efficient design, development and implementation of new content and features.
We develop and produce our own titles using a development process in which a group of creative, production, and technical professionals collaborate. Our new game development is governed by four key stages: prototype, test launch, soft launch, and core game release. Quality assurance personnel are involved throughout the development and production of published content and our games are subject to extensive testing before public release to assure compatibility with appropriate hardware systems and configurations and to minimize the number of bugs and other defects found in the products. We are responsible for the entire development and production process. As of June 30, 2023, we had a team of 436 experienced developers and data scientists (including artists and game designers) as well as 71 specialists covering in-game social network and customer support.
Intellectual Property
We consider our intellectual property rights, including our trademarks, copyrights and trade secrets, to be, in the aggregate, material to our business. We endeavor to protect our investment in our intellectual property by seeking to protect it in the key jurisdictions where we do business. When appropriate, we seek to obtain trademark protection by registering trademarks for the names and designs under which we market and license our games. As of June 30, 2023, we owned 16 trademarks that have been registered in United States and 23 trademarks that have been registered or applied for in jurisdictions outside of the United States. These trademark registrations include “Nexters,” “Hero Wars,” “Pixel Gun 3D” and “Block City Wars.” We also own registrations for the internet domains for our websites. Additionally, many aspects of our games, including feature elements such as game characters, are subject to copyright protection. Further, we own trade secrets relating to our games and the software and technology that we use to operate those games and our business.
In addition to the intellectual property that we own, we license certain intellectual property from third parties. In particular, we license certain intellectual property rights from third parties related to the operations of our business, including those needed to develop our own intellectual property and non-exclusive licenses with respect to the use of certain intellectual property rights of the platforms on which our games are offered.
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We believe the value associated with our brands contributes to the appeal and success of our games, and our future ability to develop, acquire or license new brand names of similar quality, and to protect those brands, is important to our continued success. Therefore, we continue to invest in the recognition and protection of our brands.
For risks related to our intellectual property, see “Risk Factors — Risks Related to the Company’s Intellectual Property.”
Marketing
We believe that our success stems from a deep understanding of the key aspects of data-based marketing strategies applicable to our industry, including how to measure successful user acquisition as it relates to mobile, social and web games, where to allocate marketing spend, how to optimize media buying budgets, and how to design ads that attract users who are likely to install and play our games.
We develop tailored monetization and retention strategies for different parts of our users’ lifecycles, including before they become paying users, after they become paying users, and for users who become inactive. We operate a centralized marketing team that performs key marketing and user acquisition functions. As of June 30, 2023, we had approximately 100 marketing employees (including creative, marketing analytics, user acquisition, and marketing growth).
Government Regulation
We are subject to various international laws and regulations that apply to companies operating online, including over the internet and mobile platforms, such as those relating to privacy, data security, consumer protection, protection of minors, advertising and marketing, intellectual property, competition, and taxation, among others, all of which are continuously evolving and developing. As we offer our games in more countries worldwide, foreign jurisdictions may claim we are required to comply with local laws, including in jurisdictions where we have no local presence, offices, or other equipment. It is also likely that as our business grows and evolves and our games are played in a greater number of countries, we will become subject to laws and regulations in additional jurisdictions. The scope and interpretation of the laws and regulations that are or may be applicable to us are often uncertain and may conflict. Additional laws in these and other areas affecting our business are likely to be enacted in the future, which could limit or require changes to the ways in which we conduct our business, and could both increase our compliance costs and decrease our revenues.
The widespread implementation of in-game purchases of virtual items in our industry has resulted in the expanded application of existing laws or regulations and has prompted calls for new laws and regulations to address the perceived problems with these virtual items. Calls for legislation have been fueled by complaints from parents whose children have incurred sizeable charges online purchasing virtual items such as “lives” or “power-ups” in order to continue to play or further advance in games advertised as being “free to play.” This may result in legislation affecting how we advertise, operate, and earn revenues within our games.
There has been considerable focus on in-game offers to purchase virtual goods or premiums with real world currency (or with virtual in-game currency that can be purchased with real world currency) for which the player doesn’t know prior to purchase the specific digital goods or premiums they will be receiving (sometimes referred to as loot boxes, crates, or mystery prizes). In some of our games, certain mechanics may be deemed to be loot boxes, including instances where players can receive items from a predetermined list or purchase items (such as chests) on a random basis. In certain academic, political and regulatory discussions, these features have been compared to gambling because users are providing something of value for the chance to win a prize, with a large number of prizes having relatively modest value or utility and fewer having significant value or utility. The U.S. Federal Trade Commission (the “FTC”), held a public workshop on loot boxes in August 2019, and at least one bill has been introduced in the U.S. Senate that would regulate loot boxes in games marketed to minors. Belgium has imposed an effective ban on loot boxes in video games which are purchasable with real world currency, and loot boxes remain under legislative scrutiny in other European jurisdictions, including the Netherlands, Spain and Finland, and a number of European consumer groups are advocating for tighter restrictions on the use of paid-for loot boxes. In January 2023, the European Parliament adopted a report calling on the European Commission to enhance controls on loot boxes. Following a two-year enquiry, the UK government called for the industry to self-regulate more effectively; a technical working group was convened to pursue enhanced industry-led measures to improve consumer protections and is expected to publish recommendations in 2023. China has applied stringent requirements and limitations on online game operations and has been developing and tightening the regulations on the offering of loot boxes in recent years, including, among other things, that loot boxes cannot be acquired with direct investment of real money or virtual currency, that all items available in loot boxes must be obtainable through other means or be provided with items of the same features obtainable through
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other means, and the odds of winning must be published. Japan has implemented a self-regulatory approach to loot boxes. The use of loot boxes in computer games is currently unregulated in Australia but a private members’ bill has been tabled in the Australian Parliament in 2022 proposing that computer games containing loot boxes be restricted to players over the age of 18. The outcome of many of these initiatives is not yet known, but we anticipate there may be legislation forthcoming in at least some of these jurisdictions that could affect how we offer these features. See “Risk Factors — Risks Related to the Company’s Business and Operations — Changes to digital platforms’ rules, including those relating to “loot boxes,” or the potential adoption of regulations or legislation impacting loot boxes, could require us to make changes to some of our games’ economies or design, which could negatively impact the monetization of these games, thereby reducing our revenues.”
Data Privacy and Security
As a BVI incorporated and Cypriot headquartered company with users around the globe, we collect, process, store, use, and share data, some of which contains personal information, in connection with operating our business. Consequently, our business is subject to a number of European Economic Area and international laws and regulations governing data privacy and security, including with respect to the collection, processing, storage, use, transmission, sharing, and protection of personal information and other consumer data, as well as applicable BVI data protection laws. Such laws and regulations may be inconsistent across jurisdictions or conflict with other rules. The applicability of these laws and regulations to us, and their scope and interpretation, are often uncertain, particularly with respect to laws and regulations outside the United States. In addition, the scope of data privacy regulations worldwide continues to evolve. Many jurisdictions in which we operate have seen the adoption of data localization and protection laws that prohibit the collection of certain personal information through servers located outside of the respective jurisdictions. It is also likely that as our business grows and evolves and our games are played in a greater number of countries, we will become subject to additional data privacy, data protection, cybersecurity, and consumer protection laws and regulations in additional jurisdictions. Violation of these laws by an operator may result in fines, suspension of activities or license revocation. See “Risk Factors — Risks Related to the Company’s Information Technology and Data Security — Data privacy and security laws and regulations, and related guidance and standards, in the jurisdictions in which we do business could increase the cost of our operations and subject us to possible sanctions, civil lawsuits (including class action or similar representative lawsuits) and other penalties; such laws and regulations are continually evolving. Our or our platform and service providers’ actual or perceived failure to comply with these laws and regulations could harm our business.”
For example, in the United States at the state level, California passed the California Consumer Privacy Act (the “CCPA”) which became enforceable by the California Attorney General in 2020, along with related regulations, which together imposed additional data protection obligations on covered businesses. Additionally, California also passed the California Privacy Rights Act (the “CPRA”), which entered into effect on January 1, 2023. The CPRA significantly modifies the CCPA, including adding new privacy rights and creating a new enforcement agency, the California Privacy Protection Agency. Effective January 1, 2023, personal information collected about California residents acting in the context of a business-to-business contact or as an employee also now fully within scope of the CCPA.
The CCPA has encouraged other new state data privacy laws, such as the Virginia Consumer Data Protection Act (“VCDPA”), the Colorado Privacy Act (“CPA”) and Connecticut Data Privacy Act (“CTDPA”), and the Utah Consumer Privacy Act (“UCPA”), which go into effect in 2023 and similarly introduce new privacy rights and impose new obligations on businesses. More generally, these laws are part of a trend toward more stringent U.S. privacy legislation. We cannot fully predict the impact of these laws, or subsequent guidance, regulations or rules on our business or operations, including those that are still in draft form, but they may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material adverse effect on our business, including how we use personal information, our financial condition, and the results of our operations or prospects.
Outside of the United States, many countries have also adopted comprehensive data protection and security laws. In the BVI we are subject to the Data Protection Act, 2021 (the “BVI DPA”) The DPA establishes a framework of rights and duties designed to safeguard individuals’ personal data, balanced against the need of public authorities, businesses and organizations to collect and use personal data for lawful purposes. The BVI DPA is centered around seven data protection principles (the General Principle, the Notice and Choice Principle, the Disclosure Principle, the Security Principle, the Retention Principle, the Data Integrity Principle and the Access Principle). The BVI DPA is however based on the original UK Data Protection Act 1998 and therefore less comprehensive than the GDPR (defined below) and U.K. GDPR (defined below) to which we are also subject.
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In the European Economic Area (the “EEA”), we are subject to the EU General Data Protection Regulation 2016/679 (the “GDPR”), which became effective in May 2018. Further, following the withdrawal of the United Kingdom from the European Union and the expiry of the transition period, from January 1, 2021, we have had to comply with the GDPR as implemented in the United Kingdom, which together with the amended United Kingdom Data Protection Act 2018 (together, the “U.K. GDPR”), retains in large part the GDPR in United Kingdom national law. The GDPR and the U.K. GDPR (collectively, the “Applicable Data Protection Laws”) impose comprehensive data privacy compliance obligations on controllers and processors of personal data in the EEA and the United Kingdom, including, for example, specific standards for obtaining consent from individuals to process their personal data, robust disclosures to individuals and a comprehensive individual data rights regime, and defined timelines for data breach notifications. The Applicable Data Protection Laws create compliance obligations applicable to our business and some of our players, which can be uncertain given rapidly developing guidance and case law, and could change our business practices, expose us to significant reputational damage, regulatory enforcement actions or assessment notices (for a compulsory audit), orders to cease/ change our data processing activities, and/ or civil lawsuits (including class action or similar representative lawsuits) by consumers or consumer organizations, amongst others, for alleged breach of data protection laws. The Applicable Data Protection Laws include financial penalties for noncompliance including possible fines of up to the greater of 4% of global annual revenues for the preceding financial year or €20 million, or £17.5 million in the United Kingdom, for the most serious violations. Many large geographies in which we operate, including Australia, Brazil, Canada and India, have passed or are in the process of passing comparable or other robust data privacy legislation or regulation, which may lead to additional costs and increase our overall risk exposure.
We are also subject to EU and UK rules with respect to cross-border transfers of personal data out of the EEA and the UK, respectively, and recent legal developments and guidance have created complexity and uncertainty regarding such transfers to other countries, in particular in relation to transfers to the United States. In July 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-US Privacy Shield. The CJEU further noted that reliance on the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the Privacy Shield) alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. Following the CJEU’s ruling, there has been increased regulatory action in this area. For example, the Irish regulator has issued a draft decision requiring Meta to suspend the transfer of personal data from the EU to the United States, and the Austrian, French, Italian and Danish data protection authorities have indicated in recent rulings that use of Google Analytics by European website operators involves the unlawful transfer of personal data to the United States. A similar ruling was also recently handed down by the European Data Protection Supervisor in respect of the use of Google Analytics by the European Parliament. The Danish regulator has also issued a similar decision in respect of Google Chromebooks. We currently rely on the standard contractual clauses to transfer personal information outside the EEA and the UK, including to the United States, with respect to both intragroup and third party transfers. As the enforcement landscape further develops, and supervisory authorities issue further decisions and guidance on personal information export mechanisms, we could suffer additional costs, complaints and/or regulatory investigations or fines, we may have to stop using certain tools and vendors and make other operational changes, we have had to and will have to implement revised standard contractual clauses for existing intragroup, customer and vendor arrangements within required time frames, and/or if we are otherwise unable to transfer personal information between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could materially adversely affect our business, results of operations and financial condition. Our business also increasingly relies on machine learning, artificial intelligence and automated decision making to improve our services and tailor our interactions with our customers. However, in recent years use of these methods has come under increased regulatory scrutiny. New laws, guidance and/or decisions in this area may limit our ability to use our machine learning and artificial intelligence, or require us to make changes to our platform or operations that may decrease our operational efficiency, result in an increase to operating costs and/or hinder our ability to improve our services. For example, there are specific rules on the use of automated decision making under the GDPR that require the existence of automated decision making to be disclosed to the data subject with a meaningful explanation of the logic used in such decision making in certain circumstances, and safeguards must be implemented to safeguard individual rights, including the right to obtain human intervention and to contest any decision. Equally, the regulatory framework around the development and use of machine learning, artificial intelligence and automated decision making is evolving. In Europe, on April 21, 2021, the European Commission proposed a Regulation seeking to establish a comprehensive, risk-based governance framework for artificial intelligence in the EU market. The proposal is intended to apply to companies that develop, use and/ or provide artificial intelligence in the EU and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security and accuracy, and proposes fines for breach of up to 6% of worldwide annual turnover. In addition, on September 28, 2022, the European Commission proposed two Directives seeking to establish a harmonized civil liability regime for artificial intelligence in the EU, in order to facilitate civil claims in respect of harm caused by artificial intelligence and to include artificial intelligence-enabled products within the scope of the EU’s existing strict liability regime. If enacted, this regulatory framework is expected to have a material impact
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on the way artificial intelligence is regulated in the EU, and together with developing guidance and/ or decisions in this area, may affect our use of artificial intelligence and our ability to provide and to improve our services, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations and financial condition.
We are also subject to evolving EU and UK privacy laws on cookies, tracking technologies and e-marketing. Recent European court and regulator decisions are driving increased attention to cookies and similar tracking technologies. In the EU and UK, informed consent is required for the placement of certain cookies or similar tracking technologies on an individual’s device and for direct electronic marketing. Consent is tightly defined and includes a prohibition on pre-checked consents and a requirement to obtain separate consents for each type of cookie or similar technology.
All of the above factors, again, introduce the possibility we will be subject to, and required to comply with, a separate and additional legal regime with respect to data privacy, which may result in substantial costs and may necessitate changes to our business practices. See “Risk Factors—Risks Related to the Company’s Information Technology and Data Security—Our business could be adversely impacted by changes relating to electronic marketing or the restriction of the use of third-party cookies and similar tracking technologies.”
Facilities
As of the date of this prospectus, we lease eight offices, five located in Cyprus and three in Armenia. We believe our existing facilities are sufficient for our current needs. We may add new facilities and expand our existing facilities as we add employees and expand into new locations. We believe suitable additional space will be available as needed to accommodate our needs.
Employees
As of June 30, 2023, we had 777 employees, of whom 287 were women, with 321 employees in Cyprus and 456 employees in Armenia, Kazakhstan and certain other countries. None of our employees are represented by a labor union or party to a collective bargaining agreement. We have never experienced any work stoppages or strikes as a result of labor disputes. We consider our relationship with our employees to be good. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and prospective employees. The principal purposes of our incentive plans are to attract, retain and motivate selected employees, executive officers and directors through the granting of stock-based compensation awards and cash-based performance bonus awards.
Legal Proceedings
From time to time, we are subject to various claims, complaints and legal actions in the normal course of business. On the basis of current information, we do not expect that the actual claims, lawsuits and other proceedings to which we are subject, or potential claims, lawsuits and other proceedings relating to matters of which we are aware, will ultimately have a material adverse effect on our results of operations, financial condition or liquidity. However, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular periods.
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BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT
The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this prospectus:
Name |
| Age |
| Title |
|
Andrey Fadeev | 37 | Chief Executive Officer, Co-Founder and Director | |||
Alexander Karavaev | 48 | Chief Financial Officer | |||
Anton Reinhold | 37 | Chief Operating Officer | |||
Natasha Braginsky Mounier | 54 | Director (Chairperson) | |||
Igor Bukhman | 41 | Director | |||
Marie Holive | 46 | Director | |||
Olga Loskutova | 46 | Director | |||
Andrew Sheppard | 46 | Director | |||
Tal Shoham | 39 | Director |
Executive Officers
Andrey Fadeev. Mr. Fadeev has served as GDEV’s chief executive officer and as a member of GDEV’s board of directors since August 2021. Mr. Fadeev is a co-founder of Nexters Global. Mr. Fadeev was the chief executive officer of Progrestar, a company specializing in the development of online games for social networks. Mr. Fadeev graduated Moscow State Technical University of N.E. Bauman with specialty “Automated Information Processing and Management”. We believe that Mr. Fadeev is qualified to serve as a member of our board of directors due to the perspective and experience he brings as our chief executive officer and as a co-founder of Nexters Global and his online and mobile gaming industry knowledge and experience.
Alexander Karavaev. Mr. Karavaev has served as chief financial officer of GDEV since August 2021. From 2019 to 2020, Mr. Karavaev served as a member of the board of directors of QIWI Group, a leading payment company in Russia and the CIS. From 2012 to May 2019, Mr. Karavaev was the Chief Financial Officer of QIWI Group. In December 2020 and January 2021, class action lawsuits were filed against QIWI plc and certain of its current and former officers in the United States District Court for the Eastern District of New York. The complaints allege that QIWI plc made material false or misleading statements and omissions regarding its business, operational and compliance policies in its annual report filed on Form 20-F for the years ended December 31, 2019 and 2018. Plaintiffs have sought to consolidate the cases into one proceeding, and seek an award of unspecified damages, prejudgment and post-judgment interest, as well as reasonable attorneys’ fees, and other costs. QIWI plc and certain of its current and former officers are defending rigorously against these allegations. Prior to the Company, Mr. Karavaev was also the managing director of GK Samolet, a leading residential real estate development holding in Russia in 2019. From 2008 to 2011, Mr. Karavaev served as chief financial officer for Mail.ru Group Limited, a leading internet company in Russia and the CIS and Akado, a leading broadband and pay-TV operator. From 2003 to 2007, Mr. Karavaev served as deputy chief financial officer for Renova Holding and SUAL Holding. Mr. Karavaev worked at Andersen and Ernst & Young from 1997 to 2003. Mr. Karavaev holds a degree in economics from the Siberian Aerospace Academy.
Anton Reinhold. Dr. Reinhold has served as GDEV’s chief operating officer since August 2021. Dr. Reinhold served as chief business development officer and chief marketing officer of Nexters Global since November 2013. From March 2013 to November 2013, Dr. Reinhold served as chief marketing officer at Lingualeo, at the time a leading language learning startup startup in Russia. From 2012 to 2013, Dr. Reinhold served as demand generation lead at Comindware, a B2B startup for workflow management software. From 2007 to 2012, Dr. Reinhold served as head of online consumer sales in Acronis International GmbH, a global backup & recovery software development company. Dr Reinhold holds a Ph.D. degree from Russian State University for the Humanities (Moscow).
Directors
Natasha Braginsky Mounier. Ms. Braginsky Mounier has served as a member of GDEV’s board of directors since August 2021 and as Chairperson of the board of directors since September 2022. Natasha Braginsky Mounier is a retired partner from Capital Group, where she was investing in international equities for nearly 20 years and was the first ESG director. Earlier in her career, Natasha was an investment banker at JP Morgan and an associate at The Blackstone Group. Natasha is a native of Kyiv, Ukraine, is a
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Russian speaker and is also fluent in English and French. She graduated from Georgetown University School of Foreign Service and Harvard Business School. Currently, she is non-executive director at Aradei Capital, in addition to being Senior Fellow at FCLT Global and a trustee at Girls Are INvestors. Natasha is based in London.
Igor Bukhman. Mr. Bukhman has served as a member of GDEV’s board of directors since April 2023, having previously served as a member of GDEV’s board of directors from August 2021 to August 2022. Mr. Bukhman is the co-founder and member of the board of directors of Playrix, a developer and distributor of mobile video games. Between 2018 and 2019, Mr. Bukhman was an advisor for Everest Greenlight Advisors Ltd., a consulting company headquartered in Israel. Mr. Bukhman is the ultimate beneficial owner of Rimute Holdings Limited and Everix Investments Limited, both of which are affiliates of the Company. Mr. Bukhman holds a specialist degree in Applied Mathematics and Computer Science from Vologda State Pedagogical University. We believe that Mr. Bukhman is qualified to serve as a member of our board of directors due to the perspective and experience he brings as a co-founder of Playrix and his mobile gaming industry knowledge and experience.
Marie Holive. Mrs. Holive has served as a member of GDEV’s board of directors since August 2022. Mrs. Holive has over 20 years of finance and audit expertise in the media, technology, healthcare and energy industries, including senior audit manager, chief financial officer and managing director roles. Previous employers include General Electric and NBCUniversal Media. Mrs. Holive is currently a coach and mentor at the Institute of Chartered Accountants of England and Wales, the INSEAD Business School and the London Business School. She also serves as an independent non-executive director at CentralNic Group plc (a software company), where she is chair of the audit committee and a member of the remuneration committee, as well as Senior Advisor at Proteus International Inc. (a strategy consulting firm). Mrs. Holive graduated from École Centrale de Lyon with a Master of Science degree in general engineering, holds MBA degrees from London Business School and Columbia Business School and a non-executive director diploma from the Financial Times.
Olga Loskutova. Mrs. Loskutova has served as a member of GDEV’s board of directors since August 2022. Mrs. Loskutova has over 20 years in marketing and general management across Western/Eastern Europe, the United States and the Middle East in such multinationals as Nestlé, SABMiller and Whirlpool. Currently she is the VP Product & Brand Marketing at Whirlpool EMEA. Mrs Loskutova holds a degree in Marketing from Plekhanov Russian University of Economics, and has completed executive programs at IMD and Saïd Business School of University of Oxford.
Andrew Sheppard. Mr. Sheppard has served as a member of GDEV's board of directors since August 2021. Mr. Sheppard has over 20 years of experience building, managing and advising multi-billion dollar consumer businesses. Earlier in his career, Mr. Sheppard was CEO of GREE International, President of Studios at Kabam and Head of Strategy at Electronic Art's Maxis Studio. Mr. Sheppard is currently a Managing Director at Transcend Fund, an early stage venture capital firm focused on gaming and digital media. He also serves as an independent member of the board of directors for Rakuten Games, Fun Country and Ruckus Games. Mr. Sheppard holds a degree in Economics from Pomona College and an MBA from the University of California, Berkeley's Haas School of Business.
Tal Shoham. Mr. Shoham has served as a member of GDEV’s board of directors since August 2022. Mr. Shoham has over 10 years of experience in business development, product management and marketing in the field of gaming and software companies such as Supersonic, ironSource and Huuuge Games. His primary areas are ad-monetization, user acquisition, marketing strategies, product management and M&A. Mr. Shoham is currently serving as an Investor & Board Member at Parana (an early stage gaming company) and he is an LP (limited partner) in Vgames (a venture fund focused on gaming), as well as a co-founder and President at Tedooo (a social app for handmade crafts) and a co-founder and chairman at Peer Play (an early stage gaming company). Mr. Shoham holds a bachelor’s degree in Politics, Government and Management from the Ben-Gurion University of the Negev.
Family Relationships
There are no family relationships among our directors and executive officers.
Director Appointments
Certain members of our board of directors were designated pursuant to the director appointment rights set forth in our Amended and Restated Memorandum and Articles of Association. Specifically, (i) Igor Bukhman is a designee of Everix Investments Limited
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and (ii) Andrey Fadeev is a designee of Andrey Fadeev and Boris Gertsovskiy, acting jointly. See “Certain Relationships and. Related Party Transactions—Director Appointment Rights.”
Corporate Governance
Composition of the Board of Directors
When considering whether directors and director nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Company’s board of directors to satisfy its oversight responsibilities effectively in light of its business and structure, the board of directors expects to focus primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above in order to provide an appropriate mix of experience and skills relevant to the size and nature of its business.
Committees of the Board of Directors
The Company’s board of directors directs the management of its business and affairs, as provided by British Virgin Islands law, and conducts its business through meetings of the board of directors and standing committees. The Company has a standing audit committee and a nomination and compensation committee, each of which operates under a written charter.
In addition, from time to time, special committees may be established under the direction of the board of directors when the board deems it necessary or advisable to address specific issues. Current copies of our committee charters are posted on its website, https://gdev.inc, as required by applicable SEC and Nasdaq rules. The information on or available through such website is not deemed incorporated in this prospectus and does not form part of this prospectus.
Audit Committee
The Company’s audit committee consists of Marie Holive, Natasha Braginsky Mounier and Andrew Sheppard, with Marie Holive serving as the chair of the committee. The Company’s board of directors has determined that each of these individuals meets the independence requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, Rule 10A-3 under the Exchange Act and the applicable listing standards of Nasdaq. Each member of our audit committee can read and understand fundamental financial statements in accordance with Nasdaq audit committee requirements. In arriving at this determination, the board has examined each audit committee member’s scope of experience and the nature of their prior and/or current employment.
The Company’s board of directors has determined that Marie Holive qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq rules. In making this determination, our board has considered Marie Holive’s formal education and previous and current experience in financial and accounting roles. Both the Company’s independent registered public accounting firm and management periodically will meet privately with our audit committee.
The audit committee’s responsibilities include, among other things:
| ● | appointing, compensating, retaining, evaluating, terminating and overseeing the Company’s independent registered public accounting firm; |
| ● | discussing with the Company’s independent registered public accounting firm their independence from management; |
| ● | reviewing with the Company’s independent registered public accounting firm the scope and results of their audit; |
| ● | pre-approving all audit and permissible non-audit services to be performed by the Company’s independent registered public accounting firm; |
| ● | overseeing the financial reporting process and discussing with management and the Company’s independent registered public accounting firm the interim and annual financial statements that we file with the SEC; |
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| ● | reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; and |
| ● | establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters. |
Nomination and Compensation Committee
The Company’s nomination and compensation committee consists of Olga Loskutova, Natasha Braginsky Mounier and Andrew Sheppard, with Andrew Sheppard serving as the chair of the committee. The Company’s board of directors has determined that each of these individuals meets the independence requirements of the applicable listing standards of Nasdaq. Nevertheless, as a foreign private issuer, we are permitted to follow the corporate governance practices of our home country, the British Virgin Islands, in lieu of the applicable Nasdaq rules in respect of compensation committees and nomination of directors. The nomination and compensation committee’s responsibilities include, among other things:
| ● | reviewing and setting or making recommendations to our board of directors regarding the compensation of the Company’s executive officers; |
| ● | making recommendations to our board of directors regarding the compensation of the Company’s directors; |
| ● | reviewing and approving or making recommendations to our board of directors regarding the Company’s incentive compensation and equity-based plans and arrangements; |
| ● | appointing and overseeing any compensation consultants; and |
| ● | overseeing the selection of persons to be nominated to serve on our board of directors. |
Code of Business Conduct and Ethics
The Company has adopted a Code of Conduct and Ethics that applies to all its directors, officers and employees, including its principal executive, principal financial and principal accounting officers. The Company’s Code of Conduct and Ethics addresses, among other things, conflicts of interest, corporate opportunity requirements, confidentiality, competition and fair dealing, financial matters and external reporting, our funds and assets, as well as the process for reporting violations of the Code of Conduct and Ethics and employee misconduct. The Company’s Code of Conduct and Ethics is intended to meet the definition of "code of ethics" under Item 16B of Form 20-F under the Exchange Act.
We intend to disclose on our website any amendment to, or waiver from, a provision of our Code of Conduct and Ethics that applies to our directors or executive officers to the extent required under the rules of the SEC or Nasdaq. Our Code of Conduct and Ethics is available on its website at: https://gdev.inc. The information contained on our website is not incorporated by reference in this prospectus.
Nomination and Compensation Committee Interlocks and Insider Participation
None of the Company’s executive officers currently serves, or has served during the last year, as a member of the board of directors or nomination and compensation committee of any entity, other than GDEV, that has one or more executive officers serving as a member of the Company’s board of directors.
Corporate Governance Practices
As a British Virgin Islands company listed on the Nasdaq Global Select Market, we are subject to Nasdaq corporate governance listing standards. However, Rule 5615(a)(3) of The Listing Rules of the Nasdaq Stock Market (the “Nasdaq Rules”) permits foreign private issuers like us to follow certain home country corporate governance practices in lieu of certain provisions of the Rule 5600
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Series of the Nasdaq Rules. A foreign private issuer that elects to follow a home country practice instead of such provisions, must disclose in its annual reports each requirement that it does not follow and describe the home country practice followed by it.
Our current corporate governance practices differ from Nasdaq corporate governance requirements for U.S. companies in certain respects, as summarized below:
| ● | Executive Sessions. Rule 5605(b)(2) of Nasdaq Rules generally requires independent directors of a Nasdaq listed company must meet regularly in executive sessions (without members of management present), and such executive sessions should occur at least twice a year. In this regard we have elected to adopt the practices of our home country, the British Virgin Islands, which practices do not require independent directors to meet regularly in executive sessions separate from the full board of directors. |
| ● | Compensation Committee Charter. Rule 5605(d)(1) of the Nasdaq Rules generally requires a Nasdaq listed company to adopt a formal written compensation committee charter specifying the items enumerated in Rule 5605(d)(1) and that such charter must be reviewed and reassessed annually. In this regard, we have elected to adopt alternative practices in relation to director and officer compensation consistent with or otherwise permitted by British Virgin Islands law. |
| ● | Compensation Committees. Rule 5605(d)(2) of the Nasdaq Rules generally requires a Nasdaq listed company to have a compensation committee composed solely of independent directors to determine or recommend the compensation of the executive officers of the company. The practices of our home country, the British Virgin Islands, do not require that any of the members of a company’s compensation committee be independent directors. While we have elected to have our nomination and compensation committee composed solely of independent directors, we do not have a stand-alone compensation committee, and the members of our nomination and compensation committee are not in general limited to independent directors. |
| ● | Independent Director Oversight of Director Nominations. Rules 5605(e)(1) of the Nasdaq Rules generally requires director nominations of a Nasdaq listed company to be made or recommended solely by independent directors. We follow British Virgin Islands practice which does not require director nominations or recommendations solely by independent directors. |
| ● | Formal Written Charter for Director Nominations. Rule 5605(e)(2) of the Nasdaq Rules generally requires that a Nasdaq listed company must adopt a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under U.S. federal securities laws. We follow British Virgin Islands practice which does not require us to have a formal written charter or board resolution addressing the director nominations process. |
| ● | Quorum for Meeting of Shareholders. Rule 5620(c) of the Nasdaq Rules generally requires that the by-laws of a Nasdaq listed company must provide a quorum for shareholder meetings of at least 331/3% of the outstanding shares of the company’s common voting stock. In this regard, we will prescribe those quorum requirements for meetings as set forth in our Amended and Restated Memorandum and Articles of Association, as permitted under applicable British Virgin Islands law, which provides that a quorum may be that as specifically fixed by the memorandum and articles of association of the company in question. |
| ● | Shareholder Approval of Equity Compensation. Rule 5635(c) of the Nasdaq Rules generally requires shareholder approval prior to the issuance of securities of a Nasdaq listed company when a stock option or purchase plan is to be established or other equity compensation arrangement made, pursuant to which stock may be acquired by officers, directors, employees, or consultants. In this regard we have elected to adopt the practices of our home country, the British Virgin Islands, which does not require such prior shareholder approval of the establishment of stock option or purchase plans, or other equity compensation arrangements. |
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Board Diversity
The Company is committed to a policy of inclusion and follows the guiding principle that our board of directors should reflect diversity of experience and perspectives.
In furtherance of this commitment, our nominating and compensation committee, in recommending director candidates, and our board of directors, in nominating director candidates, evaluate candidates in accordance with qualification standards that include the candidate’s geographical background, gender, age and ethnicity.
The table below provides certain information regarding the diversity of our board of directors. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Rule 5605(f).
Board Diversity Matrix (As of May 1, 2023) | ||||||||||||||
Country of Principal Executive Offices: | Cyprus | |||||||||||||
Foreign Private Issuer | Yes | |||||||||||||
Disclosure Prohibited under Home Country Law | No | |||||||||||||
Total Number of Directors | 7 | |||||||||||||
Female |
| Male |
| Non-Binary |
| Did Not Disclose Gender | ||||||||
Part I: Gender Identity | ||||||||||||||
Directors | 3 | 4 | 0 | 0 | ||||||||||
Part II: Demographic Background | ||||||||||||||
Underrepresented Individual in Home Country Jurisdiction | 0 | |||||||||||||
LGBTQ+ | 0 | |||||||||||||
Did Not Disclose Demographic Background | 0 | |||||||||||||
Directors who are Two or More Races or Ethnicities | 2 | |||||||||||||
Directors who are Jewish People | 3 | |||||||||||||
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DIRECTOR AND EXECUTIVE COMPENSATION
GDEV Executive Officer and Director Compensation
Overview
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and the following is intended to comply with the scaled disclosure requirements applicable to emerging growth companies.
Our policies with respect to the compensation of our executive officers are administered by our board of directors in consultation with our nomination and compensation committee (as described under “—Board of Directors and Executive Management—Corporate Governance—Nomination and Compensation Committee”). The compensation decisions regarding the Company’s executives are based on the Company’s need to retain those individuals who continue to perform at or above our expectations and to attract individuals with the skills necessary for us to achieve our business plan. We intend to be competitive with other similarly situated companies in its industry.
Performance-based and equity-based compensation is and is expected to be an important foundation in executive compensation packages. We believe that performance-based and equity-based compensation can be an important component of the total executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives.
The Company’s executive officers will receive a combination of cash and equity compensation. Our nomination and compensation committee is charged with performing an annual review of our executive officers’ cash and equity compensation to determine whether they provide adequate incentives and motivation to executive officers and whether they adequately compensate the executive officers relative to comparable officers in other companies. In addition to the guidance provided by our nomination and compensation committee, we may utilize the services of third parties from time to time in connection with the hiring and compensation awarded to executive employees. This could include subscriptions to executive compensation surveys and other databases.
Our nominating and compensation committee will consider adopting formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and equity compensation, or among different forms of compensation.
For the fiscal year ended December 31, 2022, the aggregate cash compensation paid to the Company’s executive officers was $2,147 thousand and the aggregate cash compensation paid to the Company’s directors was $1,204 thousand. For grants of options to our executive officers and directors under our 2021 Employee Stock Option Plan, see “—Options Granted Under the 2021 ESOP.” We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors.
On July 25, 2022, the Company’s board of directors adopted the following resolutions in respect of the compensation of the Company’s directors:
| ● | the cash component of the compensation for independent directors in the amount of $100,000, plus additional compensation for the chairperson of the board of directors of $35,000 and further additional compensation of $25,000 for each committee chairperson; |
| ● | an additional annual cash compensation in the amount $50,000 for each independent directors’ service for the year starting with the next annual shareholders’ meeting, in case if the share-based structure will not be determined within the next year due to continuing market conditions; and |
| ● | an additional annual cash compensation in the amount of $25,000 to each, Natasha Braginsky Mounier and Andrew Sheppard, for their service on an ad hoc director search committee. |
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2021 Employee Stock Option Plan
On November 16, 2021, the Company’s board of directors adopted the 2021 Employee Stock Option Plan (the “2021 ESOP”). In accordance with the Company’s Amended and Restated Memorandum and Articles of Association, no Company shareholder approval was required in respect of the adoption of the 2021 ESOP. The 2021 ESOP provides for the grant of rights (“Options”) entitling participants under the 2021 ESOP to acquire ordinary shares of the Company. The Company is the issuer of the shares under the 2021 ESOP.
The stated purpose of the 2021 ESOP is to achieve the following goals:
| ● | Align interests of the shareholders and the management of the Company by providing to the key employees and service providers of the Company and its affiliates an opportunity to participate in a long-term growth of the Company’s value; |
| ● | Increase investment attractiveness of the Company; |
| ● | Provide competitive remuneration and retain key employees of the Company and its affiliates; and |
| ● | Alignment with practice of public companies. |
The principal features of the 2021 ESOP are summarized below.
Administration
Either the board of directors of the Company, or a committee thereof, or the Chief Executive Officer of the Company (the “CEO”) if expressly so permitted by the board of directors, acting as administrator, will have the authority to adopt, amend and repeal such administrative rules, guidelines and practices relating to the 2021 ESOP as it deems advisable.
Available Shares
A maximum of 9,826,155 ordinary shares, being 5% of the issued ordinary shares of the Company as of the date of adoption of the 2021 ESOP, are reserved for issuance under Options granted under the 2021 ESOP. If any Option granted under the 2021 ESOP expires, terminates or is cancelled for any reason without having been exercised in full, the number of ordinary shares underlying such expired, terminated or cancelled Option will again be available for the purpose of awards under the 2021 ESOP. The difference between the number of Options granted to a specific person and number of ordinary shares received by that person as a result of cashless exercise will be added back to the Option pool available for grant.
Eligibility
The CEO will select recipients of Options under the 2021 ESOP (“Participants”) from among those key employees and service providers of the Company or its affiliates who, in the opinion of the CEO, are in a position to make a significant contribution to the success of the Company and its affiliates.
Awards
Participants will receive a right entitling the Participant to acquire ordinary shares upon satisfaction of the vesting conditions set forth in the applicable award agreement and payment of the applicable price per ordinary share (“Exercise Price”) determined by the board of directors or a committee thereof.
The board of directors or committee thereof will determine the terms of all Options and will furnish to each Participant an agreement (the “Award Agreement”) setting forth the terms applicable to the Participant’s Option. Terms and conditions of Options may differ amongst different Participants and different grants of Options.
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Vesting of Options will be governed by the Award Agreement with each Participant unless otherwise determined by the board of directors or a committee thereof. Options which have not become vested as of the date of termination of the Participant’s employment or service will be forfeited upon such termination. Option holders will have ninety days following termination of employment or service to exercise vested Options.
The Company may permit Participants to exercise Options under the 2021 ESOP pursuant to a cashless exercise program.
Adjustment
In the event of any share split or combination of shares (including a reverse share split), reorganization, recapitalization, large, special and non-recurring dividend, split-up, spin-off, merger, exchange of shares, redemption, repurchase, consolidation, other change in the capital structure of the Company, sale of assets or other similar event which requires adjustment in order to avoid the enlargement or dilution of rights under the 2021 ESOP, the board of directors or a committee thereof will make adjustments to the maximum number Shares that may be delivered under the 2021 ESOP, and the Exercise Price of any Options and also make such changes in the number and kind of shares, securities or other property (including cash) covered by outstanding Options, and the terms thereof, as the board of directors or a committee thereof determines to be appropriate.
Change of Control
The board of directors may, in its sole and absolute discretion, at any time as long as any of the Options under the 2021 ESOP remain outstanding, amend the 2021 ESOP and any respective Award Agreements to implement provisions regarding a change of control over the Company as may be reasonably necessary to grant Participants reasonable protection from any materially adverse changes which may result from a change of control over the Company.
Transferability and Lock-Up
No Option granted under the 2021 ESOP may be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner, nor may a Participant enter into any derivative agreement or other similar hedging arrangement relating to any Option without prior written consent of the Company.
It will be a condition to the grant of each Option under the 2021 ESOP that each Participant unconditionally agree to comply with such lock-up arrangements if required to do so by the board of directors, a committee thereof, or the CEO.
Forfeiture and Claw-Back Provisions
Options which have not become vested as of the date of termination of the Participant’s employment or service will be forfeited upon such termination. Option holders will have ninety days following termination of employment or service to exercise vested Options.
The Company may require the Participant to deliver, surrender, or otherwise repay to the Company the Option and any ordinary shares or other amount or property that may be issued, delivered or paid in respect of the Option, as well as any consideration that may be received in respect of a sale or other disposition of any such ordinary shares or property, (a) if the Participant commits or engages in a breach of confidentiality, (b) if the Participant commits or engages in an act of theft, embezzlement or fraud, or (c) pursuant to any applicable securities, tax or stock exchange laws, rules or regulations relating to the recoupment or clawback of incentive compensation, as in effect from time to time.
Amendment and Termination
The board of directors, in its sole and absolute discretion, may at any time or times amend or alter the 2021 ESOP or any outstanding Option and may at any time terminate or discontinue the 2021 ESOP as to any future grants of Options; provided, that the board of directors may not, without the Participant’s consent, amend, alter or terminate the terms of an Option or the 2021 ESOP so as to affect adversely a Participant’s existing rights under an Option or the 2021 ESOP.
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The 2021 ESOP became effective upon its approval by the board of directors on November 16, 2021 and will expire on the tenth anniversary thereof (unless terminated earlier by the board of directors).
Governing law and jurisdiction
The 2021 ESOP will be governed by, and be construed in accordance with, the laws of the British Virgin Islands. Any disputes relating to the 2021 ESOP or any Award Agreement entered into in connection with the 2021 ESOP will be subject to the exclusive jurisdiction of the courts of the British Virgin Islands.
Options Granted
The following executive officers and directors of the Company held options (both vested and unvested) to acquire ordinary shares of the Company (including Options granted under the 2021 ESOP) as of December 31, 2022:
| Total Number |
|
|
| Exercise |
| Number of Options | |||||
Participant | of Options | Grant Date | Vesting Date | Price | Outstanding | |||||||
Alexander Karavaev |
| 1,000,000 | November 16, 2021 |
| · | 200,000 at 1st anniversary of grant date |
| $ | 10 |
| 1,000,000 | |
· | 200,000 at 2nd anniversary of grant date | |||||||||||
· | 200,000 at 3rd anniversary of grant date | |||||||||||
· | 200,000 at 4th anniversary of grant date | |||||||||||
· | 200,000 at 5th anniversary of grant date | |||||||||||
| 20,000 | November 30, 2021 |
| · | 20,000 at grant date |
| nil |
| 20,000 | |||
Anton Reinhold |
| 735,769 | November 16, 2021 |
| · | 73,577 at January 1, 2022 |
| nil |
| 735,769 | ||
· | 147,154 at January 1, 2023 | |||||||||||
· | 147,154 at January 1, 2024 | |||||||||||
· | 147,154 at January 1, 2025 | |||||||||||
· | 147,154 at January 1, 2026 | |||||||||||
· | 73,576 at July 1, 2026 | |||||||||||
Natasha Braginsky Mounier |
| 15,000 | November 21, 2021 |
| · | 1,250 at 3 months after grant date |
| nil |
| 15,000 | ||
· | 1,250 at 6 months after grant date | |||||||||||
· | 1,250 at 9 months after grant date | |||||||||||
· | 11,250 at 1st anniversary of grant date | |||||||||||
Andrew Sheppard |
| 15,000 | November 29, 2021 |
| · | 1,250 at 3 months after grant date |
| nil |
| 15,000 | ||
· | 1,250 at 6 months after grant date | |||||||||||
· | 1,250 at 9 months after grant date | |||||||||||
· | 11,250 at 1st anniversary of grant date | |||||||||||
As of December 31, 2022, no options granted to our executive officers and directors were exercised.
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DESCRIPTION OF SECURITIES
The following summary of the material terms of our securities is not intended to be a complete summary of the rights and preferences of such securities, and is qualified by reference to our amended and restated memorandum and articles of association and the Warrant Agreement, each of which is an exhibit to the registration statement of which this prospectus is a part. We urge to you read the applicable provisions of British Virgin Islands law, our amended and restated memorandum and articles of association and the Warrant Agreement carefully and in their entirety for a complete description of the rights and preferences of our securities.
GDEV Ordinary Shares
We are a company incorporated in the British Virgin Islands as a business company (Company Number 2053442) and our affairs are governed by the provisions of our Amended and Restated Memorandum and Articles of Association, as amended and restated from time to time (“M&A”), and the BVI Business Companies Act, 2004, as amended (the “Companies Act”), and the applicable laws of the BVI (including applicable common law).
Our M&A authorizes us to issue an unlimited number of shares consisting of one class of ordinary shares of the Company, no par value per share. A copy of our M&A, effective on August 19, 2021 is filed as Exhibit 3.1 to the registration statement of which this prospectus forms a part.
The following description of our authorized shares and our constitutional rules under our M&A is qualified in its entirety by reference to our M&A.
Amended and Restated Memorandum and Articles of Association
The following discussion describes our M&A:
Objects and Purposes, Register, and Shareholders
Subject to the Companies Act and our M&A, our objects and purposes are unlimited. Our register of members is maintained by Continental Stock Transfer & Trust Company, our transfer agent. The entry of the name of a person in the register of members as a holder of a share in a BVI company is prima facie evidence that legal title in the share vests in that person. Under the Companies Act, a BVI company may treat the registered holder of a share as the only person entitled to (i) exercise any voting rights attaching to the share, (ii) receive notices, (iii) receive a distribution in respect of the share and (iv) exercise other rights and powers attaching to the share. Consequently, as a matter of BVI law, where a shareholder’s shares are registered in the name of a nominee, the nominee is entitled to receive notices, receive distributions and exercise rights in respect of any such shares registered in its name. The beneficial owners of the shares registered in a nominee’s name will therefore be reliant on their contractual arrangements with the nominee in order to receive notices and dividends and ensure the nominee exercises voting and other rights in respect of the shares in accordance with their directions.
Directors’ Powers
Under the Companies Act, and as confirmed in the Company’s M&A, the Company’s business and affairs are managed by, or under the direction or supervision of, its directors, and the directors generally have all powers necessary to manage the Company. In accordance with, and subject to, our M&A, the directors may by resolution of directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party.
A director must disclose any interest he has on any proposal, arrangement or contract to be entered into by the Company. Under the Companies Act, an interested director may (subject to the M&A) vote on a transaction in which he has an interest. Under our M&A, however, where a director is interested in a matter, any majority approving such matter must include a majority of the disinterested directors. It is also possible for a majority of disinterested directors to make a determination that a director may be considered to be interested in a matter, following which that director will be treated as being interested in the matter and will not be able to vote thereon.
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Rights, Preferences and Restrictions of Ordinary Shares
Our directors may, by Supermajority Resolution of Directors (as defined below), adopt or amend a dividend policy for the Company and may authorize dividends at such time and in such amount as they determine (provided that, after payment of such dividend, the Company will pass the ‘solvency test’, as described below). The term “Supermajority Resolution of Directors” means a resolution of the directors of the Company passed by the entire board of directors, or by the entire board of directors minus one director. For these purposes, ‘entire board of directors’ is construed as not including any directors who are interested in a transaction.
Each ordinary share is entitled to one vote. In the event of a liquidation or dissolution of the Company, the holders of ordinary shares are entitled to share ratably in all surplus assets remaining available for distribution to them after payment and discharge of all claims, debts, liabilities and obligations of the Company. There are no sinking fund provisions applicable to our ordinary shares, nor are holders of fully-paid shares liable for any capital calls by the Company. Subject to the provisions of the Companies Act, we may, (subject to the M&A) with the consent of the relevant shareholder and subject to the approval of the directors in a Supermajority Resolution of Directors, repurchase our ordinary shares in certain circumstances provided always that the Company will, immediately after the repurchase, satisfy the solvency test. The Company will satisfy the solvency test, if (i) the value of the Company’s assets exceeds its liabilities, and (ii) the Company is able to pay its debts as they fall due.
Variation of the Rights of Shareholders
As permitted by the Companies Act and in accordance with our M&A, the rights attached to shares of the Company may only, whether or not the Company is being wound up, be varied by a resolution passed at a meeting of the shareholders by the holders of more than fifty percent (50%) of the ordinary shares present at a duly convened and constituted meeting of the shareholders which were present at the meeting and voted.
Shareholder Meetings
In accordance with, and subject to, our M&A, (i) any director of the Company may convene meetings of the shareholders at such times and in such manner and places within or outside the British Virgin Islands as the director considers necessary or desirable (and the director convening a meeting of shareholders must fix in the notice of the meeting the record date for determining those shareholders that are entitled to vote at the meeting); and (ii) upon the written request of shareholders entitled to exercise thirty percent (30%) or more of the voting rights in respect of the matter for which the meeting is requested, the directors must convene a meeting of shareholders. In accordance with, and subject to, our M&A, (a) the director convening a meeting must give not less than 30 nor more than 60 days’ notice of a meeting of shareholders to those shareholders whose names on the date the notice is given appear as shareholders in the register of shareholders of the Company and are entitled to vote at the meeting; and the other directors; (b) a meeting of shareholders held in contravention of the requirement to give notice is valid if shareholders holding at least 80% of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a shareholder at the meeting will constitute waiver in relation to all of the ordinary shares that that shareholder holds; (c) a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the ordinary shares or class or series of ordinary shares entitled to vote on resolutions of shareholders to be considered at the meeting; and (d) if within two hours from the time appointed for the meeting a quorum is not present, the meeting, at the discretion of the chairman of the board of directors, will be dissolved or stand adjourned to a business day in the jurisdiction in which the meeting was to have been held at the same time and place. The quorum for such adjourned meeting (which must be reached within one hour of the appointed time for the meeting) is one third of the votes of the ordinary shares or class or series of ordinary shares entitled to vote on resolutions of shareholders to be considered at the meeting; if such quorum is not reached, the meeting will either be dissolved or stand further adjourned, at the discretion of the chairman of the board of directors.
Dividends
As considered above under “—Rights, Preferences and Restrictions of Ordinary Shares,” our directors may, by Supermajority Resolution of Directors, declare dividends at a time and amount as they think fit if they are satisfied, based on reasonable grounds, that, immediately after distribution of the dividend, the value of our assets will exceed our liabilities and we will be able to pay our debts as they fall due. There is no further BVI law restriction on the amount of funds which may be distributed by us by dividend, including all amounts paid by way of the subscription price for ordinary shares regardless of whether such amounts may be wholly or
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partially treated as share capital or share premium under certain accounting principles. Shareholder approval is not required to pay dividends under BVI law. In accordance with, and subject to, our M&A, no dividend will bear interest as against the Company.
Disclosure of the Securities and Exchange Commission’s Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Transfer of Shares
Any of our shareholders may transfer all or any of his or her shares by an instrument of transfer in the usual or common form or in any other form which our directors may approve (such instrument of transfer being signed by the transferor and containing the name and address of the transferee). Our M&A also (save as otherwise provided therein) provide that (a) where ordinary shares of the Company are listed on the Nasdaq or any other stock exchange or automated quotation system on which the ordinary shares are then traded, shares may be transferred without the need for a written instrument of transfer if the transfer is carried out in accordance with the law, rules, procedures and other requirements applicable to shares listed on such exchange or system, or (b) uncertificated shares may be transferred by means of a system utilized for the purposes of holding and transferring shares in uncertificated form (the “Relevant System”), and that the operator of the Relevant System will act as agent of the shareholders for the purposes of the transfer of any uncertificated shares.
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by our M&A on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our M&A governing the ownership threshold above which shareholder ownership must be disclosed.
Changes in Authorized Shares
We are authorized to issue an unlimited number of shares which will have the same rights, privileges, restrictions and conditions attaching to them as the shares in issue. We may by resolution of directors or shareholders:
| ● | consolidate and divide all or any of our unissued authorized shares into shares of larger or smaller amount than our existing shares; or |
| ● | cancel any ordinary shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person. |
Pre-emption Rights
There are no pre-emption rights applicable to the issuance of new shares under our M&A.
Summary of Certain Significant Provisions of the Companies Act
The Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Act applicable to us (save to the extent that such provisions have been, to the extent permitted under the Companies Act, negated or modified in our M&A in accordance with the Companies Act).
Mergers, Consolidations and Similar Arrangements
The Companies Act provides for mergers as that expression is understood under U.S. corporate law. Under the Companies Act, two or more companies may either merge into one of such existing companies, referred to as the surviving company, or consolidate
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with both existing companies ceasing to exist and forming a new company, referred to as the consolidated company. The procedure for a merger or consolidation between our Company and another company (which need not be a BVI company) is set out in the Companies Act. The directors of the BVI company or BVI companies which are to merge or consolidate must approve a written plan of merger or consolidation which must also be authorized by a resolution of shareholders (and the outstanding shares of every class of shares that are entitled to vote on the merger or consolidation as a class if the memorandum or articles of association so provide or if the plan of merger or consolidation contains any provisions that, if contained in a proposed amendment to the memorandum or articles, would entitle the class to vote on the proposed amendment as a class) of the shareholders of the BVI company or BVI companies which are to merge. A foreign company which is able under the laws of its foreign jurisdiction to participate in the merger or consolidation is required by the Companies Act to comply with the laws of that foreign jurisdiction in relation to the merger or consolidation. The BVI company must then execute articles of merger or consolidation, containing certain prescribed details. The plan and articles of merger or consolidation are then filed with the Registrar of Corporate Affairs in the BVI, or the Registrar. If the surviving company or the consolidated company is to be incorporated under the laws of a jurisdiction outside BVI, it must file the additional instruments required under Section 174(2)(b) of the Companies Act. The Registrar then (if he or she is satisfied that the requirements of the Companies Act have been complied with) registers, in the case of a merger, the articles of merger and any amendment to the memorandum and articles of association of the surviving company and, in the case of a consolidation, the M&A of the new consolidated company and issues a certificate of merger or consolidation (which is conclusive evidence of compliance with all requirements of the Companies Act in respect of the merger or consolidation). The merger or consolidation is effective on the date that the articles of merger or consolidation are registered by the Registrar or on such subsequent date, not exceeding thirty days, as is stated in the articles of merger or consolidation but if the surviving company or the consolidated company is a company incorporated under the laws of a jurisdiction outside the BVI, the merger or consolidation is effective as provided by the laws of that other jurisdiction.
As soon as a merger or consolidation becomes effective (inter alia), (i) the surviving company or consolidated company (so far as is consistent with its memorandum and articles of association, as amended or established by the articles of merger or consolidation) has all rights, privileges, immunities, powers, objects and purposes of each of the constituent companies; (ii) the memorandum and articles of association of any surviving company are automatically amended to the extent, if any, that changes to its memorandum and articles of association are contained in the articles of merger; (iii) assets of every description, including choses-in-action and the business of each of the constituent companies, immediately vest in the surviving company or consolidated company; (iv) the surviving company or consolidated company is liable for all claims, debts, liabilities and obligations of each of the constituent companies; (v) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against a constituent company or against any shareholder, director, officer or agent thereof, is released or impaired by the merger or consolidation; and (vi) no proceedings, whether civil or criminal, pending at the time of a merger or consolidation by or against a constituent company, or against any shareholder, director, officer or agent thereof, are abated or discontinued by the merger or consolidation, but: (a) the proceedings may be enforced, prosecuted, settled or compromised by or against the surviving company or consolidated company or against the shareholder, director, officer or agent thereof, as the case may be, or (b) the surviving company or consolidated company may be substituted in the proceedings for a constituent company but if the surviving company or the consolidated company is incorporated under the laws of a jurisdiction outside the BVI, the effect of the merger or consolidation is the same as noted foregoing except in so far as the laws of the other jurisdiction otherwise provide.
The Registrar must strike off the register of companies each constituent company that is not the surviving company in the case of a merger and all constituent companies in the case of a consolidation (save that this will not apply to a foreign company).
If the directors determine it to be in the best interests of the Company, it is also possible for a merger to be approved as a court approved plan of arrangement or as a scheme of arrangement in accordance with (in each such case) the Companies Act. The convening of any necessary shareholders meetings and subsequently the arrangement must be authorized by the BVI court. A scheme of arrangement requires the approval of a majority in number of the shareholders, representing not less than 75% of the votes of the shares or class of shares. If the effect of the scheme is different in relation to different shareholders, it may be necessary for them to vote separately in relation to the scheme, with it being required to secure the requisite approval level of each separate voting group. Under a plan of arrangement, a BVI court may determine what shareholder approvals are required and the manner of obtaining the approval.
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Continuation into a Jurisdiction Outside the BVI
In accordance with, and subject to, our M&A, the Company may by resolution of shareholders or by a resolution of directors continue as a company incorporated under the laws of a jurisdiction outside the BVI in the manner provided under those laws. The Company does not cease to be a BVI company unless the foreign law permits continuation and the BVI company has complied with the requirements of that foreign law. In the event that the Company is continued under the laws of a jurisdiction outside the BVI, (i) the Company continues to be liable for all of its claims, debts, liabilities and obligations that existed prior to its continuation, (ii) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against the Company or against any shareholder, director, officer or agent thereof, is released or impaired by its continuation as a company under the laws of the jurisdiction outside the BVI, (iii) no proceedings, whether civil or criminal, pending by or against the Company, or against any shareholder, director, officer or agent thereof, are abated or discontinued by its continuation as a company under the laws of the jurisdiction outside the BVI, but the proceedings may be enforced, prosecuted, settled or compromised by or against the Company or against the shareholder, director, officer or agent thereof, as the case may be; and (iv) service of process may continue to be effected on the registered agent of the Company in the BVI in respect of any claim, debt, liability or obligation of the Company during its existence as a company under the Companies Act.
Directors
In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any ordinary shares), for so long as Everix has at least 50% of its ‘Initial Holding’ (which is the number of shares held by Everix immediately after the consummation of the Transactions) it is entitled to appoint two directors to the board. If Everix were to sell its shares such that it had 25-50% of its Initial Holding this would decrease to the number of directors it is entitled to appoint to one director; below 25% there are no appointment rights. Mr. Andrey Fadeev and Mr. Boris Gertsovskiy (collectively, “FG”) have the same rights, acting together and with the number of shares they each hold aggregated for the purposes of calculating their Initial Holding and subsequent percentages thereof.
Other directors of the Company are elected by resolution of shareholders or by resolution of directors for such term as the shareholders or directors determine. Each director holds office until the Company’s next annual general meeting immediately following their appointment, or until their earlier disqualification, death, resignation or removal. Our directors do not have a retirement age requirement under our M&A. A director, other than one appointed by Everix or FG, may be removed from office by resolution of shareholders. A director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company at the office of its registered agent or from such later date as may be specified in the notice and a director must resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the Companies Act. A director is not required to hold shares as a qualification to office.
In accordance with, and subject to, our M&A, (a) any one director of the Company may call a meeting of the directors by sending a written notice to each other director (including by email having obtained electronic delivery confirmation thereof); (b) the directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the notice calling the meeting provides; (c) a director must be given not less than five days’ notice of meetings of directors, but a meeting of directors held without five days’ notice having been given to all directors will be valid if all the directors entitled to vote at the meeting who do not attend waive notice of the meeting (and the presence of a director at a meeting will constitute waiver by that director), and the inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting; (d) a meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person not less than one-half of the total number of directors unless there are only two directors in which case the quorum is two; (e) a resolution of directors is passed if either (i) the resolution is approved at a duly convened and constituted meeting of directors of the Company by the affirmative vote of a majority of the directors present at the meeting who voted; or (ii) in the form of written resolution by a majority of the directors, save where a resolution must be passed as a Supermajority Resolution of Directors (which may be passed at a meeting or in writing but in which case the requisite majority is all of the board of directors, or all of the board of directors minus one, with interested directors being discounted for all purposes).
Indemnification of Directors
In accordance with, and subject to, our M&A (including the limitations detailed therein), the Company may at any time enter into one or more indemnification agreements with any person who (a) may be a party or may be threatened to be made a party to any
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proceeding (howsoever defined in the relevant agreement) by reason of the fact that such person is or was a director, officer, employee, contractor or adviser of the Company, or (b) is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another ‘Enterprise’ (as defined in the M&A). The ability of the Company to indemnify any person with whom the Company has entered into such an agreement with is limited by the Companies Act, in that such indemnification is only lawful where the indemnified person acted honestly and in good faith and in what he believed to be in the best interests of the company and, in the case of criminal proceedings, the indemnified person had no reasonable cause to believe that his conduct was unlawful.
In accordance with, and subject to, our M&A, the Company may purchase and maintain insurance, purchase or furnish similar protection or make other arrangements including, but not limited to, providing a trust fund, letter of credit or surety bond in relation to any person who at the request of the Company is or was serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another Enterprise, against any liability asserted against the person and incurred by him in that capacity, whether or not the Company has or would have had the power to indemnify him against the liability as provided in the M&A.
Directors and Conflicts of Interest
In accordance with, and subject to, our M&A, no director will, by reason of such director holding the office of director, be accountable to the Company for any benefit which he derives from any transaction in which he may have an interest and no such transaction will be liable to be avoided on the grounds of any such interest or benefit, provided such director must, immediately after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose such interest to the board.
Shareholders’ Suits
The enforcement of the Company’s rights will ordinarily be a matter for its directors.
In certain circumstances, a shareholder has the right to seek various remedies against a BVI company in the event the directors are in breach of their duties under the Companies Act. Pursuant to Section 184B of the Companies Act, if a company or director of a BVI company engages, proposes to engage in, or has engaged in conduct that contravenes the provisions of the Companies Act or the M&A of the company, the BVI court may, on application of a shareholder or director of the company, make an order directing the company or director to comply with, or restraining the company or director from engaging in conduct that contravenes, the Companies Act or the memorandum or articles of association.
Furthermore, pursuant to Section 184I(1) of the Companies Act a shareholder of a company who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or any acts of the company have been, or are likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI Court for an order which, inter alia, can require the company or any other person to pay compensation to the shareholder.
The Companies Act provides for a series of remedies available to shareholders. Where a company incorporated under the Companies Act conducts some activity which contravenes the Companies Act or the company’s M&A, the court can issue a restraining or compliance order. Under Section 184G of the Companies Act, a shareholder of a company may bring an action against the company for breach of a duty owed by the company to him as a shareholder. A shareholder also pursuant to Section 184C of the Companies Act may, with the leave of the BVI court, bring proceedings or intervene in proceedings in the name of the company, in certain circumstances. Such actions are known as derivative actions. The BVI court may only grant leave to bring a derivative action where the following circumstances apply:
| ● | the company does not intend to bring, diligently continue or defend or discontinue proceedings; or |
| ● | it is in the interests of the company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole. |
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When considering whether to grant leave, the BVI court is also required to have regard to the following matters:
| ● | whether the shareholder is acting in good faith; |
| ● | whether a derivative action is in the company’s interests, taking into account the directors’ views on commercial matters; |
| ● | whether the proceedings are likely to succeed; |
| ● | the costs of the proceedings in relation to the relief likely to be obtained; and |
| ● | whether an alternative remedy is available. |
Any shareholder of a company may apply to the BVI court under the Insolvency Act, 2003 of the BVI (the “Insolvency Act”) for the appointment of a liquidator to liquidate the company and the court may appoint a liquidator for the company if it is of the opinion that it is just and equitable to do so.
Appraisal Rights
The Companies Act provides that any shareholder of a company is entitled to payment of the fair value of his shares upon dissenting from any of the following: (i) a merger if the company is a constituent company, unless the company is the surviving company and the shareholder continues to hold the same or similar shares; (ii) a consolidation, if the company is a constituent company; (iii) any sale, transfer, lease, exchange or other disposition of more than 50% in value of the assets or business of the company if not made in the usual or regular course of the business carried on by the company but not including: (a) a disposition pursuant to an order of the court having jurisdiction in the matter, (b) a disposition for money on terms requiring all or substantially all net proceeds to be distributed to the shareholders in accordance with their respective interests within one year after the date of disposition, or (c) a transfer pursuant to the power of the directors to transfer assets for the protection thereof; (iv) a compulsory redemption of 10% or fewer of the issued shares of the company required by the holders of 90% or more of the votes of the outstanding shares of the company pursuant to the terms of Section 176 of the Companies Act; and (v) an arrangement, if permitted by the BVI court.
Generally, any other claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the BVI or their individual rights as shareholders as established by the company’s memorandum and articles of association. There are common law rights for the protection of shareholders that may be invoked, largely derived from English common law. For example, under the rule established in the English case known as Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to seek to have the affairs of the company conducted properly according to law and the constituent documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts may grant relief. Generally, the areas in which the courts will intervene are the following:
| ● | a company is acting or proposing to act illegally or beyond the scope of its authority; |
| ● | the act complained of, although not beyond the scope of the authority, could only be effected if duly authorized by more than the number of votes which have actually been obtained; |
| ● | the individual rights of the plaintiff shareholder have been infringed or are about to be infringed; or |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
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Share Repurchases and Redemptions
As permitted by the Companies Act and subject to our M&A, shares may be repurchased, redeemed or otherwise acquired by us with shareholder consent and with the prior approval of the directors in a Supermajority Resolution of Directors. Unless the redemption or repurchase is being effected pursuant to a right of the relevant shareholder to have their shares repurchased or redeemed, our directors will need to determine that, immediately following the redemption or repurchase, we will be able to satisfy our debts as they fall due and the value of our assets exceeds our liabilities. Our directors may only exercise this power on our behalf, subject to the Companies Act, our M&A and to any applicable requirements imposed from time to time by the SEC, the Nasdaq or any other stock exchange on which our securities are listed.
Inspection of Books and Records
Under the Companies Act, members of the general public, on payment of a nominal fee, can obtain copies of the public records of a company available at the office of the Registrar, including the company’s certificate of incorporation, its memorandum and articles of association (with any amendments thereto), records of license fees paid to date, any articles of dissolution, any articles of merger, and a register of charges created by the company (if the company has elected to file such a register or an applicable charge has caused the same to be filed).
A shareholder of a company is entitled, on giving written notice to the company, to inspect:
| (i) | the memorandum and articles of association; |
| (ii) | the register of members; |
| (iii) | the register of directors; and |
| (iv) | the minutes of meetings and resolutions of shareholders and of those classes of shares of which he is a shareholder. |
In addition, a shareholder may make copies of or take extracts from the documents and records referred to in (i) through (iv) above. However, the directors may, if they are satisfied that it would be contrary to the company’s interests to allow a shareholder to inspect any document, or part of any document, specified in (ii), (iii) or (iv) above, refuse to permit the shareholder to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extracts from the records. Where a company fails or refuses to permit a shareholder to inspect a document or permits a shareholder to inspect a document subject to limitations, that shareholder may apply to the High Court of the BVI for an order that he should be permitted to inspect the document or to inspect the document without limitation.
Our registered agent is FFP (BVI) Limited of 2nd Floor, Water’s Edge Building, Wickhams Cay II, Road Town, Tortola VG1110, British Virgin Islands. The Company is required to keep a copy of its register of members and register of directors at the offices of its registered agent in the BVI, and the Company is required to notify any changes to the originals of such registers (assuming the originals are held elsewhere) to the registered agent, in writing, within 15 days of any change and to provide the registered agent with a written record of the physical address of the place or places at which the original register of members or the original register of directors is kept.
Where the place at which the original register of members or the original register of directors of the Company is changed, the Company must provide the registered agent with the physical address of the new location of the records within 14 days of the change of location.
The Company is also required to keep at the office of its registered agent or at such other place or places, within or outside the BVI, as the directors may determine the minutes of meetings and resolutions of shareholders and of classes of shareholders; and the minutes of meetings and resolutions of directors and committees of directors. If such records are kept at a place other than at the office of the Company’s registered agent, the Company is required to provide the registered agent with a written record of the physical address of the place or places at which the records are kept and to notify the registered agent, within 14 days, of the physical address of any new location where such records may be kept.
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Dissolution; Winding Up
As permitted by the Companies Act and subject to our M&A, we may be voluntarily liquidated and dissolved under Part XII of the Companies Act by a Supermajority Resolution of Directors or by a resolution of shareholders passed at a meeting of the shareholders by at least 85% of the votes of the shares entitled to vote thereon which were present at the meeting and were voted, if we have no liabilities or we are able to pay our debts as they fall due and the value of our assets equals or exceeds our liabilities.
We also may be wound up and dissolved in circumstances where we are insolvent in accordance with the terms of the Insolvency Act.
Anti-Money Laundering Laws
In order to comply with legislation and regulations aimed at the prevention of money laundering we are required to adopt and maintain anti-money laundering procedures, and may require subscribers to provide evidence to verify their identity. Where permitted, and subject to certain conditions, we also may delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable person. We reserve the right to request such information as is necessary to verify the identity of a subscriber. In the event of delay or failure on the part of the subscriber in producing any information required for verification purposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the account from which they were originally debited.
If any person resident in the BVI knows or suspects that another person is engaged in money laundering or terrorist financing and the information for that knowledge or suspicion came to his or her attention in the course of his or her business the person will be required to report his belief or suspicion to the Financial Investigation Agency of the BVI, pursuant to the Proceeds of Criminal Conduct Act 1997 (as amended). Such a report will not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.
Exchange controls
We know of no BVI laws, decrees, regulations or other legislation that limit the import or export of capital or the payment of dividends to shareholders holders who do not reside in the BVI.
Material Differences in BVI Law and our Amended and Restated M&A and Delaware Law
Our corporate affairs are governed by our amended and restated M&A and the provisions of applicable BVI law, including the Companies Act and BVI common law. The Companies Act differs from laws applicable to U.S. corporations and their shareholders. The following table provides a comparison between certain statutory provisions of the Companies Act (together with the relevant provisions of our M&A) and the Delaware General Corporation Law relating to shareholders’ rights.
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Shareholder Meetings
BVI |
| Delaware |
● In accordance with, and subject to, our M&A, (a) any director of the company may convene meetings of the shareholders at such times and in such manner and places within or outside the British Virgin Islands as the director considers necessary or desirable; and (b) upon the written request of shareholders entitled to exercise thirty percent (30%) or more of the voting rights in respect of the matter for which the meeting is requested the directors shall convene a meeting of shareholders. | ● May be held at such time or place as designated in the charter or the by-laws, or if not so designated, as determined by the board of directors. | |
● May be held inside or outside the BVI. | ● May be held inside or outside Delaware. | |
● In accordance with, and subject to, our M&A, (a) the director convening a meeting shall give not less than 30 days’ nor more than 60 days’ written notice of a meeting of shareholders to those shareholders whose names on the date the notice is given appear as shareholders in the register of members of the company and are entitled to vote at the meeting, and the other directors; and (b) the director convening a meeting of shareholders shall fix in the notice of the meeting the record date for determining those shareholders that are entitled to vote at the meeting. | ● Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any. |
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Shareholder’s Voting Rights
BVI |
| Delaware |
● In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) a shareholder may be represented at a meeting of shareholders by a proxy who may speak and vote on behalf of the shareholder; and (b) the instrument appointing a proxy shall be produced at the place designated for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. | ● Any person authorized to vote may authorize another person or persons to act for him by proxy. | |
● In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the ordinary shares or class or series of ordinary shares entitled to vote on resolutions of shareholders to be considered at the meeting; and (b) if within two hours from the time appointed for the meeting a quorum is not present, the meeting, at the discretion of the chairman of the board of directors, shall be dissolved or stand adjourned to a business day in the jurisdiction in which the meeting was to have been held at the same time and place. | ● The charter or bylaws may specify the number to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares shall constitute a quorum. | |
● In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) at any meeting of the shareholders, a resolution put to the vote of the meeting shall be decided on a show of hands by a simple majority, unless a poll is demanded by any shareholder present in person or by proxy, or by the Chairman. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place, or at which the poll is demanded, shall not be entitled to a second or casting vote. | ||
● In accordance with, and subject to, our M&A, (a) the rights attached to ordinary shares as specified in the M&A may only, whether or not the company is being wound up, be varied with the consent in writing of the holders of not less than one half of the issued shares of that class. | ● Except as provided in the charter documents, changes in the rights of shareholders as set forth in the charter documents require approval of a majority of its shareholders. | |
● In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), the Company may amend its memorandum or articles by a resolution of shareholders or by a resolution of directors, save that no amendment may be made by a resolution of directors (inter alia): (i) to restrict the rights or powers of the shareholders to amend the memorandum or articles; (ii) to change the percentage of shareholders required to pass a resolution of shareholders to amend the memorandum or articles; (iii) in circumstances where the memorandum or articles cannot be amended by the shareholders. | ● The certificate of incorporation or bylaws may provide for cumulative voting. |
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Directors
BVI |
| Delaware |
● In accordance with, and subject to, our M&A, the minimum number of directors shall be one. | ● Board must consist of at least one member. | |
● In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any ordinary shares), for so long as Everix has at least 50% of its ‘Initial Holding’ (which is the number of shares held by Everix immediately after the consummation of the Transactions) it is entitled to appoint two directors to the board. If Everix were to sell its shares such that it had 25-50% of its Initial Holding this would decrease to the number of directors it is entitled to appoint to one director; below 25% there are no appointment rights. Mr. Andrey Fadeev and Mr. Boris Gertsovskiy (collectively, “FG”) have the same rights, acting together and with the number of shares they each hold aggregated for the purposes of calculating their Initial Holding and subsequent percentages thereof. | ● Number of board members shall be fixed by the by laws, unless the charter fixes the number of directors, in which case a change in the number shall be made only by amendment of the charter. | |
Other directors of the Company are elected by resolution of shareholders or by resolution of directors for such term as the shareholders or directors determine. Each director holds office until the Company’s next annual general meeting immediately following their appointment, or until their earlier disqualification, death, resignation or removal. A director, other than one appointed by Everix or FG, may be removed from office by resolution of shareholders. A director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company at the office of its registered agent or from such later date as may be specified in the notice and a director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the Companies Act. A director is not required to hold shares as a qualification to office. | ||
● Directors do not have to be independent. | ● Directors do not have to be independent. |
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Fiduciary Duties
BVI |
| Delaware |
● Directors owe duties at both common law and under statute including as follows: | ● Directors and officers must act in good faith, with the care of a prudent person, and in the best interest of the corporation. | |
● Duty to act honestly and in good faith and in what the director believes to be in the best interests of the company; | ● Directors and officers must refrain from self-dealing, usurping corporate opportunities and receiving improper personal benefits. | |
● Duty to exercise powers for a proper purpose and directors shall not act, or agree to the Company acting, in a manner that contravenes the Companies Act or the M&A; | ||
● The Companies Act provides that a director of a company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into, or to be entered into, by the company, disclose the interest to the board of the company. However, the failure of a director to disclose that interest does not affect the validity of a transaction entered into by the director or the company, so long as the transaction was not required to be disclosed because the transaction is between the company and the director himself and is in the ordinary course of business and on usual terms and conditions. Additionally, the failure of a director to disclose an interest does not affect the validity of the transaction entered into by the company if (a) the material facts of the interest of the director in the transaction are known by the shareholders entitled to vote at a meeting of shareholders and the transaction is approved or ratified by a resolution of shareholders or (b) the company received fair value for the transaction. | ● Directors may vote on a matter in which they have an interest so long as the director has disclosed any interests in the transaction. |
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Shareholder’s Derivative Actions
BVI |
| Delaware |
● Generally speaking, the company is the proper plaintiff in any action. A shareholder may, with the leave of the BVI court, bring proceedings or intervene in proceedings in the name of the company, in certain circumstances. Such actions are known as derivative actions. The BVI court may only grant leave to bring a derivative action where the following circumstances apply: | ● In any derivative suit instituted by a shareholder of a corporation, it shall be averred in the complaint that the plaintiff was a shareholder of the corporation at the time of the transaction of which he complains or that such shareholder’s stock thereafter devolved upon such shareholder by operation of law. | |
● the company does not intend to bring, diligently continue or defend or discontinue the proceedings; and | ● Complaint shall set forth with particularity the efforts of the plaintiff to obtain the action by the board or the reasons for not making such effort. | |
● it is in the interests of the company that the conduct of the proceedings not be left to the directors or to the determination of the shareholders as a whole. When considering whether to grant leave, the BVI court is also required to have regard to the following matters: (i) whether the shareholder is acting in good faith; (ii) whether a derivative action is in the interests of the company, taking into account the directors’ views on commercial matters; (iii) whether the action is likely to succeed; (iv) the costs of the proceedings in relation to the relief likely to be obtained; and (v) whether an alternative remedy to the derivative claim is available. | ● Such action shall not be dismissed or compromised without the approval of the Delaware Court of Chancery. |
Warrants
Public Warrants
General; Form and Register
As of December 31, 2021, we had 12,499,993 public warrants issued and outstanding, calling for 12,499,993 of our ordinary shares issuable upon exercise (at the price per share specified below) of the warrants. Our warrants are listed on the Nasdaq Global Market under the trading symbol “GDEVW”. Our warrants under the Warrant Agreement may be certificated or uncertificated, but may only be issued in registered form. Our warrant register is maintained by Continental Stock Transfer & Trust Company, our warrant agent, which entered the name of Cede & Co. in our warrant register as nominee for each of the warrant holders holding public warrants. Furthermore, as of December 31, 2021, we had 1,000,000 forward purchase warrants issued and outstanding, calling for 1,000,000 of our ordinary shares issuable upon exercise (at the price per share specified below) of the warrants. The forward purchase warrants were issued and sold to the Sponsor under the A&R Forward Purchase Agreement and have the same terms as the public warrants.
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Terms and Exercise of Warrants
Each whole warrant entitles the registered holder to purchase one ordinary share at a price of $11.50 per share, subject to adjustment as discussed below, which became exercisable commencing on September 25, 2021. The Company in its sole discretion may lower the exercise price per share at any time prior to the expiration of the warrants for a period of not less than 20 business days; provided, however, that the Company must provide at least 20 business days prior written notice of such reduction to the registered holders of the warrants; and provided, further, that any such reduction must be applied consistently to all of the warrants. The warrants will expire at 5:00 p.m., New York City time on August 26, 2026, or earlier upon redemption or liquidation.
Warrants may be exercised only for a whole number of ordinary shares. No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number of ordinary shares to be issued to the warrant holder.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of ordinary shares and any voting rights until they exercise their warrants and receive ordinary shares. After the issuance of ordinary shares upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.
The Warrant Agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any ambiguity or to correct any mistake, including to conform the provisions of the Warrant Agreement to the description of the terms of the warrants and the Warrant Agreement set forth in this prospectus, or defective provision or (ii) adding or changing any provisions with respect to matters or questions arising under the Warrant Agreement as the parties to the Warrant Agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of the warrants, provided that the approval by the holders of at least 65% of the then-outstanding public warrants is required to make any change that adversely affects the interests of the registered holders.
We will not be obligated to deliver any ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the ordinary shares underlying the warrants is then effective and a prospectus relating thereto is current, or a valid exemption from registration is available. No warrant will be exercisable and we will not be obligated to issue ordinary shares upon exercise of a warrant unless the ordinary shares issuable upon such warrant exercise have been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will we be required to net cash settle any warrant.
With respect to the 12,499,993 warrants included in Kismet units sold to the public in Kismet’s initial public offering, we have filed with the SEC a registration statement on Form F-4 (Registration No. 333-257103) for the registration, under the Securities Act, of the ordinary shares issuable upon exercise of those warrants. That registration statement was declared effective on July 30, 2021. With respect to the 7,750,000 warrants issued in private placements, we have filed with the SEC a registration statement on Form F-1 (Registration No. 333-259707) for the registration, under the Securities Act, of the ordinary shares issuable upon exercise of those warrants. That registration statement was declared effected on September 27, 2021. We will use our commercially reasonable efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the Warrant Agreement. Notwithstanding the above, if ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement or register or qualify the shares under applicable blue sky laws to the extent an exemption is available. In such event, each holder would pay the exercise price by surrendering each such warrant for that number of ordinary shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” less the exercise price of the warrants by (y) the fair market value and (B) 0.361. The “fair market value” shall mean the volume weighted average price of ordinary shares for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.
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Redemption
Redemption of warrants when the price per ordinary share equals or exceeds $18.00. With the warrants’ having become exercisable, we may redeem the outstanding warrants (except as described herein with respect to the private placement warrants):
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and |
| ● | if, and only if, the last reported sale price of the ordinary shares equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described under the heading “—Anti-dilution Adjustments”) for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption to the warrant holders (which we refer to as the “Reference Value”). |
We will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the ordinary shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those ordinary shares is available throughout the 30-day redemption period. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
We have established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the ordinary shares may fall below the $18.00 redemption trigger price (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) as well as the $11.50 (for whole shares) warrant exercise price after the redemption notice is issued.
Redemption of warrants when the price per ordinary share equals or exceeds $10.00. With the warrants’ having become exercisable, we may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption, provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the “fair market value” of our ordinary shares (as defined below) except as otherwise described below; |
| ● | if, and only if, the Reference Value (as defined above under “—Redemption of warrants when the price per ordinary share equals or exceeds $18.00”) equals or exceeds $10.00 per public share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described under the heading “—Anti-dilution Adjustments”); and |
| ● | if the Reference Value is less than $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant as described under the heading “—Anti-dilution Adjustments”), any outstanding private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above. |
During the period beginning on the date the notice of redemption is given, holders may elect to exercise their warrants on a cashless basis. The numbers in the table below represent the number of ordinary shares that a warrant holder will receive upon such cashless exercise in connection with a redemption by us pursuant to this redemption feature, based on the “fair market value” of our ordinary shares on the corresponding redemption date (assuming holders elect to exercise their warrants and such warrants are not redeemed for $0.10 per warrant), determined for these purposes based on volume weighted average price of our ordinary shares during
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the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants, and the number of months that the corresponding redemption date precedes the expiration date of the warrants, each as set forth in the table below. We will provide our warrant holders with the final fair market value no later than one business day after the 10-trading day period described above ends.
The share prices set forth in the column headings of the table below will be adjusted as of any date on which the number of shares issuable upon exercise of a warrant or the exercise price of the warrant is adjusted as set forth under the heading “—Anti-dilution Adjustments” below. If the number of shares issuable upon exercise of a warrant is adjusted, the adjusted share prices in the column headings will equal the share prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the exercise price of the warrant after such adjustment and the denominator of which is the price of the warrant immediately prior to such adjustment. In such an event, the number of shares in the table below shall be adjusted by multiplying such share amounts by a fraction, the numerator of which is the number of shares deliverable upon exercise of a warrant immediately prior to such adjustment and the denominator of which is the number of shares deliverable upon exercise of a warrant as so adjusted.
Redemption Date | Fair Market Value of Ordinary Shares | |||||||||||||||||
(period to expiration of warrants) |
| ≤10.00 |
| 11.00 |
| 12.00 |
| 13.00 |
| 14.00 |
| 15.00 |
| 16.00 |
| 17.00 |
| ≥18.00 |
60 months |
| 0.261 |
| 0.281 |
| 0.297 |
| 0.311 |
| 0.324 |
| 0.337 |
| 0.348 |
| 0.358 |
| 0.361 |
57 months |
| 0.257 |
| 0.277 |
| 0.294 |
| 0.310 |
| 0.324 |
| 0.337 |
| 0.348 |
| 0.358 |
| 0.361 |
54 months |
| 0.252 |
| 0.272 |
| 0.291 |
| 0.307 |
| 0.322 |
| 0.335 |
| 0.347 |
| 0.357 |
| 0.361 |
51 months |
| 0.246 |
| 0.268 |
| 0.287 |
| 0.304 |
| 0.320 |
| 0.333 |
| 0.346 |
| 0.357 |
| 0.361 |
48 months |
| 0.241 |
| 0.263 |
| 0.283 |
| 0.301 |
| 0.317 |
| 0.332 |
| 0.344 |
| 0.356 |
| 0.361 |
45 months |
| 0.235 |
| 0.258 |
| 0.279 |
| 0.298 |
| 0.315 |
| 0.330 |
| 0.343 |
| 0.356 |
| 0.361 |
42 months |
| 0.228 |
| 0.252 |
| 0.274 |
| 0.294 |
| 0.312 |
| 0.328 |
| 0.342 |
| 0.355 |
| 0.361 |
39 months |
| 0.221 |
| 0.246 |
| 0.269 |
| 0.290 |
| 0.309 |
| 0.325 |
| 0.340 |
| 0.354 |
| 0.361 |
36 months |
| 0.213 |
| 0.239 |
| 0.263 |
| 0.285 |
| 0.305 |
| 0.323 |
| 0.339 |
| 0.353 |
| 0.361 |
33 months |
| 0.205 |
| 0.232 |
| 0.257 |
| 0.280 |
| 0.301 |
| 0.320 |
| 0.337 |
| 0.352 |
| 0.361 |
30 months |
| 0.196 |
| 0.224 |
| 0.250 |
| 0.274 |
| 0.297 |
| 0.316 |
| 0.335 |
| 0.351 |
| 0.361 |
27 months |
| 0.185 |
| 0.214 |
| 0.242 |
| 0.268 |
| 0.291 |
| 0.313 |
| 0.332 |
| 0.350 |
| 0.361 |
24 months |
| 0.173 |
| 0.204 |
| 0.233 |
| 0.260 |
| 0.285 |
| 0.308 |
| 0.329 |
| 0.348 |
| 0.361 |
21 months |
| 0.161 |
| 0.193 |
| 0.223 |
| 0.252 |
| 0.279 |
| 0.304 |
| 0.326 |
| 0.347 |
| 0.361 |
18 months |
| 0.146 |
| 0.179 |
| 0.211 |
| 0.242 |
| 0.271 |
| 0.298 |
| 0.322 |
| 0.345 |
| 0.361 |
15 months |
| 0.130 |
| 0.164 |
| 0.197 |
| 0.230 |
| 0.262 |
| 0.291 |
| 0.317 |
| 0.342 |
| 0.361 |
12 months |
| 0.111 |
| 0.146 |
| 0.181 |
| 0.216 |
| 0.250 |
| 0.282 |
| 0.312 |
| 0.339 |
| 0.361 |
9 months |
| 0.090 |
| 0.125 |
| 0.162 |
| 0.199 |
| 0.237 |
| 0.272 |
| 0.305 |
| 0.336 |
| 0.361 |
6 months |
| 0.065 |
| 0.099 |
| 0.137 |
| 0.178 |
| 0.219 |
| 0.259 |
| 0.296 |
| 0.331 |
| 0.361 |
3 months |
| 0.034 |
| 0.065 |
| 0.104 |
| 0.150 |
| 0.197 |
| 0.243 |
| 0.286 |
| 0.326 |
| 0.361 |
0 months |
| — |
| — |
| 0.042 |
| 0.115 |
| 0.179 |
| 0.233 |
| 0.281 |
| 0.323 |
| 0.361 |
The exact fair market value and redemption date may not be set forth in the table above, in which case, if the fair market value is between two values in the table or the redemption date is between two redemption dates in the table, the number of ordinary shares to be issued for each warrant exercised will be determined by a straight-line interpolation between the number of shares set forth for the higher and lower fair market values and the earlier and later redemption dates, as applicable, based on a 365 or 366-day year, as applicable. For example, if the volume weighted average price of our ordinary shares during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of the warrants is $11.00 per share, and at such time there are 57 months until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.277 ordinary shares for each whole warrant. For an example where the exact fair market value and redemption date are not as set forth in the table above, if the volume weighted average price of our ordinary shares during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of the warrants is $13.50 per share, and at such time there are 38 months until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.298 ordinary shares for each whole warrant. In no event will the warrants be exercisable on a cashless basis in connection with this redemption feature for more than 0.361 ordinary shares per warrant (subject to adjustment). Finally, as reflected in the table above, if the warrants are out of the money and about to expire, they cannot be exercised on a cashless basis in connection with a redemption by us pursuant to this redemption feature, since they will not be exercisable for any ordinary shares.
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This redemption feature differs from the typical warrant redemption features used in many other blank check offerings, which typically only provide for a redemption of warrants for cash (other than the private placement warrants) when the trading price for the ordinary shares exceeds $18.00 per share for a specified period of time. This redemption feature is structured to allow for all of the outstanding warrants to be redeemed when the ordinary shares are trading at or above $10.00 per public share, which may be at a time when the trading price of our ordinary shares is below the exercise price of the warrants. We have established this redemption feature to provide us with the flexibility to redeem the warrants without the warrants having to reach the $18.00 per share threshold set forth above under “—Redemption of warrants when the price per ordinary share equals or exceeds $18.00.” Holders choosing to exercise their warrants in connection with a redemption pursuant to this feature will, in effect, receive a number of shares for their warrants based on an option pricing model with a fixed volatility input. This redemption right provides us with an additional mechanism by which to redeem all of the outstanding warrants, and therefore have certainty as to our capital structure as the warrants would no longer be outstanding and would have been exercised or redeemed. We will be required to pay the applicable redemption price to warrant holders if we choose to exercise this redemption right and it will allow us to quickly proceed with a redemption of the warrants if we determine it is in our best interest to do so. As such, we would redeem the warrants in this manner when we believe it is in our best interest to update our capital structure to remove the warrants and pay the redemption price to the warrant holders.
As stated above, we can redeem the warrants when the ordinary shares are trading at a price starting at $10.00, which is below the exercise price of $11.50, because it will provide certainty with respect to our capital structure and cash position while providing warrant holders with the opportunity to exercise their warrants on a cashless basis for the applicable number of shares. If we choose to redeem the warrants when the ordinary shares are trading at a price below the exercise price of the warrants, this could result in the warrant holders receiving fewer ordinary shares than they would have received if they had chosen to wait to exercise their warrants for ordinary shares if and when such ordinary shares were trading at a price higher than the exercise price of $11.50.
No fractional ordinary shares will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, we will round down to the nearest whole number of the number of ordinary shares to be issued to the holder.
Redemption Procedures. In the event the Company elects to redeem all of the warrants, the Company must fix a date for the redemption. Notice of redemption must be mailed by first class mail, postage prepaid, by the Company not less than 30 days prior to the redemption date to the registered holders of the warrants to be redeemed at their last addresses as they appear on the warrant register. Any notice mailed in such manner will be conclusively presumed to have been duly given whether or not the registered holder received such notice.
A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the ordinary shares outstanding immediately after giving effect to such exercise.
Anti-dilution Adjustments
If the number of outstanding ordinary shares is increased by a dividend payable in ordinary shares, or by a split-up of ordinary shares or other similar event, then, on the effective date of such share dividend, split-up or similar event, the number of ordinary shares issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding ordinary shares. A rights offering to holders of ordinary shares entitling holders to purchase ordinary shares at a price less than the fair market value will be deemed a share dividend of a number of ordinary shares equal to the product of (i) the number of ordinary shares actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for ordinary shares) multiplied by (ii) one (1) minus the quotient of (x) the price per share of ordinary shares paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for ordinary shares, in determining the price payable for ordinary shares, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of ordinary shares as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the ordinary shares trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of ordinary shares on account of such ordinary shares (or other shares of our share capital into
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which the warrants are convertible), other than (a) as described above, or (b) any cash dividends or cash distributions which, when combined on a per share basis with all other cash dividends and cash distributions paid on the ordinary shares during the 365-day period ending on the date of declaration of such dividend or distribution does not exceed $0.50 (as adjusted to appropriately reflect any other adjustments and excluding cash dividends or cash distributions that resulted in an adjustment to the exercise price or to the number of ordinary shares issuable on exercise of each warrant) but only with respect to the amount of the aggregate cash dividends or cash distributions equal to or less than $0.50 per share, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each ordinary share in respect of such event.
If the number of outstanding ordinary shares is decreased by a consolidation, combination, reverse share split or reclassification of ordinary shares or other similar event, then, on the effective date of such consolidation, combination, reverse share split, reclassification or similar event, the number of ordinary shares issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding ordinary shares.
Whenever the number of ordinary shares purchasable upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of ordinary shares purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of ordinary shares so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding ordinary shares (other than those described above or that solely affects the par value of such ordinary shares), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding ordinary shares), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of ours as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the ordinary shares immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of ordinary shares in such a transaction is payable in the form of shares in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the Warrant Agreement based on the Black-Scholes value (as defined in the Warrant Agreement) of the warrant. The purpose of such exercise price reduction is to provide additional value to holders of the warrants when an extraordinary transaction occurs during the exercise period of the warrants pursuant to which the holders of the warrants otherwise do not receive the full potential value of the warrants.
Applicable Law
The validity, interpretation, and performance of the warrants and the Warrant Agreement is governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction.
Private Placement Warrants
As of December 31, 2021, we had 6,750,000 private placement warrants issued and outstanding, calling for 6,750,000 of our ordinary shares issuable upon exercise (at the price per share specified above under “—Public Warrants—Terms and Exercise of Warrants”) of the warrants. As of December 31, 2021, the Sponsor held 6,125,000 of our private placement warrants which are registered with the SEC on a registration statement on Form F-1 (Registration No. 333-259707) that was declared effected on September 27, 2021.
So long as they are held by the initial purchasers (including the Sponsor) or their permitted transferees (including the PIPE Investors), the private placement warrants (i) will not be redeemable by us and (ii) may be exercised for cash or on a cashless basis.
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Otherwise, the private placement warrants have terms and provisions that are identical to those of the public warrants. Once the private placement warrants are transferred to holders other than the initial purchasers or their permitted transferees, the terms of the private placement warrants will be identical to those of the public warrants in all respects. Accordingly, they will become redeemable by us and be exercisable by the holders only on the same basis as the public warrants.
Except as described under “—Public Warrants—Redemption—Redemption of warrants when the price per ordinary share equals or exceeds $10.00,” if holders of the private placement warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering his, her or its warrants for that number of ordinary shares equal to the quotient obtained by dividing (x) the product of the number of ordinary shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average last reported sale price of the ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent. The reason that we have agreed that these warrants will be exercisable on a cashless basis so long as they are held by the Sponsor and permitted transferees is because, so long as the Sponsor remains affiliated with us, its ability to sell our securities in the open market will be significantly limited. We have policies in place that prohibit insiders from selling our securities except during specific periods of time. Even during such periods of time when insiders will be permitted to sell our securities, an insider cannot trade in our securities if he or she is in possession of material non-public information. Accordingly, unlike our public shareholders who could exercise their warrants and sell the ordinary shares received upon such exercise freely in the open market to recoup the cost of such exercise, the insiders could be significantly restricted from selling such securities. As a result, we believe that allowing the holders to exercise such warrants on a cashless basis is appropriate.
Transfer Agent
Our transfer agent is Continental Stock Transfer & Trust Company, 1 State Street, 30th Floor, New York, New York 10004-1561.
Warrant Agent
Our warrant agent is Continental Stock Transfer & Trust Company, 1 State Street, 30th Floor, New York, New York 10004-1561.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Policies and Procedures for Related Person Transactions
The board of directors of the Company have adopted a written related person transaction policy that sets forth the following policies and procedures for the review and approval or ratification of related person transactions.
A “related person transaction” is a transaction, arrangement or relationship in which the Company or any of its subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “related person” means:
| ● | any person who is, or at any time during the applicable period was, one of the Company’s executive officers or one of the Company’s directors; |
| ● | any person who is known by the Company to be the beneficial owner of more than 5% of its voting shares; |
| ● | any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of the Company’s voting shares, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of the Company’s voting shares; and |
| ● | any firm, corporation or other entity in which any of the foregoing persons is a partner or principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest. |
The Company has implemented policies and procedures designed to minimize potential conflicts of interest arising from any dealings it may have with its affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time. Specifically, pursuant to its audit committee charter, the audit committee will have the responsibility to review related party transactions.
Transactions Related to the Business Combination of the Issuer, Kismet and Nexters Global
Business Combination Agreement
On August 26, 2021, we consummated the Transactions contemplated by the business combination agreement (the “Business Combination Agreement”), dated as of January 31, 2021, as amended on July 17, 2021 and August 11, 2021, by and among the Issuer, Kismet, the Sponsor (which is solely owned by Ivan Tavrin, a former director of the Company), solely in its capacity as Kismet’s representative, Nexters Global, Fantina Holdings Limited, a private limited liability company domiciled in Cyprus, solely in its capacity as the Company Shareholders representative, and the shareholders of Nexters Global party thereto. Pursuant to the Business Combination Agreement, among other things, Kismet was merged into the Issuer, with the Issuer surviving the merger and the securityholders of Kismet (other than those who elected to redeem their Kismet ordinary shares) becoming securityholders of the Issuer, and the Issuer acquired all of the issued and outstanding share capital of Nexters Global from the holders of Nexters Global’s share capital for a combination of cash and GDEV ordinary shares, such that Nexters Global became a direct wholly owned subsidiary of the Issuer. The Business Combination Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions.
Kismet Founder Shares
On June 8, 2020, Kismet issued 6,250,000 Kismet founder shares. The Sponsor (which is solely owned by Ivan Tavrin, a former director of the Company), paid for certain offering costs of $25,000 on behalf of Kismet in exchange for issuance of the Kismet founder shares. In July 2020, Kismet performed a 1.23 share split resulting in the Sponsor holding an aggregate of 7,687,500 Kismet founder shares. All Kismet shares and associated amounts were retroactively restated to reflect the share capitalization. The Sponsor had agreed to forfeit up to an aggregate of 937,500 Kismet founder shares, on a pro rata basis, to the extent that the option to purchase
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additional Kismet units in the IPO was not exercised in full by the underwriters. On September 17, 2020, the underwriters notified Kismet that the over-allotment option was not exercised; as a result, these Kismet founder shares were forfeited effective as of September 19, 2020, leaving the Sponsor with 6,750,000 Kismet founder shares.
In connection with the Transactions, the Sponsor’s 6,750,000 Kismet founder shares were exchanged for 6,750,000 GDEV ordinary shares.
Private Placement Warrants
Simultaneously with the closing of the IPO, Kismet consummated a private placement of 6,750,000 Kismet private placement warrants, at a price of $1.00 per Kismet private placement warrant, to the Sponsor (which is solely owned by Ivan Tavrin, a former director of the Company), generating gross proceeds of approximately $6.8 million.
In connection with the Transactions, the Sponsor’s 6,750,000 Kismet private placement warrants were exchanged for 6,750,000 GDEV private placement warrants, 1,625,000 of which were transferred by the Sponsor to certain institutional investors in private placements pursuant to the PIPE Subscription Agreements consummated in connection with the Transactions.
Forward Purchase Agreement
On August 5, 2020, Kismet entered into a forward purchase agreement (the “Forward Purchase Agreement”) with the Sponsor (which is solely owned by Ivan Tavrin, a former director of the Company), which provided for the purchase of $20,000,000 of Kismet units, with each Kismet unit consisting of one Kismet ordinary share (the “Forward Purchase Shares”) and one half of one Kismet warrant (the “Forward Purchase Warrants”), for a purchase price of $10.00 per Kismet unit, in a Kismet private placement to occur concurrently with the closing of Kismet’s initial business combination.
On January 31, 2021, Kismet, the Issuer and the Sponsor entered into an amended and restated Forward Purchase Agreement (the “A&R Forward Purchase Agreement”). The A&R Forward Purchase Agreement amended the Forward Purchase Agreement, dated August 5, 2020, between Kismet and the Sponsor by, among other things, increasing the Sponsor’s purchase commitment thereunder from $20.0 million to $50.0 million and replacing the Sponsor’s commitment to acquire Kismet’s units with a commitment to acquire 5,000,000 GDEV ordinary shares and 1,000,000 GDEV public warrants in a private placement to occur after, and subject to, the Merger Closing and prior to the Share Acquisition Closing. Upon Closing, the Sponsor subscribed for and purchased 5,000,000 GDEV ordinary shares and 1,000,000 GDEV public warrants from the Issuer for an aggregate purchase price of $50,000,000, pursuant to the terms of the A&R Forward Purchase Agreement.
PIPE Subscription Agreements
On July 16, 2021, Kismet, the Issuer and the Sponsor entered into separate subscription agreements (each as amended, restated or supplemented from time to time, a “PIPE Subscription Agreement”) with certain institutional investors that are not “U.S. persons” as defined in Regulation S under the Securities Act and with whom the Sponsor had prior business relationships (each, a “PIPE Investor”), pursuant to which the PIPE Investors agreed to subscribe for and purchase an aggregate of 5,000,000 GDEV ordinary shares for a purchase price of $10.00 per share for an aggregate commitment of $50 million in a private placements outside the United States in reliance on Regulation S under the Securities Act (the “PIPE”). The PIPE was consummated concurrently with the closing of the Transactions.
Registration Rights Agreement
Upon consummation of the Transactions, on August 26, 2021, the Issuer, the Key Company Shareholders and the Sponsor entered into a Registration Rights Agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, subject to certain requirements and customary conditions, including with regard to the number of demand rights that may be exercised, the Holders (as defined therein) may demand at any time or from time to time, that the Issuer file a registration statement with the SEC to register the securities of the Issuer held by such Holders. The Registration Rights Agreement also (i) provides the Holders with “piggy-back” registration rights, subject to certain requirements and customary conditions, and (ii) terminates the registration rights agreement, dated as of August 5, 2020, among Kismet, the Sponsor and the other “Holders” named therein.
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Lock-Up Agreements
Upon consummation of the Transactions, on August 26, 2021, (i) the Key Company Shareholders each entered into a lock-up agreement with the Issuer (the “Company Shareholders Lock-Up Agreement”), and (ii) the Sponsor entered into a lock-up agreement with the Issuer (the “Sponsor Lock-Up Agreement” and, together with the Company Shareholders Lock-Up Agreement, the “Lock-Up Agreements”). Pursuant to the Company Shareholders Lock-Up Agreement, subject to certain limited exceptions, the Key Company Shareholders agreed not to transfer any GDEV ordinary shares received and to be received by the Key Company Shareholders pursuant to the Business Combination Agreement during the period commencing from the Share Acquisition Closing until the earlier to occur of (i) one year after the Share Acquisition Closing, (ii) 150 days after the Share Acquisition Closing, if the closing price of the GDEV ordinary shares during such period equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30 trading day period and (iii) a date after the Share Acquisition Closing on which the Issuer consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all of the Issuer’s shareholders having the right to exchange their GDEV ordinary shares for cash, securities or other property. As of the date of this prospectus, the transfer restrictions under the Company Shareholders Lock-Up Agreement have expired.
Pursuant to the Sponsor Lock-Up Agreement, subject to certain limited exceptions, the Sponsor agreed not to transfer any GDEV ordinary shares and the GDEV warrants received and to be received by the Sponsor pursuant to the A&R Forward Purchase Agreement and the Business Combination Agreement (including the GDEV ordinary shares issued or issuable upon the exercise or conversion of the GDEV warrants) during the period commencing from the Merger Closing until the earlier to occur of (i) one year after the Share Acquisition Closing, (ii) 150 days after the Share Acquisition Closing, if the closing price of the GDEV ordinary shares during such period equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30 trading day period and (iii) a date after the Share Acquisition Closing on which the Issuer consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all of the Issuer’s shareholders having the right to exchange their GDEV ordinary shares for cash, securities or other property. Pursuant to the Sponsor Lock-Up Agreement, the Sponsor also agreed not to transfer any GDEV warrants until 30 days after the Merger Closing. As of the date of this prospectus, the transfer restrictions under the Sponsor Lock-Up Agreement have expired.
Deferred Exchange Shares
Pursuant to the Business Combination Agreement, the issuance of an aggregate of 20,000,000 GDEV ordinary shares (valued at approximately $200.0 million) to the former shareholders of Nexters Global has been deferred as follows: (i) the issuance of 10,000,000 ordinary shares, in the aggregate, is deferred until the volume weighted average trading price of GDEV ordinary shares is $13.50 or greater for any 20 trading days within a period of 30 trading days prior to the third anniversary of the Share Acquisition Closing; and (ii) the issuance of an additional 10,000,000 ordinary shares, in the aggregate, is deferred until the volume weighted average trading price of GDEV ordinary shares is $17.00 or greater for any 20 trading days within a period of 30 trading days prior to the third anniversary of the Share Acquisition Closing.
Director Appointment Rights
Pursuant to our Amended and Restated Memorandum and Articles of Association, each of (1) Everix Investments Limited (which is wholly owned by Dmitrii Bukhman, a former Company director, and Igor Bukhman, a Company director), and (2) Andrey Fadeev (the Chief Executive Officer and a director of the Company) and Boris Gertsovskiy (a former Company director), acting jointly, have the right to appoint two directors to the board of directors, which number may decrease as those shareholders dispose of their shares in the Company. For further information, see the Company’s Amended and Restated Memorandum and Articles of Association, which is included as an exhibit to the registration statement of which this prospectus forms a part.
As of the date of this prospectus, (1) Everix Investments Limited has exercised its director appointment right in respect of one of our current directors, Igor Bukhman and (2) Andrey Fadeev and Boris Gertsovskiy, acting jointly, have exercised their director appointment right in respect of one of our current directors, Andrey Fadeev.
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Indemnification Agreements
Our Amended and Restated Memorandum and Articles of Association provide for certain indemnification rights for our directors and executive officers, and we entered into an indemnification agreement with each of our executive officers and directors providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from his or her service to us or, at our request, service to other entities, as officers or directors to the maximum extent permitted by British Virgin Islands law.
Loan from Shareholders
On May 8, 2021, May 25, 2021 and August 6, 2021, Nexters Global entered into a loan agreement with the Issuer for an aggregate amount of $386,308, comprising a tranche of €153,000 and two tranches of $100,000. The loan was provided interest free. With the consummation of the Transactions, pursuant to which Nexters Global became a consolidated subsidiary of the Issuer, the loan has been eliminated for reporting purposes from the consolidated balance sheet of the Company.
Relationship with Flow Research S. L.
Flow Research S.L. is a Spanish company that is the Company’s wholly-owned subsidiary. Mr. Gertsovskiy, a former Company director who served on GDEV’s board of directors until August 2022, has been a director and administrator of Flow Research since 2017 and his spouse, Tatiana Gertsovskaya, is employed by Flow Research S.L. in a non-executive position.
Relationship with Everix Investments Limited
Everix Investments Limited directly held 38% of our outstanding ordinary shares as of February 28, 2022 and is beneficially owned by Igor Bukhman and Dmitrii Bukhman. Dmitrii Bukhman is a Company director.
On January 27, 2022, GDEV entered into an Agreement for the Sale and Purchase of Shares in the Capital of MX Capital Limited with Everix Investments Limited, pursuant to which we acquired shares representing a 48.8% stake in MX Capital Limited held by Everix Investments Limited for initial consideration of $16.6 million plus further earn-out payments of up to $35 million depending on the achievement of certain metrics. The share acquisition was financed by cash on balance
GDEV has agreed with the remaining shareholder of MX Capital Limited, MSRJ LTD, to put and call options allowing GDEV to consolidate 100% in MX Capital Limited in the first half of 2024. The price payable under the put and call options depends on achievement of certain agreed KPI’s by MX Capital Limited. Option arrangements also envisage earn-out payments to the founders based on performance metrics. The share acquisition(s) upon execution of the options will be payable by cash and newly issued equity of GDEV and will be based on a discount to a projected future enterprise valuation of GDEV.
MX Capital is the owner of RJ Games, a veteran game development studio which has vast experience in developing social games in various genres, from casual adventure to strategy games.
Other Related Party Transactions
For additional information on related party transactions, see Note 27 (Related party transactions) to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2022, included elsewhere in this prospectus.
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MAJOR SHAREHOLDERS
The following table sets forth information relating to the beneficial ownership of our ordinary shares as of September 29, 2023 based on a total number of 197,389,502 ordinary shares outstanding as of such date, with respect to the beneficial ownership of our shares by:
| ● | each person, or group of affiliated persons, known by us to beneficially own more than 5% of outstanding ordinary shares; |
| ● | each of our directors; |
| ● | each of our named executive officers; and |
| ● | all of our directors and executive officers as a group. |
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days. Except as described in the footnotes below and subject to applicable community property laws and similar laws, we believe that each person listed above has sole voting and investment power with respect to all ordinary shares held by that person based on information provided to us by such person. This table is based on information supplied by our directors and officers and by Schedules 13D and Schedules 13G, if any, filed with the SEC.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to the voting securities beneficially owned by them.
Number of | Percentage of |
| |||
Ordinary | Ordinary |
| |||
Beneficial Owners |
| Shares(1) |
| Shares(2) |
|
Directors and Executive Officers |
|
|
|
| |
Andrey Fadeev (Director and Chief Executive Officer) |
| 39,790,076 |
| 20.2 | % |
Natasha Braginsky Mounier (Director)(3) |
| 15,000 |
| * | |
Igor Bukhman (Director)(4) |
| 37,200,700 |
| 18.8 | % |
Marie Holive (Director) |
| — |
| — | |
Olga Loskutova (Director) |
| — |
| — | |
Andrew Sheppard(3) (Director) |
| 15,000 |
| * | |
Tal Shoham (Director) |
| — |
| — | |
Alexander Karavaev(3) (Chief Financial Officer) |
| 220,000 |
| * | |
Anton Reinhold(5) (Chief Operating Officer) |
| 3,752,417 |
| 1.9 | % |
All GDEV directors and executive officers as a group (9 individuals) |
| 80,993,193 |
| 41.0 | % |
Other 5% Shareholders |
|
|
|
| |
Everix Investments Limited(6) |
| 74,401,400 |
| 37.7 | % |
Boris Gertsovskiy |
| 39,790,076 |
| 20.2 | % |
Kismet Sponsor Limited(7) |
| 17,875,000 |
| 9.1 | % |
* | Less than one percent (1%) of our outstanding ordinary shares. |
| (1) | The number of ordinary shares listed for each beneficial owner assumes the exercise of all of the warrants beneficially owned by such beneficial owner. |
| (2) | In calculating the percentages, (a) the numerator is calculated by adding the number of ordinary shares held by such beneficial owners and the number of ordinary shares issuable upon the exercise of options and warrants held by such beneficial owner (if any); and (b) the denominator is calculated by adding the aggregate number of ordinary shares outstanding, the number of ordinary shares issuable upon the exercise of options and warrants held by such beneficial owner, if any (but not the number of ordinary shares issuable upon the exercise of warrants held by any other beneficial owner). |
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| (3) | Represents ordinary shares issuable upon exercise of options that have been granted and are currently exercisable or exercisable within 60 days. For information regarding the options, see “Directors and Executive Compensation —Options Granted Under the 2021 ESOP.” |
| (4) | Represents 50% of the 74,401,400 ordinary shares directly held by Everix Investments Limited. Based on information reported on a Schedule 13G filed on February 14, 2022, each of Dmitrii Bukhman and Igor Bukhman has a 50% indirect ownership interest in Everix Investments Limited. Consequently, Igor Bukhman may be deemed to be the indirect beneficial owner of 50% of the ordinary shares held by Everix Investments Limited. |
| (5) | Includes (i) 3,531,686 ordinary shares and (ii) 220,731 ordinary shares issuable upon the exercise of options that have been granted and are currently exercisable or exercisable within 60 days. For information regarding the options, see “Directors and Executive Compensation—Options Granted Under the 2021 ESOP.” |
| (6) | Based on information reported on a Schedule 13G filed on February 14, 2022, each of Dmitrii Bukhman (a former director of the Company) and Igor Bukhman (a director of the Company) has a 50% indirect ownership interest in Everix Investments Limited. Consequently, each of Dmitrii Bukman and Igor Bukhman may be deemed to be the indirect beneficial owner of 50% of the ordinary shares held by Everix Investments Limited. |
| (7) | Represents 11,750,000 ordinary shares and 6,125,000 ordinary shares issuable upon the exercise of 6,125,000 warrants. Based on information reported on a Schedule 13G filed on February 15, 2023, Ivan Tavrin (a former director of the Company) has (i) sole voting power over all of the Company’s ordinary shares held by Kismet Sponsor Limited and (ii) sole dispositive power over all of our ordinary shares held by Kismet Sponsor Limited until February 15, 2025, pursuant to a Special Power of Attorney, dated July 28, 2022 (as reissued on February 15, 2023), executed as a deed by Kismet Sponsor Limited. Accordingly, Mr. Tavrin may be deemed to share beneficial ownership over our ordinary shares owned by Kismet Sponsor Limited. |
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SELLING SECURITYHOLDERS
This prospectus relates to the offer and sale, from time to time, by the selling securityholders named herein (the “Selling Securityholders”), or their pledgees, donees, transferees, or other successors in interest, of: (i) up to 47,102,791 of our ordinary shares, no par value per share, issued to the Selling Securityholders, as described below (which includes up to 7,750,000 ordinary shares issuable upon the exercise of 7,750,000 of our warrants offered hereby issued to certain of the Selling Securityholders, as described below); and (ii) up to 7,750,000 of our warrants issued to certain of the Selling Securityholders, as described below.
The securities covered by this prospectus include (i) 5,000,000 GDEV ordinary shares issued to certain institutional investors in private placements pursuant to the PIPE Subscription Agreements (as defined herein) consummated in connection with the Transactions, (ii)(a) 6,750,000 GDEV ordinary shares issued to the Sponsor in connection with the Merger and (b) 5,000,000 GDEV ordinary shares issued to the Sponsor in a private placement pursuant to the A&R Forward Purchase Agreement (as defined herein) consummated in connection with the Transactions, and (iii) 22,602,791 GDEV ordinary shares issued to certain former shareholders of Nexters Global in connection with the Share Acquisition, (iv)(a) 5,125,000 GDEV warrants issued to the Sponsor in connection with the Merger and (b) 1,000,000 GDEV warrants issued to the Sponsor in a private placement pursuant to the A&R Forward Purchase Agreement consummated in connection with the Transactions, and (v) 1,625,000 GDEV warrants transferred by the Sponsor to certain institutional investors in private placements pursuant to the PIPE Subscription Agreements (as defined herein) consummated in connection with the Transactions. In addition, this prospectus relates to the offer and sale of up to 7,750,000 GDEV ordinary shares issuable by us upon exercise of 7,750,000 GDEV warrants offered hereby.
Upon Kismet’s initial public offering (the “IPO”), the Sponsor held an aggregate of 6,750,000 Kismet founder shares which it had acquired against a capital contribution of $25,000, representing an acquisition price of approximately $0.0037 per share. In the IPO, Kismet issued 25,000,000 units to public holders at a price of $10.00 per unit, with each unit consisting of one Kismet ordinary share and one-half of one Kismet warrant. Simultaneously with the consummation of the IPO, the Sponsor purchased 6,750,000 Kismet private placement warrants at a purchase price of $6,750,000, or $1.00 per private placement warrant. Upon the consummation of the Transactions, (i) the Sponsor’s 6,750,000 Kismet founder shares were converted into 6,750,000 GDEV ordinary shares, (ii) 3,188,758 Kismet ordinary shares issued to public holders (following the redemption of 21,811,242 Kismet ordinary shares prior to the Merger) were converted to 3,188,758 GDEV ordinary shares, (iii) the Sponsor’s 6,750,000 Kismet private placement warrants were converted into 6,750,000 GDEV private placement warrants, (iv) the Sponsor acquired, pursuant to the A&R Forward Purchase Agreement, 5,000,000 GDEV ordinary shares and 1,000,000 GDEV warrants for an aggregate purchase price of $50,000,000, or approximately $9.86 per GDEV ordinary share and approximately $0.72 per GDEV warrant (assuming an estimated purchase price allocation based upon the closing trading price of Kismet’s public warrants of $0.72 on August 27, 2021, the closing date of the Transactions), and (v) the Sponsor transferred, pursuant to the PIPE Subscription Agreements, 1,625,000 GDEV private placement warrants to the PIPE Investors, for which the Sponsor did not receive any consideration.
The up to 47,102,791 ordinary shares being offered for resale pursuant to this prospectus by the Selling Securityholders represent approximately 21.5% of shares outstanding on a diluted basis assuming the exercise of all outstanding warrants and the exercise of all options vested as of the date of this prospectus or within 60 days hereof. Additionally, pursuant to other registration statements we have filed with the SEC, we have registered for resale by certain selling securityholders up to 175,413,828 ordinary shares. Furthermore, as of the date of this prospectus, 9,562,757 ordinary shares are registered and subject to issuance under our 2021 Employee Stock Option Plan, which ordinary shares may, upon issuance, be resold in the public market. In aggregate, the percentage of our ordinary shares being offered for resale under both this prospectus and our other registration statements amounts to approximately 98.9% of our shares outstanding on a fully diluted basis assuming both (a) the exercise of all outstanding warrants and the exercise of all options vested as of the date of this prospectus or within 60 days hereof and (b) the issuance of all ordinary shares issuable under our 2021 Employee Stock Option Plan (excluding ordinary shares associated with such vested options). Given the substantial number of ordinary shares registered for potential resale by selling securityholders (including the Selling Securityholders under this prospectus), the sale of ordinary shares by those selling securityholders, or the perception in the market that the selling securityholders of a large number of shares intend to sell shares, could increase the volatility of the market price of our ordinary shares or result in a significant decline in the public trading price of our ordinary shares. Even if our trading price is significantly below $10.00, the offering price of the Kismet units offered in its IPO, the Sponsor, one of the Selling Securityholders named in this prospectus, may still have an incentive to sell our ordinary shares because it acquired 6,750,000 ordinary shares relating to the 6,750,000 Kismet founder shares at prices lower than the public investors or the last reported trading price of our ordinary shares. For example, based on the last reported sale price of our ordinary shares of $2.74 on September 28, 2023, the Sponsor would experience a potential profit in respect of 6,750,000 of its GDEV ordinary shares relating to the 6,750,000 Kismet founder shares of up to
142
approximately $2.736 per share, or approximately $18.5 million in the aggregate. While the Sponsor may experience a positive rate of return based on the trading price of our ordinary shares, the public holders of our ordinary shares may not experience a similar rate of return on the ordinary shares they purchase due to differences in the applicable purchase price and trading price. Ivan Tavrin, a former director of the Company and the former sole owner of the Sponsor who maintains sole dispositive power over all of GDEV ordinary shares held by the Sponsor until February 15, 2025, has caused the Sponsor to offer its entire holding in GDEV securities, comprising 11,750,000 ordinary shares and 6,125,000 warrants, in the offering to which this prospectus relates.
The following table sets forth the names of the Selling Securityholders, the number of ordinary shares and warrants owned by each of them as of the date of this prospectus (assuming the exercise of all options and warrants held by such Selling Securityholder and currently exercisable or exercisable within sixty (60) days of the date of this prospectus), the maximum number of ordinary shares and warrants which may be offered pursuant to this prospectus, and the number and percentage of ordinary shares and warrants to be beneficially owned by each Selling Securityholder assuming all of the ordinary shares and warrants which may be offered by such Selling Securityholder pursuant to this prospectus are sold. The “Ordinary Shares Owned after Offering (%)” column is based on 197,389,502 ordinary shares outstanding at closing of the offering (other than in respect of the total, which assumes the exercise of all options held by the Selling Securityholders and currently exercisable or exercisable within sixty (60) days of the date of this prospectus), and the “Warrants Owned after Offering (%)” column is based on 20,249,993 warrants outstanding at closing of the offering.
We cannot advise you as to whether the Selling Securityholders will in fact sell any or all of their ordinary shares, or warrants, as applicable. The Selling Securityholders may offer all or part of the ordinary shares, or warrants for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. Because the Selling Securityholders may offer all, some or none of their securities, no definitive estimate as to the number of ordinary shares or warrants, as applicable, that will be held by the Selling Securityholders after an offering can be provided. A Selling Securityholder may sell or otherwise transfer all, some or none of such securities in any offering. See “Plan of Distribution.” We will not receive any of the proceeds from the sale of the ordinary shares or warrants sold by the Selling Securityholders.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security. Therefore, beneficial ownership of the ordinary shares by each Selling Securityholder includes ordinary shares underlying the options and warrants held by such Selling Securityholder that are currently exercisable or convertible or exercisable or convertible within sixty (60) days.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to ordinary shares beneficially owned by them.
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Except as described in the footnotes to the table below, none of the Selling Securityholders has held any position or office or has had any other material relationship with us or any of our affiliates within the past three years other than as a result of his or her ownership of shares of equity securities. This information is based upon information provided by the Selling Securityholders. Selling Securityholders information for each additional Selling Securityholders, if any, will be set forth in a prospectus supplement to the extent required prior to the time of any offer or sale of such Selling Securityholder’s ordinary shares or warrants, as applicable, pursuant to this prospectus. Any prospectus supplement may add, update, substitute, or change the information contained in this prospectus, including the identity of each Selling Securityholders and the number of ordinary shares or warrants, as applicable, registered on its behalf.
Ordinary Shares | Warrants | |||||||||||||||||||
Shares | Shares | Shares | Shares | Warrants | Warrants | Warrants | Warrants | |||||||||||||
Owned | Owned | Owned | Owned | Owned | Owned | Owned | Owned | |||||||||||||
Name of Selling | Before the | Before the | Shares | After the | After the | Before the | Before the | Warrants | After the | After the | ||||||||||
Securityholder |
| Offering(1) |
| Offering (%)(2) |
| to be Sold(3) |
| Offering(1) |
| Offering (%) |
| Offering |
| Offering (%)(4) |
| to be Sold |
| Offering |
| Offering (%) |
PIPE Investors | ||||||||||||||||||||
Mubadala Investment Company(5) |
| 3,312,500 | (6) | 1.7 | % | 2,500,000 |
| — |
| — |
| 812,500 |
| 4.0 | % | 812,500 |
| — |
| — |
VPE FUND I LP(7) |
| 3,312,500 | (6) | 1.7 | % | 2,500,000 |
| — |
| — |
| 812,500 |
| 4.0 | % | 812,500 |
| — |
| — |
Sponsor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kismet Sponsor Limited(8) | 17,875,000 | (9) | 8.8 | % | 11,750,000 |
| — |
| — | 6,125,000 | 30.2 | % | 6,125,000 |
| — |
| — | |||
Company Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrey Chiriskiy(10) |
| 6,180,452 |
| 3.1 | % | 6,180,452 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Georgii Kondratev(11) |
| 1,765,843 |
| * |
| 1,765,843 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Tatiana Kostrikova(12) |
| 1,765,843 |
| * |
| 1,765,843 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Nidelor Limited(13) |
| 1,765,843 |
| * |
| 1,765,843 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Oleksandr Morozov(14) |
| 176,584 |
| * |
| 176,584 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Dmitrii Philippov(15) |
| 353,168 |
| * |
| 353,168 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Vladimir Suchkov(16) |
| 1,765,843 |
| * |
| 1,765,843 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Anton Reinhold(17) |
| 3,752,417 | (18) | 1.9 | % | 3,531,686 |
| 220,731 |
| * | — |
| — |
| — |
| — |
| — | |
Nikolay Yastrebov(19) |
| 1,765,843 |
| * |
| 1,765,843 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Former Company Employee | ||||||||||||||||||||
Aleksandr Ivanov(20) | 3,713,197 | 1.9 | % | 3,531,686 | 181,511 | * | — | — | — | — | — | |||||||||
Total |
| 47,210,725 |
| 23.1 | % | 39,352,791 |
| 402,242 |
| * | 7,750,000 |
| 38.3 | % | 7,750,000 |
| — |
| — | |
*Less than one percent (1%)
| (1) | The number of ordinary shares listed for each Selling Securityholder is based on the ordinary shares held by such Selling Securityholder as of the date of this prospectus, but assumes the exercise of all options and warrants held by such Selling Securityholder and currently exercisable or exercisable within sixty (60) days of the date of this prospectus. |
| (2) | In calculating the percentages, (a) the numerator is calculated by adding the number of ordinary shares held by such Selling Securityholders as of the date of this prospectus and the number of ordinary shares issuable upon the exercise of options and warrants held by such Selling Securityholder and currently exercisable or exercisable within sixty (60) days of the date of this prospectus, if any; and (b) the denominator is calculated by adding the aggregate number of ordinary shares outstanding as of the date of this prospectus and the number of ordinary shares issuable upon the exercise of options and warrants held by such Selling Securityholder and currently exercisable or exercisable within sixty (60) days of the date of this prospectus, if any (but not the number of ordinary shares issuable upon the exercise of options or warrants held by any other Selling Securityholder). |
| (3) | The number of shares to be sold includes the ordinary shares offered hereby that are held by such Selling Securityholder as of the date of this prospectus but excludes ordinary shares offered under another registration statement of the Company. |
| (4) | In calculating the percentages, (a) the numerator is the number of warrants held by such Selling Shareholder (if any); and (b) the denominator is the aggregate number of warrants outstanding. |
| (5) | Mubadala Investment Company holds its interest in the Company through Thirty Seventh Investment Company LLC. Their registered business address is Al Mamoura Building ‘A’, 15th Street and Muroor Road, PO Box 45005, Abu Dhabi, United Arab Emirates. |
144
| (6) | Represents 2,500,000 ordinary shares and 812,500 ordinary shares issuable upon the exercise of 812,500 warrants. |
| (7) | VPE FUND I LP’s registered business address is DD-14-122-011, DD-14-122-012, DD-14-122-013 and DD-14-122-014, Floor 14, Al Khatem Tower, ADGM Square, Al Maryah Island, Abu Dhabi, United Arab Emirates. VPE Capital is the manager and general partner of VPE FUND I LP, which it manages for the benefit of its limited partners. |
| (8) | The Sponsor’s registered business address is Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola, VG1110 British Virgin Islands. Based on information reported on a Schedule 13G filed on February 15, 2023, Ivan Tavrin (a former director of the Company) has (i) sole voting power over all of the Company’s ordinary shares held by Kismet Sponsor Limited and (ii) sole dispositive power over all of our ordinary shares held by Kismet Sponsor Limited until February 15, 2025, pursuant to a Special Power of Attorney, dated July 28, 2022 (as reissued on February 15, 2023), executed as a deed by Kismet Sponsor Limited. Accordingly, Mr. Tavrin may be deemed to share beneficial ownership over our ordinary shares owned by Kismet Sponsor Limited. |
| (9) | Represents 11,750,000 ordinary shares and 6,125,000 ordinary shares issuable upon the exercise of 6,125,000 warrants. |
| (10) | Andrey Chiriskiy is an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (11) | Georgii Kondratev is an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (12) | Tatiana Kostrikova is an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (13) | Nidelor Limited is wholly owned by Anton Kravets, an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. Anton Kravets may be deemed to share voting and dispositive control over the securities held by Nidelor Limited, and thus to share beneficial ownership of such securities. |
| (14) | Oleksandr Morozov is an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (15) | Dmitrii Philippov is an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (16) | Vladimir Suchkov is an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (17) | Anton Reinhold is Chief Operating Officer of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (18) | Includes (i) 3,531,686 ordinary shares currently held as of the date of this prospectus and (ii) 220,731 ordinary shares issuable upon the exercise of options that have been granted under he 2021 ESOP and are currently exercisable or exercisable within 60 days. For information regarding the options, see “Directors and Executive Compensation—Options Granted Under the 2021 ESOP.” |
| (19) | Nikolay Yastrebov is an employee of Nexters Global Ltd., a wholly owned subsidiary of the Company, whose business address is 55, Griva Digeni, Limassol, Cyprus. |
| (20) | Aleksandr Ivanov’s business address is 9 Athena Street, 4632, Kolossi, Cyprus. |
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TAXATION
Certain Material U.S. Federal Income Tax Considerations
The following discussion is a summary of certain material U.S. federal income tax considerations to U.S. Holders and Non-U.S. Holders (each as defined below) of the ownership and disposition of GDEV ordinary shares and warrants. This discussion applies only to ordinary shares and warrants, as the case may be, that are held as “capital assets” within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (generally, property held for investment).
The following does not purport to be a complete analysis of all potential tax considerations arising in connection with the ownership and disposal of ordinary shares and warrants. The effects and considerations of other U.S. federal tax laws, such as estate and gift tax laws, alternative minimum or Medicare contribution tax consequences and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, Treasury regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect the tax consequences discussed below. GDEV has not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS will not take or a court will not sustain a contrary position to that discussed below regarding the tax consequences discussed below.
This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances. In addition, it does not address consequences relevant to holders subject to special rules, including, without limitation:
| ● | banks, insurance companies, and certain other financial institutions; |
| ● | regulated investment companies and real estate investment trusts; |
| ● | brokers, dealers or traders in securities; |
| ● | traders in securities that elect to mark to market; |
| ● | tax-exempt organizations or governmental organizations; |
| ● | U.S. expatriates and former citizens or long-term residents of the United States; |
| ● | persons holding ordinary shares and/or warrants, as the case may be, as part of a hedge, straddle, constructive sale, or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
| ● | persons subject to special tax accounting rules as a result of any item of gross income with respect to ordinary shares and/or warrants, as the case may be, being taken into account in an applicable financial statement; |
| ● | persons that actually or constructively own 5% or more (by vote or value) of the ordinary shares; |
| ● | “controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax; |
| ● | S corporations, partnerships or other entities or arrangements treated as partnerships or other flow-through entities for U.S. federal income tax purposes (and investors therein); |
| ● | U.S. Holders having a functional currency other than the U.S. dollar; |
| ● | persons who hold or received ordinary shares and/or warrants, as the case may be, pursuant to the exercise of any employee stock option or otherwise as compensation; and |
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| ● | tax-qualified retirement plans. |
For purposes of this discussion, a “U.S. Holder” is any beneficial owner of ordinary shares and/or warrants, as the case may be, that is for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation) created or organized under the laws of the United States, any state thereof, or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a “United States person” (within the meaning of Section 7701(a)(30) of the Code) for U.S. federal income tax purposes. |
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ordinary shares and/or warrants, the tax treatment of an owner of such entity will depend on the status of the owners, the activities of the entity or arrangement and certain determinations made at the partner level. Accordingly, entities or arrangements treated as partnerships for U.S. federal income tax purposes and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO HOLDERS OF ORDINARY SHARES AND WARRANTS WILL DEPEND ON EACH HOLDER’S PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, AND LOCAL, AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES, OF ACQUIRING, HOLDING, AND DISPOSING OF ORDINARY SHARES AND WARRANTS.
U.S. Holders
Distributions on ordinary shares
If GDEV makes distributions of cash or property on the ordinary shares, the gross amount of such distributions (including any amount of foreign taxes withheld) will be treated for U.S. federal income tax purposes first as a dividend to the extent of its current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), and then as a tax-free return of capital to the extent of the U.S. Holder’s tax basis, with any excess treated as capital gain from the sale or exchange of the shares. Because GDEV does not expect to provide calculations of its earnings and profits under U.S. federal income tax principles, a U.S. Holder should expect all cash distributions to be reported as dividends for U.S. federal income tax purposes. The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution. Any dividend will not be eligible for the dividends received deduction allowed to corporations in respect of dividends received from U.S. corporations.
Subject to the discussions below under “—Passive Foreign Investment Company Rules,” dividends received by certain non-corporate U.S. Holders (including individuals) may be “qualified dividend income,” which is taxed at the lower applicable long-term capital gains rate, provided that:
| ● | either (a) the shares are readily tradable on an established securities market in the United States, or (b) GDEV is eligible for the benefits of the income tax treaty between the United States and Cyprus; |
| ● | GDEV is neither a PFIC (as discussed below under below under “—Passive Foreign Investment Company Rules”) nor treated as such with respect to the U.S. Holder for GDEV in any taxable year in which the dividend is paid or the preceding taxable year; |
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| ● | the U.S. Holder satisfies certain holding period requirements; and |
| ● | and certain other requirements are met. |
U.S. Holders should consult their own tax advisors regarding the availability of the lower rate for dividends paid with respect to ordinary shares. Subject to certain exceptions, dividends on ordinary shares will constitute foreign source income and generally passive income for foreign tax credit limitation purposes. U.S. Holders should consult their own tax advisors to determine whether and to what extent they will be entitled to foreign tax credits in respect of any dividend income received.
Sale, Exchange, Redemption or Other Taxable Disposition of Ordinary Shares and Warrants
Subject to the discussion below under “—Passive Foreign Investment Company Rules,” a U.S. Holder generally will recognize gain or loss on any sale, exchange, redemption or other taxable disposition of ordinary shares or warrants in an amount equal to the difference between (i) the amount realized on the disposition and (ii) such U.S. Holder’s adjusted tax basis in such ordinary shares and/or warrants, as the case may be. A U.S. Holder’s adjusted tax basis in such ordinary shares and/or warrants generally will be such U.S. Holder’s purchase price for the ordinary shares and/or warrants. Any gain or loss recognized by a U.S. Holder on a taxable disposition of ordinary shares or warrants generally will be capital gain or loss. A non-corporate U.S. Holder, including an individual, who has held the ordinary shares and/or warrants for more than one year generally will be eligible for reduced tax rates for such long-term capital gains. The deductibility of capital losses is subject to limitations.
Any such gain or loss recognized generally will be treated as U.S. source gain or loss. U.S. Holders are urged to consult their own tax advisor regarding the ability to claim a foreign tax credit and the application of the income tax treaty between the United States and Cyprus to such U.S. Holder’s particular circumstances.
Exercise or Lapse of a Warrant
Except as discussed below with respect to the cashless exercise of a warrant, a U.S. Holder generally will not recognize gain or loss upon the acquisition of an ordinary share on the exercise of a warrant for cash. A U.S. Holder’s tax basis in ordinary shares received upon exercise of the warrant generally should be an amount equal to the sum of the U.S. Holder’s tax basis in the warrant received and the exercise price therefor. The U.S. Holder’s holding period for an ordinary share received upon exercise of the warrant will begin on the date following the date of exercise (or possibly the date of exercise) of the warrant and will not include the period during which the U.S. Holder held the warrant. If a warrant is allowed to lapse unexercised, a U.S. Holder that has otherwise received no proceeds with respect to such warrant generally will recognize a capital loss equal to such U.S. Holder’s tax basis in the warrant.
The tax consequences of a cashless exercise of a warrant are not clear under current U.S. federal income tax law. A cashless exercise may be tax-deferred, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either situation, a U.S. Holder’s basis in the ordinary shares received would equal the U.S. Holder’s basis in the warrants exercised therefor. If the cashless exercise is not treated as a realization event, a U.S. Holder’s holding period in the ordinary shares would be treated as commencing on the date following the date of exercise (or possibly the date of exercise) of the warrants. If the cashless exercise were treated as a recapitalization, the holding period of the ordinary shares would include the holding period of the warrants exercised therefor.
It is also possible that a cashless exercise of a warrant could be treated in part as a taxable exchange in which gain or loss would be recognized in the manner set forth above under “—Sale, Exchange, Redemption or Other Taxable Disposition of ordinary shares and warrants.” In such event, a U.S. Holder could be deemed to have surrendered warrants equal to the number of ordinary shares having an aggregate fair market value equal to the exercise price for the total number of warrants to be exercised. The U.S. Holder would recognize capital gain or loss in an amount generally equal to the difference between (i) the fair market value of the warrants deemed surrendered and (ii) the U.S. Holder’s tax basis in such warrants deemed surrendered. In this case, a U.S. Holder’s tax basis in the ordinary shares received would equal the sum of (i) U.S. Holder’s tax basis in the warrants deemed exercised and (ii) the exercise price of such warrants. A U.S. Holder’s holding period for the ordinary shares received in such case generally would commence on the date following the date of exercise (or possibly the date of exercise) of the warrants.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise of warrants, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a
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court of law. Accordingly, U.S. Holders should consult their own tax advisors regarding the tax consequences of a cashless exercise of warrants.
Possible Constructive Distributions
The terms of each warrant provide for an adjustment to the number of ordinary shares for which the warrant may be exercised or to the exercise price of the warrant in certain events, as discussed under “Description of Securities—Warrants—Public Warrants—Anti-dilution Adjustments.” An adjustment which has the effect of preventing dilution generally is not taxable. A U.S. Holder of a warrant would, however, be treated as receiving a constructive distribution from GDEV if, for example, the adjustment increases the holder’s proportionate interest in GDEV’s assets or earnings and profits (for instance, through an increase in the number of ordinary shares that would be obtained upon exercise of such warrant) as a result of a distribution of cash or other property such as other securities to the holders of the ordinary shares which is taxable to the holders of such shares as described under “—Distributions on ordinary shares” above. Such constructive distribution would generally be subject to tax as described under that section in the same manner as if the U.S. Holder of such warrant received a cash distribution from GDEV equal to the fair market value of such increased interest. However, it is unclear whether a distribution treated as a dividend deemed paid to a non-corporate U.S. Holder would be eligible for the lower applicable long-term capital gains rates as described above under “—Distributions on Ordinary Shares.”
Passive Foreign Investment Company Rules
The treatment of U.S. Holders of the ordinary shares could be materially different from that described above, if GDEV is treated as a PFIC for U.S. federal income tax purposes. A non-U.S. entity treated as a corporation for U.S. federal income tax purposes generally will be a PFIC for U.S. federal income tax purposes for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. For this purpose, GDEV will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other entity treated as a corporation for U.S. federal income tax purposes in which GDEV owns, directly or indirectly, 25% or more (by value) of the stock.
Based on the composition of the income, assets and operations of GDEV and its subsidiaries during the relevant period, GDEV does not believe it will be treated as a PFIC for the taxable year ending on December 31, 2022. However, there can be no assurances in this regard, nor can there be any assurances that GDEV will not be treated as a PFIC in any future taxable year. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and GDEV can make no assurances that the IRS will not take a contrary position or that a court will not sustain such a challenge by the IRS.
Whether GDEV or any of its subsidiaries is treated as a PFIC is determined on an annual basis after the close of each taxable year. The determination of whether GDEV or any of its subsidiaries is a PFIC is a factual determination that depends on, among other things, the composition of the income and assets of GDEV, and the fair market value of its and its subsidiaries’ shares and assets. In this regard, the determination of the fair market value of shares may be ambiguous when there is lack of trading and changes in the fair market value of its shares could cause GDEV to become treated as a PFIC because such changes would generally result in changes in the value of goodwill of GDEV for this purpose. Similarly, changes in the composition of GDEV or any of its subsidiaries’ income or assets may cause GDEV to be or become a PFIC for the current or subsequent taxable years as well. Under the PFIC rules, if GDEV were considered a PFIC at any time that a U.S. Holder owns ordinary shares or warrants, GDEV would continue to be treated as a PFIC with respect to such U.S. Holder’s investment unless (i) it ceased to be a PFIC and (ii) the U.S. Holder made a “deemed sale” election under the PFIC rules. If such election is made, a U.S. Holder will be deemed to have sold its ordinary shares or warrants at their fair market value on the last day of the last taxable year in which GDEV is classified as a PFIC, and any gain from such deemed sale would be subject to the consequences described below. After the deemed sale election, the ordinary shares or warrants with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless GDEV subsequently becomes a PFIC.
For each taxable year that GDEV is treated as a PFIC with respect to a U.S. Holder’s ordinary shares or warrants, the U.S. Holder will be subject to special tax rules with respect to any “excess distribution” (as defined below) received and any gain realized from a sale or disposition (including a pledge) of its ordinary shares or warrants (collectively the “Excess Distribution Rules”), unless the U.S. Holder makes a valid QEF election or mark-to-market election as discussed below. Distributions received by a U.S. Holder in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding
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taxable years or the U.S. Holder’s holding period for the ordinary shares will be treated as excess distributions. Under these special tax rules:
| ● | the excess distribution or gain (including gain on a sale of disposition of warrants) will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares or warrants; |
| ● | the amount allocated to the current taxable year, and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which GDEV is a PFIC, will be treated as ordinary income; and |
| ● | the amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
Under the Excess Distribution Rules, the tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of the ordinary shares or warrants cannot be treated as capital gains, even though the U.S. Holder holds the ordinary shares or warrants as capital assets.
Certain of the PFIC rules may impact U.S. Holders with respect to equity interests in subsidiaries and other entities which GDEV may hold, directly or indirectly, that are PFICs (collectively, “Lower-Tier PFICs”). There can be no assurance, however, that GDEV does not own, or will not in the future acquire, an interest in a subsidiary or other entity that is or would be treated as a Lower-Tier PFIC. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to any of GDEV’s subsidiaries.
If GDEV is a PFIC, a U.S. Holder of ordinary shares (but not warrants) may avoid taxation under the Excess Distribution Rules described above by making a “qualified electing fund” (“QEF”) election. However, a U.S. Holder may make a QEF election with respect to its ordinary shares only if GDEV provides U.S. Holders on an annual basis with certain financial information specified under applicable U.S. Treasury regulations. Because GDEV does not intend to provide such information, however, the QEF Election will not be available to U.S. Holders with respect to GDEV ordinary shares and a QEF election is not available with respect to warrants.
Alternatively, a U.S. Holder of “marketable stock” (as defined below) may make a mark-to-market election for its ordinary shares to elect out of the Excess Distribution Rules discussed above if GDEV is treated as a PFIC. If a U.S. Holder makes a mark-to-market election with respect to its ordinary shares, such U.S. Holder will include in income for each year that GDEV is treated as a PFIC with respect to such ordinary shares an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of the U.S. Holder’s taxable year over the adjusted basis in the ordinary shares. A U.S. Holder will be allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, deductions will be allowed only to the extent of any net mark-to-market gains on the ordinary shares included in the U.S. Holder’s income for prior taxable years. Amounts included in income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent the amount of such loss does not exceed the net mark-to-market gains for such ordinary shares previously included in income. A U.S. Holder’s basis in the ordinary shares will be adjusted to reflect any mark-to-market income or loss. If a U.S. Holder makes a mark-to-market election, any distributions GDEV makes would generally be subject to the rules discussed above under “—Distributions on ordinary shares,” except the lower rates applicable to qualified dividend income would not apply. U.S. Holders of warrants may not be able to make a mark-to-market election with respect to their warrants.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. U.S. Holders should consult their advisors as to whether ordinary shares will be treated as “regularly traded” for purposes of these rules. Because a mark-to-market election cannot be made for equity interests in any Lower-Tier PFICs, a U.S. Holder will continue to be subject to the Excess Distribution Rules with respect to its indirect interest in any Lower-Tier PFICs as described above, even if a mark-to-market election is made for GDEV.
If a U.S. Holder does not make a mark-to-market election (or a QEF election) effective from the first taxable year of a U.S. Holder’s holding period for the ordinary shares in which GDEV is a PFIC, then the U.S. Holder generally will remain subject to the
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Excess Distribution Rules. A U.S. Holder that first makes a mark-to-market election with respect to the ordinary shares in a later year will continue to be subject to the Excess Distribution Rules during the taxable year for which the mark-to-market election becomes effective, including with respect to any mark-to-market gain recognized at the end of that year. In subsequent years for which a valid mark-to-mark election remains in effect, the Excess Distribution Rules generally will not apply. A U.S. Holder that is eligible to make a mark-to-market with respect to its ordinary shares may do so by providing the appropriate information on IRS Form 8621 and timely filing that form with the U.S. Holder’s tax return for the year in which the election becomes effective. U.S. Holders should consult their own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any Lower-Tier PFICs.
A U.S. Holder of a PFIC may be required to file an IRS Form 8621 on an annual basis. U.S. Holders should consult their own tax advisors regarding any reporting requirements that may apply to them if GDEV is a PFIC.
U.S. Holders are strongly encouraged to consult their tax advisors regarding the application of the PFIC rules to their particular circumstances.
Non-U.S. Holders
The section applies to Non-U.S. Holders of ordinary shares and warrants. For purposes of this discussion, a Non-U.S. Holder means a beneficial owner (other than a partnership or an entity or arrangement so characterized for U.S. federal income tax purposes) of ordinary shares or warrants that is not a U.S. Holder, including:
| ● | a nonresident alien individual, other than certain former citizens and residents of the United States; |
| ● | a foreign corporation; or |
| ● | a foreign estate or trust. |
U.S. Federal Income Tax Consequences of the Ownership and Disposition of ordinary shares and warrants to Non-U.S. Holders
Any (i) distributions of cash or property paid to a Non-U.S. Holders in respect of ordinary shares or (ii) gain realized upon the sale or other taxable disposition of ordinary shares and/or warrants generally will not be subject to U.S. federal income taxation unless:
| ● | the gain or distribution is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable); or |
| ● | in the case of any gain, the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met. |
Gain or distributions described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
The U.S. federal income tax treatment of a Non-U.S. Holder’s exercise of a warrant, or the lapse of a warrant held by a Non-U.S. Holder, generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant by a U.S. Holder, as described under “—U.S. Holders—Exercise or Lapse of a warrant,” above, although to the extent a cashless exercise or lapse results
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in a taxable exchange, the consequences would be similar to those described in the preceding paragraphs above for a Non-U.S. Holder’s gain on the sale or other disposition of the ordinary shares and warrants.
Non-U.S. Holders should consult their own tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Information reporting requirements may apply to distributions received by U.S. Holders of ordinary shares, and the proceeds received on sale or other taxable the disposition of ordinary shares or warrants effected within the United States (and, in certain cases, outside the United States), in each case other than U.S. Holders that are exempt recipients (such as corporations). Backup withholding may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9 provided to the paying agent of the U.S. Holder’s broker) or is otherwise subject to backup withholding. Any distributions with respect to ordinary shares and proceeds from the sale, exchange, redemption or other disposition of ordinary shares or warrants may be subject to information reporting to the IRS and possible U.S. backup withholding. U.S. Holders should consult their own tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Information returns may be filed with the IRS in connection with, and Non-U.S. Holders may be subject to backup withholding on amounts received in respect of, a Non-U.S. Holder’s ordinary shares or warrants, unless the Non-U.S. Holder furnishes to the applicable withholding agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI, as applicable, or the Non-U.S. Holder otherwise establishes an exemption. Distributions paid with respect to ordinary shares and proceeds from the sale of other disposition of ordinary shares or warrants received in the United States by a Non-U.S. Holder through certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding unless such Non-U.S. Holder provides proof an applicable exemption or complies with certain certification procedures described above, and otherwise complies with the applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding generally may be credited against the taxpayer’s U.S. federal income tax liability, and a taxpayer may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for a refund with the IRS and furnishing any required information.
British Virgin Islands Tax Considerations
Under the Companies Act, GDEV is exempt from all forms of BVI tax; all dividends, interest, royalties and other amounts payable by GDEV, and any gain realized on any shares, debt obligations or other securities of GDEV is exempt from BVI tax; and no BVI estate, inheritance, succession or gift taxes are payable with respect to any shares, debt obligations or other securities of GDEV.
Cyprus Tax Considerations
The following section is a short summary of certain important taxation principles that may be or become relevant with respect to GDEV in Cyprus, though it does not purport to be a complete summary of tax law and practice currently applicable in Cyprus and does not contain any statement with respect to the tax treatment of an investment in any other jurisdiction. Furthermore, this section does not address the taxation of GDEV in any other jurisdiction. Therefore, prospective investors are advised to consult their own professional tax advisers in respect of the possible tax consequences of subscribing for, buying, holding, redeeming, converting or selling shares or warrants under the laws of their country of citizenship, residence, domicile or incorporation.
The following summary is based on laws, regulations and practice currently applicable in Cyprus at the date of this prospectus and is subject to changes therein.
Tax Residency
In accordance with the Income Tax Law, a company is tax resident in Cyprus if its management and control is exercised in Cyprus. There is no definition in the Cyprus Income Tax law as to what constitutes management and control. However, as a minimum, management and control may be taken to mean the place where the majority of directors reside, where the majority of the board meetings of the Company are held and where the majority of significant decisions are taken.
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On December 9, 2021, the Cyprus Parliament passed into law a bill that aims to strengthen the Cyprus tax framework for the prevention of tax abuse. In an effort to strengthen the residency rule framework beyond the management and control criterion/concept, effective as from December 31, 2022, the term “Cyprus tax resident company” was expanded to also include a company that was incorporated/registered in Cyprus, but whose management and control is exercised outside Cyprus, as long as the company is not a tax resident in any other state.
Taxation of GDEV
Corporate Income Tax, Capital Gains Tax and Special Contribution for Defence
Corporate income tax for Cyprus resident companies is imposed at the rate of twelve and a half percent (12.5%) for each year of assessment upon the taxable income derived from sources both within and outside Cyprus. The year of assessment starts on the 1st of January and ends on the 31st of December. In arriving at the taxable income, deductions on such income and exemptions are taken into account. All relevant expenses for the production of the taxable income are generally deductible expenses whereas dividends and profits from the sale of securities (including shares and share warrants) constitute income which is exempt from corporate income tax. Expenses that directly or indirectly relate to tax exempt income are generally not tax deductible.
Profits from the sale of “Securities”
According to Article 2 of the Cyprus Income Tax Law “securities” means shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated under the law in the Republic or abroad and options thereon.
Based on Circular 2008/13 issued by the Cyprus Tax Authorities, which gives a wider definition of the term “securities”, units in open-end or closed-end collective investment schemes which have been established, registered and operate under the provisions of the law of the country in which they have been established fall under the definition of “securities”.
Profits from the disposal of securities are fully exempt from corporate income tax.
Capital gains tax at the rate of 20% is only payable on gains earned on the disposal of immovable property (land and buildings) situated in Cyprus, including shares of companies not listed on a recognized stock exchange which, directly or indirectly (subject to the below condition for indirect ownership), own such immovable property situated in Cyprus.
On December 17, 2015, the Capital Gains Tax Law was amended extending the definition of “immovable property” so that capital gains tax is also imposed on any gain on disposal of shares of a company which participates in other companies which hold immovable property in Cyprus, when at least 50% of the market value of the shares sold is derived from such immovable property situated in Cyprus. In calculating whether the value of the immovable property represents at least 50% of the market value of the shares, any liabilities are ignored.
Dividend income
Dividends received by a Cyprus tax resident company from companies located in Cyprus or abroad are exempt from corporate income tax.
As from January 1, 2016, the corporate income tax exemption shall not apply to the extent that such dividends are deductible from the taxable income of the dividend paying company. It is explicitly stated that any such dividends that do not qualify for the corporate income tax exemption are not considered as dividends for Special Contribution for Defence (“SCD”) purposes and as such they are subject to 12.5% corporate income tax.
Dividends received by a Cyprus tax resident company from another Cyprus tax resident company are exempt from 17% SCD except for dividends paid out of profits earned more than 4 years from the year of the distribution.
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Dividends received by a Cyprus tax resident company from a non-Cyprus tax resident company are exempt from SCD if the non-Cyprus tax resident company paying the dividend:
| ● | does not carry on, directly or indirectly, more than 50% investment activities which give rise to investment income; or |
| ● | the foreign tax burden on the income of the company paying the dividend is not substantially lower than the tax burden of the company in Cyprus (substantially lower is interpreted as lower than 6.25%). |
If there is a group with many layers of subsidiaries, the exemption from SCD will be extended and applied if the group does not carry on more than 50% activities leading to investment income. For the purpose of calculating the 50% threshold, intra-group dividends are ignored.
Investment income is not precisely defined in the Cyprus tax laws. According to Article 2 of the Income Tax Law, investment income “means any income which is not derived or arising from any business, employment, pensions or annuity.” Business is further defined as “commercial or manufacturing business, profession or vocation and includes any other business of a trading nature.”
If the dividends are taxable, any withholding tax paid overseas on the dividends can be relieved against the SCD irrespective of whether a double tax treaty exists or not. Underlying tax may also be given as a credit against the SCD if provided for under a double taxation treaty and/or if the dividend paying company is a tax resident in an EU member state.
Deemed dividend distribution rules
As from the tax year 2003 onwards, companies are deemed to have distributed to their Cyprus tax resident shareholders, 70% of their accounting profits after the deduction of corporation tax at the end of two years from the end of the year in which the profits were earned.
On such a deemed distribution 17% SCD should be withheld and paid over to the Cyprus Tax Authorities. The deemed distribution provisions do apply to Cyprus tax resident corporate shareholders but do not apply to non-Cyprus tax resident shareholders and to Cyprus tax resident but not domiciled individuals.
As from January 1, 2011, the term “corporation tax” has been extended to include the SCD, the capital gains tax and any taxes paid abroad that have not been credited against the corporation tax. These taxes are taken into consideration for the calculation of the company’s accounting profits subject to deemed distribution.
As from September 13, 2011, the Commissioner of Taxation has issued a Circular numbered 2011/10 according to which the exemption with respect to profits attributable to non-resident shareholders has been extended to profits attributable to resident corporate shareholders of a Cypriot resident company to the extent that such profits are indirectly attributable to ultimate shareholders which are non-residents of Cyprus.
Taxation of Investors
Cyprus does not currently levy any withholding tax on dividend payments made to persons not being resident for tax purposes of Cyprus or to individuals who are tax residents of Cyprus but do not have a Cypriot domicile (as defined in the Special Contribution for Defense of the Republic Law).
Dividends paid to Cyprus tax resident and domicile individuals are subject to 17% SCD which will be withheld at source by GDEV.
Cyprus tax resident individuals are also subject to General Healthcare System (“GHS”) contributions on their dividend income, irrespective of whether they are domiciled or non-domiciled in Cyprus. The applicable GHS rate is currently 2.65% and it applies on total annual income of an individual of €180.000. The GHS contributions on dividends paid or deemed (under the deemed dividend distribution rules) to be paid to Cyprus tax resident individuals (irrespective of their domicile status) will be withheld at source by GDEV.
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On December 9, 2021, the Cyprus Parliament passed into law a bill that aims to strengthen the Cyprus tax framework for the prevention of tax abuse. Effective as from December 31, 2022, withholding taxes (“WHT”) will be introduced on payments to companies in jurisdictions included in the EU Blacklist of non-cooperative jurisdictions (“EU Blacklist”) as follows:
| ● | Dividends. WHT at the rate of 17% will apply on dividends paid by a Cyprus tax resident company to companies which are: |
| ● | resident in jurisdictions included in the EU Backlist, or |
| ● | incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist. |
The following conditions apply:
| ● | The company receiving the dividend holds directly, either alone or jointly with associated companies, over 50% of the capital, voting rights, or is entitled to receive more than 50% of the profits in the company paying the dividends. |
| ● | The associated companies should also be resident in an EU blacklisted jurisdiction or incorporated/ registered in an EU blacklisted jurisdiction and are not tax resident in any other jurisdiction that is not included in the EU Blacklist. |
The WHT will not apply in the case of dividend payments on shares listed on a recognised stock exchange.
| ● | Interest. WHT at the rate of 30% will apply on interest paid by a Cyprus tax resident company to companies which are: |
| ● | resident in jurisdictions included in the EU Blacklist, or |
| ● | incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist. |
The WHT will not apply in the case of:
| ● | Interest payments on securities listed on a recognised stock exchange. |
| ● | Interest payments made by individuals. |
| ● | Royalties. WHT at the rate of 10% will apply on royalties paid by a Cyprus tax resident company to companies which are: |
| ● | resident in jurisdictions included in the EU blacklist, or |
| ● | incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist. |
The WHT will not apply in the case of royalty payments made by individuals.
Tax Residency and Domicile for Individuals
An individual is considered to be a tax resident of Cyprus if he or she is physically present in the Republic of Cyprus for an aggregate total of more than 183 days in a tax year.
As of January 1, 2017, an individual is also recognized as a Cypriot tax resident for a tax year if he or she meets all of the following requirements:
| (1) | does not spend more than 183 days in total in any state within the tax year; |
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| (2) | is not recognized as a tax resident of another state in the same tax year; |
| (3) | stays in Cyprus for at least 60 days in the tax year; |
| (4) | pursues a business or is employed in Cyprus or holds an office with a company that is a Cypriot tax resident at any time during the tax year; and |
| (5) | maintains a permanent home in Cyprus that is either owned or rented. |
If an individual terminates his or her employment/winds up his business or ceases to hold office as per (4) above, he or she cannot be considered a Cypriot tax resident for the respective tax year.
The SCD Law contains the following term and definition:
"Resident in the Republic", when applied to an individual, means a person who is resident in the Republic of Cyprus as defined in accordance with the provisions of the Income Tax Law, and who also has domicile in the Republic of Cyprus.
For the purposes of this Law, a person has "domicile in the Republic" if he or she has domicile of origin in the Republic of Cyprus based on the provisions of the Wills and Succession Law, except for:
| (i) | a person who has acquired and maintains domicile of choice outside the Republic based on the provisions of the Wills and Succession Law, provided that he or she was not resident in the Republic as defined in accordance with the provisions of the Income Tax Law for any period of at least twenty (20) consecutive years before the tax year, or |
| (ii) | a person who was not resident in the Republic as defined in accordance with the provisions of the Income Tax Law for a period of at least twenty (20) consecutive years before the entry into force of the provisions of this Law |
It is provided that regardless of the domicile of origin, any person who is resident in the Republic, as defined in accordance with the provisions of the Income Tax Law, for at least seventeen (17) out of the last twenty (20) years before the tax year will be deemed domiciled in the Republic for the purposes of this Law.
Tax Residency for Companies
A company is considered to be tax resident in the Republic of Cyprus if its management and control is exercised in Cyprus. There is no definition in the Cyprus income tax laws as to what constitutes management and control, however in practice it is considered to be exercised where:
| (1) | the Majority of the directors are resident; |
| (2) | the Majority of the Board of Directors meetings are held; |
| (3) | the majority of significant decisions are taken; and |
| (4) | the local bank account is situated in Cyprus and controlled by the Board of Directors. |
Profits from the sale of “Securities”
Profits from the disposal of securities are fully exempt from personal income tax.
For information regarding the definition of “securities” under the Cyprus Income Tax Law and the treatment of capital gains tax in Cyprus, see “—Cyprus Tax Considerations—Taxation of GDEV—Profits from the sale of ‘Securities’” above.
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PLAN OF DISTRIBUTION
We are registering the resale of (i) up to 47,102,791 of our ordinary shares, no par value per share, issued to certain of the Selling Securityholders (which includes up to 7,750,000 ordinary shares issuable upon the exercise of 7,750,000 of our warrants offered hereby issued to certain of the Selling Securityholders, as described below); and (ii) up to 7,750,000 of our warrants issued to certain of the Selling Securityholders.
We will not receive any proceeds from any sale by the Selling Securityholders of the securities being registered hereunder, except with respect to amounts received by us upon exercise of our warrants to the extent such warrants are exercised for cash. See “Use of Proceeds.” We will bear all costs, expenses and fees in connection with the registration of the securities offered by this prospectus, whereas the Selling Securityholders will bear all incremental selling expenses, including commissions, brokerage fees and other similar selling expenses.
The Selling Securityholders, which as used here includes donees, pledgees, transferees or other successors-in-interest selling ordinary shares or warrants received after the date of this prospectus from a Selling Securityholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their ordinary shares or warrants on any stock exchange, market or trading facility on which the shares or warrants are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The Selling Securityholders may use any one or more of the following methods when disposing of shares or warrants:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for their account; |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; |
| ● | privately negotiated transactions; |
| ● | short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC; |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| ● | broker-dealers may agree with the Selling Securityholders to sell a specified number of such shares at a stipulated price per share; |
| ● | a combination of any such methods of sale; and |
| ● | any other method permitted by applicable law. |
The Selling Securityholders may, from time to time, pledge or grant a security interest in some or all of the ordinary shares or warrants owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the ordinary shares or warrants, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of Selling Securityholders to include the pledgee, transferee or other successors in interest as Selling Securityholders under this prospectus. The Selling Securityholders also may transfer the ordinary shares or warrants in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In addition, a Selling Securityholder that is an entity may elect to make a pro rata in-kind distribution of securities to its members, partners or shareholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a plan of distribution. Such members, partners or shareholders would thereby receive freely tradeable securities pursuant to the distribution
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through a registration statement. To the extent a distributee is an affiliate of ours (or to the extent otherwise required by law), we may file a prospectus supplement in order to permit the distributees to use the prospectus to resell the securities acquired in the distribution.
In connection with the sale of our ordinary shares or warrants, the Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the warrants or ordinary shares in the course of hedging the positions they assume. The Selling Securityholders may also sell our ordinary shares or warrants short and deliver these securities to close out their short positions, or loan or pledge the ordinary shares or warrants to broker-dealers that in turn may sell these securities. The Selling Securityholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of ordinary shares or warrants offered by this prospectus, which shares or warrants such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
Each of the Selling Securityholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of ordinary shares or warrants to be made directly or through agents. We will not receive any of the proceeds from this offering. Upon any exercise of the warrants by payment of cash, however, we will receive the exercise price of the warrants.
The Selling Securityholders and any underwriters, broker-dealers or agents that participate in the sale of the ordinary shares may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling securityholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.
In addition, a Selling Securityholder that is an entity may elect to make a pro rata in-kind distribution of securities to its members, partners or stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a plan of distribution. Such members, partners or stockholders would thereby receive freely tradeable securities pursuant to the distribution through a registration statement.
To the extent required, our ordinary shares or warrants to be sold, the names of the Selling Securityholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the ordinary shares or warrants may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the ordinary shares or warrants may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
We have advised the Selling Securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares or warrants in the market and to the activities of the Selling Securityholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the Selling Securityholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the ordinary shares and warrants offered by this prospectus.
We have agreed with the Selling Securityholders to keep the registration statement of which this prospectus constitutes a part effective until all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or the securities have been withdrawn.
In compliance with the guidelines of the Financial Industry Regulatory Authority (“FINRA”), the aggregate maximum discount, commission, fees or other items constituting underwriting compensation to be received by any FINRA member or independent broker-dealer will not exceed 8% of the gross proceeds of any offering pursuant to this prospectus and any applicable prospectus supplement.
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EXPENSES RELATED TO THE OFFERING
We estimate that our expenses in connection with the offer and sale of our securities by the Selling Securityholders, will be as follows:
Expenses |
| Amount | |
SEC registration fee | $ | 26,546.90 | |
FINRA filing fee | $ | 69,356.19 | |
Printing and engraving expenses | $ | 100,000 | |
Legal fees and expenses | $ | 150,000 | |
Accounting fees and expenses | $ | 38,500 | |
Total | $ | 384,403.09 | |
All amounts in the table are estimates except the SEC registration fee and the FINRA filing fee.
159
ENFORCEABILITY OF CIVIL LIABILITIES UNDER U.S. SECURITIES LAWS
GDEV is a business company incorporated in the British Virgin Islands and therefore, located outside of the United States. Some of GDEV’s directors, executive officers and persons discharging managerial responsibilities, and certain experts named in this prospectus, reside outside the U.S. A substantial portion of GDEV’s assets and the assets of those non-resident persons are located outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon GDEV or those persons or to enforce against GDEV or them, either inside or outside the U.S., judgments obtained in U.S. courts, or to enforce in U.S. courts, judgments obtained against them in courts in jurisdictions outside the U.S., in any action predicated upon civil liability provisions of the federal securities laws of the U.S. Both in original actions and in actions for the enforcement of judgments of U.S. courts, there is doubt as to whether civil liabilities predicated solely upon the U.S. federal securities laws are enforceable in the British Virgin Islands.
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EXPERTS
The consolidated financial statements of GDEV Inc. as of December 31, 2022 and for the year ended December 31, 2022, have been included herein in reliance upon the report of KPMG Certified Auditors S.A., independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of GDEV Inc. as of December 31, 2021 and 2020, and for each of the years in the two-year period ended December 31, 2021, have been included herein in reliance upon the report of JSC “Kept” (formerly, JSC “KPMG”), independent registered public accounting firm, appearing else-where herein, and upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Ogier, British Virgin Islands, has passed upon the validity of the securities offered by this prospectus with respect to the ordinary shares and matters of British Virgin Islands law.
Latham & Watkins LLP, has passed upon the validity of the securities offered by this prospectus with respect to the validity of the warrants under New York law.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the periodic reporting and other information requirements of the Exchange Act as applicable to a “foreign private issuer,” and we will file annual reports and other information from time to time with the SEC in accordance with such requirements. Our SEC filings will be available to the public on the internet at a website maintained by the SEC located at www.sec.gov.
We also maintain an Internet website at https://gdev.inc. Through our website, we will make available, free of charge, the following documents as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC: our Annual Reports on Form 20-F; our reports on Form 6-K; amendments to these documents; and other information as may be required by the SEC. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this prospectus.
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F-1
INDEX TO THE FINANCIAL STATEMENTS GDEV INC.
CONSOLIDATED FINANCIAL STATEMENTS
Page No. | ||
Audited Consolidated Financial Statements | ||
Report of Independent Registered Public Accounting Firm (KPMG Certified Auditors S.A., Auditor Firm ID: 1084) |
| F-3 |
Report of Independent Registered Public Accounting Firm (JSC ‘Kept”, Auditor Firm ID: 3055) | F-4 | |
F-5 | ||
Consolidated Statement of Profit or Loss And Other Comprehensive Income | F-6 | |
F-7 | ||
F-9 | ||
F-10 | ||
Unaudited Interim Condensed Consolidated Financial Statements | ||
F-74 | ||
F-75 | ||
F-76 | ||
F-77 | ||
Notes to the unaudited interim condensed consolidated financial statements | F-78 |
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Audit Committee
GDEV Inc. (formerly Nexters Inc.):
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of GDEV Inc. (formerly, Nexters Inc.) and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG Certified Auditors S.A.
We have served as the Company’s auditor since 2022.
Athens, Greece
June 26, 2023
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Audit committee
GDEV Inc. (formerly Nexters Inc.):
Opinion on the Consolidated Financial Statements
We have audited the consolidated statement of financial position of GDEV Inc. (formerly Nexters Inc.) and subsidiaries (the “Group”) as of December 31, 2021, the related consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2021 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Correction of a misstatement
As discussed in Note 4 to the 2021 consolidated financial statements (not presented herein), the 2020 consolidated financial statements have been restated to correct a misstatement.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ JSC “Kept” (formerly JSC “KPMG”)
We served as the Group’s auditor from 2021 to 2022.
Moscow, Russia
April 29, 2022
F-4
NEXTERS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2022 and 2021
(in thousands of US$)
| Note |
| December 31, 2022 |
| December 31, 2021 | |
ASSETS |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
Property and equipment |
| 14 |
| |
| |
Right-of-use assets | 18 | | | |||
Intangible assets |
| 15 |
| |
| |
Goodwill | 15 | | | |||
Investments in equity accounted associates | 16 | — | — | |||
Long-term deferred platform commission fees |
| 26 |
| |
| |
Deferred tax asset | 13 | | | |||
Loans receivable - non-current | 17 | | — | |||
Other non-current investments | 23 | | — | |||
Other non-current assets | 13 | | | |||
Total non-current assets |
|
| |
| | |
Current assets |
|
|
|
|
| |
Indemnification asset | 15,16 | | — | |||
Trade and other receivables |
| 19 |
| |
| |
Loans receivable |
| 17 |
| |
| |
Other investments | 23 | | — | |||
Prepaid tax | 13 | | | |||
Cash and cash equivalents |
| 24 |
| |
| |
Total current assets |
| |
| | ||
Total assets |
| |
| | ||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
| |
Equity |
|
|
|
|
| |
Share capital |
| 25 |
| — |
| — |
Additional paid-in capital |
| 15,25 | |
| | |
Share-based payments reserve | 25,30 | | | |||
Translation reserve | 25 | | | |||
Accumulated deficit |
| ( |
| ( | ||
Equity attributable to equity holders of the Company | ( | ( | ||||
Non-controlling interest | — | | ||||
Total equity |
| ( |
| ( | ||
Non-current liabilities |
|
|
|
|
| |
Lease liabilities - non-current |
| 18 |
| |
| |
Long-term deferred revenue |
| 26 |
| |
| |
Share warrant obligation | 22 | | | |||
Put option liability | 15,16 | | — | |||
Other non-current liabilities | 16 | | — | |||
Total non-current liabilities |
| |
| | ||
Current liabilities |
|
|
|
|
| |
Lease liabilities - current |
| 18 |
| |
| |
Trade and other payables |
| 20 |
| |
| |
Provisions for non-income tax risks | 15,21 | | — | |||
Tax liability |
| 13,15 |
| |
| |
Deferred revenue |
| 26 |
| |
| |
Total current liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Total liabilities and shareholders' equity |
| |
| |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
NEXTERS INC.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the years ended December 31, 2022,2021 and 2020
(in thousands of US$)
| Note |
| 2022 | 2021 |
| 2020 | ||
Revenue |
| 7 |
| | |
| | |
Costs and expenses, excluding depreciation and amortization |
|
|
|
|
| |||
Cost of revenue: |
|
|
|
|
| |||
Platform commissions |
| 26 |
| ( | ( |
| ( | |
Game operation cost |
| 9 |
| ( | ( |
| ( | |
Other operating income | | — | — | |||||
Selling and marketing expenses |
| 10 |
| ( | ( |
| ( | |
General and administrative expenses |
| 11 |
| ( | ( |
| ( | |
Goodwill and investments in equity accounted associates’ impairment | 15,16 | ( | — | — | ||||
Share listing expense | 30 | — | ( | — | ||||
Impairment loss on trade receivables and loans receivable | 17,19 | ( | ( | — | ||||
Total costs and expenses, excluding depreciation and amortization |
|
| ( | ( |
| ( | ||
Depreciation and amortization |
| 14,15,18 |
| ( | ( |
| ( | |
Profit/(loss) from operations |
|
| | ( |
| ( | ||
Finance income |
| 12 |
| | |
| | |
Finance expenses | 12 | ( | ( | ( | ||||
Change in fair value of share warrant obligation and other financial instruments | 22,29 | | | — | ||||
Share of loss of equity-accounted associates | 16 | ( | — | — | ||||
Profit/(loss) before income tax | | ( | | |||||
Income tax expense |
| 13 |
| ( | ( |
| ( | |
Profit/(loss) for the year, net of tax |
|
| | ( |
| ( | ||
Attributable to equity holders of the Company | | ( | ( | |||||
Attributable to non-controlling interest | | | — | |||||
Other comprehensive income/(loss) | ||||||||
Items that are or may be reclassified subsequently to profit or loss | 25 | | | | ||||
Foreign currency translation difference | | | — | |||||
Other | ( | ( | | |||||
Total comprehensive income/(loss) for the year, net of tax | | ( | ( | |||||
Attributable to equity holders of the Company | | ( | ( | |||||
Attributable to non-controlling interest |
|
| | |
| — | ||
Earnings/(loss) per share: |
|
|
| |||||
Basic and diluted earnings/(loss) per share, US$ | 6 | | ( | ( |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NEXTERS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2022, 2021 and 2020
(in thousands of US$ except number of shares)
Number of | Additional | Share-based | Total | Non- | ||||||||||||||||
shares | paid-in | payments | Translation | Accumulated | shareholders' | controlling | ||||||||||||||
| Note |
| outstanding |
| Share capital |
| capital |
| reserve |
| reserve |
| deficit |
| equity |
| interest |
| Total | |
Balance at January 1, 2020 |
| | | | | | ( | ( |
| — | ( | |||||||||
Loss for the year |
| — | — | — | — | — | ( | ( |
| — | ( | |||||||||
Other comprehensive income |
|
|
| — | — |
| — |
| — | — |
| |
| | — |
| | |||
Total comprehensive loss for the year |
|
|
| — | — |
| — |
| — | — |
| ( |
| ( | — |
| ( | |||
Share-based payments |
| 29 |
| — | — |
| — |
| | — |
| ( |
| | — |
| | |||
Distribution and dividends |
| 14 |
| — | — |
| — |
| — | — |
| ( |
| ( | — |
| ( | |||
Total transactions with shareholders |
|
|
| — | — |
| — |
| | — |
| ( |
| ( | — |
| ( | |||
Balance at December 31, 2020 |
|
|
| | |
| |
| | |
| ( |
| ( | — |
| ( |
| Equity | |||||||||||||||||||
Number of | Additional | Share-based | attributable to | Non- | ||||||||||||||||
shares | paid-in | payments | Translation | Accumulated | equity holders | controlling | ||||||||||||||
Note |
| outstanding |
| Share capital |
| capital |
| reserve | reserve |
| deficit |
| of the Company |
| interest |
| Total | |||
Balance at January 1, 2021 |
|
|
| | |
| |
| | |
| ( |
| ( | — |
| ( | |||
Loss for the year |
|
|
| — | — |
| — |
| — | — |
| ( |
| ( | |
| ( | |||
Other comprehensive income |
|
|
| — | — |
| — |
| — | |
| ( |
| | — |
| | |||
Total comprehensive loss for the year |
|
|
| — | — |
| |
| | |
| ( |
| ( | |
| ( | |||
Equity contribution from shareholders | 3 | — | ( | | — | — | — | | — | | ||||||||||
Issuance of shares upon the Transaction | 3 | | — | — | — | — | — | — | — | — | ||||||||||
Share-based payments |
| 3.18, 30 |
| — | — |
| — |
| | — |
| |
| | — |
| | |||
Share warrant obligation | 22 | — | — | ( | — | — | — | ( | — | ( | ||||||||||
Acquisition of non-controlling interest | — | — | — | — | — | — | — | | | |||||||||||
Distribution and dividends |
| 30 |
| — | — |
| ( |
| — | — |
| ( |
| ( | — |
| ( | |||
Total transactions with shareholders |
|
|
| | ( |
| |
| | — |
| ( |
| | |
| | |||
Balance at December 31, 2021 |
|
|
| | — |
| |
| | |
| ( |
| ( | |
| ( |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
NEXTERS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2022, 2021 and 2020
(in thousands of US$ except number of shares)
|
|
|
|
|
| Equity |
|
| ||||||||||||
Number of | Share-based | attributable to | Non- | |||||||||||||||||
shares | Additional | payments | Translation | Accumulated | equity holders | controlling | ||||||||||||||
Note | outstanding | Share capital | paid-in capital |
| reserve | reserve | deficit | of the Company | interest | Total | ||||||||||
Balance at January 1, 2022 |
| |
| — |
| | | |
| ( |
| ( |
| |
| ( | ||||
Profit for the year |
| — |
| — |
| — | — | — |
| |
| |
| |
| | ||||
Other comprehensive income | 25 |
| — |
| — |
| ( | — | |
| — |
| |
| — |
| | |||
Total comprehensive income for the year |
| — |
| — |
| ( | — | |
| |
| |
| |
| | ||||
Issue of ordinary shares related to business combination |
| 15 |
| |
| — |
| ( | — | — |
| — |
| ( |
| — |
| ( | ||
Share-based payments |
| 30 |
| — |
| — |
| — | | — |
| — |
| |
| — |
| | ||
Distribution to shareholders |
|
| — |
| — |
| | — | — |
| — |
| |
| — |
| | |||
Elimination of non-controlling interest at disposal of subsidiaries | 8 | — | — | — | — | — | — | — | ( | ( | ||||||||||
Total transactions with shareholders |
| |
| — |
| ( | | — |
| — |
| |
| ( |
| | ||||
Balance at December 31, 2022 |
| |
| — |
| | | |
| ( |
| ( |
| — |
| ( |
The accompanying notes are an integral part of these consolidated financial statements.
F-8
NEXTERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2022, 2021 and 2020
(in thousands of US$)
| Note | 2022 |
| 2021 |
| 2020 | ||
Operating activities |
|
|
|
|
|
|
| |
Profit/(loss) for the year, net of tax | |
| ( |
| ( | |||
Adjustments for: |
|
|
|
|
|
|
| |
Depreciation and amortization |
| 14,15,18 | |
| |
| | |
Share-based payments expense |
| 30 | |
| |
| | |
Goodwill and Investments in equity accounted associates' impairment | 15,16 | | — | — | ||||
Share listing expense | 30 | — | | — | ||||
Share of loss of equity-accounted associates | 16 | | — | — | ||||
Gain on acquisition | 8 | — | ( | — | ||||
Impairment loss on trade receivables and loans receivable | 17,19,29 | | | — | ||||
Property and equipment write-off | 14 | | — | — | ||||
Impairment loss on Intangible assets | 15 | | — | — | ||||
Change in fair value of share warrant obligation and other financial instruments | 22,29 | ( | ( | — | ||||
Unwinding of discount on the put option liability | 12 | | — | — | ||||
Transaction costs | 12 | | — | — | ||||
Interest income | 12 | ( | — | — | ||||
Interest expense | 12 | | | | ||||
Lease modification gain | 18 | ( | — | — | ||||
Loss on sale of disposal group | 8 | | — | — | ||||
Dividend on ETFs accrued | 12 | ( | — | — | ||||
Trade receivables write-off | 19 | | — | — | ||||
Foreign exchange (gain)/loss, net |
| 12 | |
| |
| ( | |
Income tax expense |
| 13 | |
| |
| | |
|
| |
| | ||||
Decrease/(increase) in deferred platform commissions |
| 26 | |
| ( |
| ( | |
(Decrease)/increase in deferred revenue |
| 26 | ( |
| |
| | |
Increase in trade and other receivables |
| 19 | ( | ( |
| ( | ||
Increase/(decrease) in trade and other payables | 20 | |
| |
| ( | ||
( |
| |
| | ||||
Income tax paid | ( |
| ( |
| ( | |||
Interest received | — |
| |
| | |||
Net cash flows generated from operating activities | |
| |
| | |||
Investing activities |
|
|
|
|
|
| ||
Acquisition of intangible assets |
| 15 | ( |
| ( |
| — | |
Acquisition of property and equipment |
| 14 | ( |
| ( |
| ( | |
Acquisition of subsidiary net of cash acquired | 3,15 | ( | ( | — | ||||
Investments in equity accounted associates | 16 | ( | — | — | ||||
Loans granted |
| 17 | ( |
| ( |
| — | |
Proceeds from repayment of loans |
| 17 | |
| — |
| | |
Acquisition of other investments | 23 | ( | — | — | ||||
Net cash flows (used)/generated in investing activities | ( |
| ( |
| | |||
Financing activities |
|
|
|
|
|
| ||
Payments of lease liabilities |
| 18 | ( |
| ( |
| ( | |
Proceeds from loans receivable | 27 | | — | — | ||||
Repayment of borrowings | — | ( | ( | |||||
Payments of lease interest | 18 | ( | ( | ( | ||||
Payments of interest non-lease | — | — | ( | |||||
Dividends paid and distribution to shareholders |
| 25 | — |
| ( |
| ( | |
Cash acquired in the Transaction |
| 3 | — |
| |
| — | |
Net cash flows used in financing activities | ( |
| ( |
| ( | |||
Net (decrease)/increase in cash and cash equivalents for the year | ( |
| |
| | |||
Cash and cash equivalents at the beginning of the year | |
| |
| | |||
Effect of changes in exchange rates on cash held | |
| ( |
| | |||
Cash and cash equivalents at the end of the year |
| |
| |
| |
The accompanying notes are an integral part of these consolidated financial statements.
F-9
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
1. Reporting entity
GDEV Inc. (formerly, Nexters Inc.) (the “Company”) is a company incorporated under the laws of the British Virgin Islands on January 27, 2021, which was formed for the sole purpose of effectuating a merger with Kismet Acquisition One Corp (“Kismet” a Special Purpose Acquisition Company (“SPAC”)).
On August 26, 2021, the Company successfully consummated the merger with Kismet, which was announced on February 1, 2021 (the “Transaction”). The Company treated the merger with Kismet as a transaction equivalent to the issue of shares of the Company in exchange for the net monetary assets of Kismet and its listing status. The merger did not constitute a business combination as defined under IFRS 3 Business Combinations, as Kismet, whom we determined to be the accounting acquiree in the Transaction, was a non-operating entity that does not meet the definition of a business under IFRS 3, given that it consisted predominantly of cash in the Trust Account (see Note 30 for more details). On the same date the Company acquired Nexters Global, the Company that generates most of the the Company’s revenues, for a combination of cash and GDEV Inc. ordinary shares.
Prior to the Transaction, the Company had no material assets and did not conduct any material activities other than those incidental to its formation and the matters contemplated by the Business Combination Agreement, such as the making of certain required securities law filings.
The mailing and registered address of GDEV Inc.’s principal executive office is 55, Griva Digeni, 3101, Limassol, Cyprus.
GDEV Inc. is the direct parent of Nexters Global Ltd, which was incorporated in Cyprus on November 2, 2009 as a private limited liability company under the Cyprus Companies Law, Cap. 113. Nexters Global Ltd’s registered office is at Faneromenis 107, 6031, Larnaca, Cyprus. Nexters Global Ltd generates the majority of the Company’s revenues.
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at and for the years ended December 31, 2022 and 2021.
The principal activities of the Company and its subsidiaries (the “Group”) are the development and publishing of online games for mobile, web and social platforms. The Group also derives revenue from advertising services. Information about the Company’s main subsidiaries is disclosed in Note 25.
The Company’s ordinary shares and warrants are listed on Nasdaq under the symbols GDEV and GDEVW, respectively.
The Group has no ultimate controlling party.
2. Basis of presentation
2.1. Statement of compliance
These consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements were authorized for issue by the Group’s Board of Directors on June 26, 2023.
2.2. Going concern
The financial position of the Group, its cash flows and liquidity position are described in the financials statements and notes to these consolidated financial statements. In addition, Note 29 includes the Group’s policies for managing its liquidity risk.
F-10
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Despite the uncertainties related to the current economic volatility and taking into account significant positive cash inflows from operating activities, management’s assessment of revenue trends and principal risks and uncertainties, management has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, which is at least 12 months from the reporting date of December 31, 2022. Accordingly, they are satisfied that the consolidated financial statements should be prepared on a going concern basis. Management believes that there is no significant doubt regarding the Company’s or the Group’s existence as a going concern, please refer to Notes 29 and 31 for further details.
2.3. Basis of presentation
These consolidated financial statements have been prepared based on historical cost basis unless disclosed otherwise and are presented in United States Dollars ($) which is also the functional currency of GDEV Inc. and Nexters Global Ltd. All amounts are presented in thousands, rounded to the nearest thousand unless indicated otherwise.
2.4. Basis of consolidation
The Group controls the entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
| ● | Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee), |
| ● | Exposure, or rights, to variable returns from its involvement with the investee, and |
| ● | The ability to use its power over the investee to affect its returns. |
When the Group has less than a majority of the voting or similar rights of an investee, where control is exercised through voting rights, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
| ● | The contractual arrangement with the other vote holders of the investee, |
| ● | Rights arising from other contractual arrangements, |
| ● | The Group’s voting rights and potential voting rights. |
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of an investee begins when the Group obtains control over the investee and ceases when the Group loses control over the investee. Assets, liabilities, income and expenses of an investee acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date the Group ceases to control the investee. The financial statements of the investees are prepared for the same reporting period as the parent company, using consistent accounting policies.
All intra-group balances, income, expenses and unrealized gains and losses resulting from intra-group transactions are eliminated in full.
2.5. Changes in accounting policies
During 2022 the Group applied a number of accounting standards effective from January 1, 2022 for the first time, but they do not have a material impact on the Group’s consolidated financial statements.
F-11
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Standards and interpretations effective for the year ended December 31, 2022
| ● | Amendments to IFRS 3 - Business Combinations: Reference to the Conceptual Framework. |
| ● | Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before Intended Use. |
| ● | Amendments to IAS 37 - Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts – Cost of Fulfilling a Contract. |
| ● | Annual Improvements to IFRS Standards 2018–2020. |
| ● | Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7). |
A number of new standards are effective for annual periods beginning after January 1, 2022 and earlier application is permitted; however, the Group has not earlier adopted the new or amended standards in preparing these consolidated financial statements.
The following amended standards and interpretations are not expected to have a significant impact on the Group’s financial statements.
Standards issued but not yet effective:
| ● | IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts. |
| ● | Classification of liabilities as current or non-current (Amendments to IAS 1). |
| ● | Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). |
| ● | Definition of Accounting Estimates (Amendments to IAS 8). |
| ● | Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). |
| ● | Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7). |
3. Summary of significant accounting policies
Except as described in Note 2.5, the accounting policies have been applied consistently throughout the periods presented in these consolidated financial statements.
The principal accounting policies used to prepare these consolidated financial statements are set out below.
3.1. Business combinations and goodwill
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the total of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred, such as finder’s fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed and included in general and administrative expenses.
The Group measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as at the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination.
F-12
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
If control is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit or loss.
A contingent liability of the acquiree is recognized in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.
Only components of non-controlling interest constituting a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are measured at their acquisition date fair value.
The Group accounts for a change in the ownership interest of a subsidiary (without loss of control) as a transaction with owners in their capacity as owners. Therefore, such transactions do not give rise to goodwill, nor do they give rise to a gain or loss and are accounted for as an equity transaction.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units that are expected to benefit from the synergies of the combination and/or from the future cash flows provided by the acquired businesses, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. If the Group reorganizes its reporting structure in a way that changes the composition of one or more cash-generating units to which goodwill has been allocated, the goodwill is reallocated to the units affected. The reallocation is performed using a relative value approach similar to that used in connection with the disposal of an operation within a cash-generating unit, unless some other method better reflects the goodwill associated with the reorganized units.
3.2. Foreign currency translation
The consolidated financial statements are presented in US dollars (US$), which is the Group’s presentation currency. Each entity in the Group determines its own functional currency, depending on what the underlying economic environment is, and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured into the functional currency at the functional currency rate of exchange at the reporting date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive income or profit or loss is also recognized in other comprehensive income or profit or loss, respectively).
The functional currency of the foreign operations is generally US Dollar or the respective local currency – Euro (€), Russian rouble (RUB), Armenian dram (AMD) or Kazakhstani tenge (KZT). As at the reporting date, the assets and liabilities of these operations are translated into the presentation currency of the Group (the US$) at the rate of exchange at the reporting date and their statements of comprehensive income are translated at the average exchange rates for the year or exchange rates prevailing on the date of specific transactions. The exchange differences arising on the translation are recognized in other comprehensive income. On disposal of a foreign entity, the cumulative amount recognized in equity relating to that particular foreign operation is reclassified to the profit or loss.
F-13
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
3.3. Property and equipment
3.3.1. Cost of property and equipment
Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment loss. Expenditures for continuing repairs and maintenance are charged to the profit or loss as incurred.
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.
3.3.2. Depreciation and useful lives
Depreciation is recognized in profit or loss on the straight-line method over the useful lives of each part of an item of property and equipment.
The estimated useful lives of property and equipment for current and comparative periods are as follows:
| ● | Computer hardware |
| ● | Furniture, fixtures and office equipment |
Useful lives of leasehold improvements of leased office premises are determined at the lower between the useful life of the asset or the lease term. The asset’s residual values, useful lives and depreciation methods are reviewed, and adjusted as appropriate, at each financial year-end.
3.4. Intangible assets
3.4.1. Software and other intangible assets
Software and other intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Subsequent expenditure to add to, replace part of, or service an intangible asset is recognized as part of the cost of an intangible asset if we can demonstrate that the item meets the definition of an intangible asset and the general recognition criteria for intangible assets.
3.4.2. Useful life and amortization of intangible assets
The Group assesses whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of that useful life. An intangible asset is regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. The Group did not have any intangible assets with indefinite useful life as at December 31, 2022 and 2021.
Intangible assets with finite lives are amortized on a straight-line basis over the useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The useful economic life of the Group’s Intellectual property rights, including licenses, as at December 31, 2022 and 2021 is
Amortization periods and methods for intangible assets with finite useful lives are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.
F-14
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of profit or loss and other comprehensive income when the asset is derecognized.
3.5. Leases
Right-of-use assets
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
Short-term leases and leases of low-value assets
The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) with a cost of 5 or less and short-term leases (i.e., leases with a lease term of 12 months or less).
The Group does not apply the short-term lease recognition exemption to its short-term leases of office premises (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). Lease payments on such short-term leases are recognized as a right-of-use asset and a lease liability at the lease commencement date. Other short-term and low-value leases are expensed as incurred.
Significant judgment in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, and/or excluding any periods covered by an option to terminate the lease, if it is reasonably certain that the termination option will be exercised.
The Group has the option, under some of its leases to lease the assets for an additional term. The Group applies judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
The carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the year are disclosed in Note 18.
Lease liabilities
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
F-15
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Lessees are also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee generally recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use assets.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
3.6. Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired, other than goodwill, intangible assets not yet available for use and intangible assets with indefinite useful life, for which impairment testing is required annually, regardless of whether there is a triggering event. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs.
Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
Impairment losses are recognized in profit or loss.
For all assets an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. An impairment loss in respect of goodwill is not reversed.
That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss.
3.7. Financial assets
3.7.1. Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
F-16
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
3.7.2. Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
| ● | Financial assets at amortized cost |
| ● | Financial assets at fair value through OCI (“FVOCI”) |
| ● | Financial assets at fair value through profit or loss |
Financial assets at amortized cost
The Group measures financial assets at amortized cost if both of the following conditions are met:
| ● | The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and |
| ● | The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
Financial assets at amortized cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
The Group’s financial assets at amortized cost includes trade and other receivables, loans receivable and other current investments.
Financial assets at fair value through OCI (“FVOCI”)
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
| ● | it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and |
| ● | its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Financial assets at fair value through profit or loss
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at
F-17
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Impairment—credit loss allowance for ECL
The Group assesses and recognizes the allowances for expected credit losses (ECLs) on financial assets measured at amortized cost and debt instruments measured at FVOCI.
The measurement of ECL reflects:
| ● | an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes; |
| ● | present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and cash flows the Group expects to receive); and |
| ● | all reasonable and supportable information that is relevant and available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future economic conditions. |
Debt instruments measured at amortized cost are presented in the consolidated statement of financial position net of the allowance for ECL.
The Group applies a “three stage” model for impairment in accordance with IFRS 9, based on changes in credit quality since initial recognition:
| 1. | A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months (12-month ECL). |
| 2. | If the Group identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis (lifetime ECL). |
| 3. | If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as a lifetime ECL. |
For financial assets that are credit-impaired on purchase or at origination, as well as for trade receivables without a significant financing component, the ECL is always measured at a lifetime ECL. Notes 4 and 29 include information about inputs, assumptions and estimation techniques used in measuring ECL, including an explanation of how the Group incorporates forward-looking information in the ECL models.
3.7.3. Derecognition
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:
| ● | The rights to receive cash flows from the asset have expired, or; |
| ● | The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third-party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. |
F-18
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control thereover, the asset is recognized to the extent of the Group’s continuing involvement in the asset.
In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
3.8. Financial liabilities
3.8.1. Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at amortized cost or fair value through profit or loss.
The Group’s financial liabilities predominantly include trade and other payables, put option liabilities, share warrant obligation, lease liabilities and contingent consideration.
3.8.2. Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.
Gains or losses on liabilities at fair value through profit or loss are recognized in the statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied.
The Group’s financial liabilities at FVTPL are categorized in the fair value hierarchy based on facts and circumstances which affect the valuation of the financial instruments as well as on the valuation method that we adopt at the end of each reporting period.
Financial liabilities at amortized cost
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate (EIR) method. The EIR amortization is included as finance costs in the net finance income/(costs) section of the consolidated statement of profit or loss and other comprehensive income.
3.8.3. Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
F-19
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability at fair value, and the difference in the respective carrying amounts is recognized in profit or loss.
3.8.4. Offsetting financial assets and liabilities
Financial assets and financial liabilities are offset, and the net amount reported in the consolidated statement of financial position if, and only if:
| ● | There is a currently enforceable legal right to offset the recognized amounts; and |
| ● | There is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. |
The right of set-off:
| ● | Must not be contingent on a future event; and |
| ● | Must be legally enforceable in all of the following circumstances: |
| (i) | the normal course of business; |
| (ii) | the event of default; and |
| (iii) | the event of insolvency or bankruptcy of the entity and all of the counterparties |
The Group did not offset any financial assets and liabilities as at December 31, 2022 and 2021.
3.9. Derivative financial instruments
The Company holds various derivative instruments issued as part of the acquisition of its investees (Note 16). Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are generally recognized in profit or loss.
The Company has not designated any of its derivatives as hedging instruments.
3.10. Cash and cash equivalents
Cash comprises cash at banks and in hand and short-term deposits with an original maturity of three months or less and are included as a component of cash and cash equivalents for the purpose of the consolidated statement of financial position and consolidated statement of cash flows.
3.11. Employee benefits
Wages and salaries paid to employees are recognized as expenses in the current year. The Group also accrues expenses for future vacation payments and short-term employee bonuses. The Group and its employees also contribute to various social insurance funds and funds of similar nature in the jurisdictions where the Group’s subsidiaries are located based on employees’ salaries.
F-20
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Share based payment expenses relating to our employees are included in the same categories in the consolidated statement of profit or loss and other comprehensive income where the wages and salaries of corresponding employees are included. Share based payment expenses relating to key employees of the Group’s service providers are included in the same categories where the respective services are included.
3.12. Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, such that it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.
If the effect of discounting is material, provisions are determined by discounting the expected value of future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.
3.13. Income taxes
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Current income tax relating to items recognized in other comprehensive income is recognized in other comprehensive income.
Deferred income tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
3.14. Revenue from contracts with customers
We derive substantially all of our revenue from the sale of virtual items and advertising services associated with our online games in accordance with IFRS 15.
F-21
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Revenue from contracts with customers is recognized when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has concluded that it is the principal in its revenue arrangements because it controls the goods and services before transferring them to the customer. Revenues and related expenses from services are recognized in the period when services are rendered, regardless of when payment is made. Contract price is allocated separately to each performance obligation based on observable stand-alone prices. There are generally no variable amounts affecting consideration at the moment such consideration is recognized. Consideration from customers does not have any non-cash component.
Online Games. We operate our games as live services that allow players to play for free. Our identified performance obligation is to display the virtual items within the game over the estimated playing period of the paying player or until it is consumed in game play based upon the nature of the virtual item. Revenue is recognized either at a point in time or over time depending on the nature of virtual item displayed. Payment is required at time of purchase and the purchase price is a fixed amount.
Our games are distributed through third-party platforms, such as the Apple App Store, Facebook, and Google Play (the “platforms”). Players can purchase our virtual items through various widely accepted payment methods offered in the games, including Apple iTunes accounts, Google Play accounts, Huawei and Facebook local currency payments. Payments from players for virtual items are non-refundable and relate to non-cancellable contracts that specify our obligations. Such payments are initially recorded as deferred revenue.
The transaction price which the Group collects from its consumers is equal to the gross amount we request to be charged to our player because we are the principal in the transaction. The related platform and payment processing fees are recorded as expense in the same period when the relevant revenue is recognized while the amount of the platform and payment processing fees, which relate to the deferred revenue, is recognized as deferred platform commission fees. Revenue is recognized net of taxes, such as VAT and sales tax. Taxes are normally withheld by platforms in accordance with local laws in relevant jurisdictions, and where the platform does not serve as a tax agent the Group uses estimates to determine related tax amounts.
Advertising. We have contractual relationships to display advertisements in our games. For all advertising arrangements, we are the principal and our performance obligation is to provide the inventory for advertisements to be displayed in our games.
The pricing and terms for all our advertising arrangements are governed by either a master contract or insertion order and generally stipulate payment terms as a specific number of days subsequent to the end of the month. The transaction price in advertising arrangements is generally the product of the number of advertising units delivered (e.g., impressions, offers completed, videos viewed, etc.) and the contractually agreed upon price per advertising unit.
For in-game display advertisements, in-game offers, engagement advertisements and other advertisements, our performance obligation is satisfied over the life of contract (i.e., over time), with revenue being accounted for using “as invoiced” practical expedient and recognized monthly using end-of-the month recognition approach.
Taxes Collected from Customers. As stated above we present our revenue net of taxes collected from customers and remitted to governmental authorities in our consolidated statement of profit or loss and other comprehensive income.
3.15. Platform Commissions
Platforms retain platform commissions and fees on each purchase made by the paying players through the platform. As revenues from sales of virtual items to paying players through the platform are deferred, the related platform commissions and fees are also deferred on the consolidated statement of financial position. The deferred platform commissions are recognized in the consolidated statement of profit or loss and other comprehensive income in the period in which the related sales of virtual items for which revenue have been initially deferred are recognized as revenue.
F-22
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
3.16. Recognition of interest income and interest expense
For all financial instruments measured at amortized cost, interest bearing financial assets classified as available for sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR method. The EIR (and therefore, the amortized cost of the asset) is calculated by taking into account any discount or premium on acquisition, fees and costs that are an integral part of the EIR of the financial instrument.
Interest expense derived from borrowings attracted from various third parties including banks as part of financing arrangements is classified as interest expense. Cash disbursements of interest are included into interest paid in the consolidated statement of cash flows.
3.17. Share-based payments
Employees and contractors of the Group (providing services similar to employees) receive remuneration in the form of equity instruments (equity-settled transactions) in exchange for rendering services.
The cost of equity-settled transactions is recognized, together with a corresponding increase in other reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The consolidated statement of profit or loss and other comprehensive income expense or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in the relevant cost and expense categories.
The cost of cash-settled transactions is measured at fair value at the grant date using a relevant valuation model (for details see Note 30). The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to, and including the settlement date.
When the terms of an equity-settled award are modified, the minimum expense recognized is the expense that would have been incurred had the terms not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in previous paragraph.
All of the components of share-based payments with a choice of settlement are treated as compound financial instrument, that includes both a liability and an equity component.
For each component the fair value of cash consideration is estimated first, and the fair value of equity component is estimated consequently.
3.18. Investment in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
F-23
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Interests in associates are included in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. They are initially recognized at cost which includes transaction costs. Contingent consideration arising from the acquisition of an equity-accounted investee is initially recognized at fair value as part of the cost of acquisition and subsequently accounted for as follows: a) Contingent consideration classified as equity is not remeasured and should accounted for its settlement in equity, b) Contingent consideration classified as an asset or a liability is remeasured to fair value at each reporting date until the contingency is settled, with changes in fair value recognized in profit or loss.
An impairment assessment of investments in associates is performed when there is an indication that the asset has been impaired or the impairment losses recognized in prior years no longer exist.
Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence ceases.
When the Group’s share of losses exceeds the carrying amount of the investment, the investment is reported at nil value and recognition of losses is discontinued except to the extent of the Group’s commitment.
3.19. Transactions under common control:
A common control transaction is any transfer of net assets or exchange of equity interests between entities or businesses that are under common control by an ultimate parent or controlling shareholder before and after the transaction. Common control transactions may have characteristics that are similar to business combinations but do not meet the requirements to be accounted for as business combinations because, from the perspective of the ultimate parent or controlling shareholder, there has not been a change in control over the acquiree. Due to the fact that common control transactions do not result in a change in control at the ultimate parent or controlling shareholder level, the Company does not account for that at fair value. Rather, common control transactions are accounted for at the carrying amount of the net assets or equity interests transferred.
3.20. Share listing expense
In accounting for the SPAC transaction discussed in Note 30 we considered that in accordance with IFRS 2, the difference in the fair value of the consideration for the acquisition of an exchange listed SPAC entity that does not meet the definition of a business under IFRS 3 and the fair value of its identifiable net assets represented a service for listing of the Company and was accounted for as a share-based payment expense. The consideration for the acquisition of SPAC was determined using the fair values of the Company´s ordinary shares and public and private warrants as at the date of the transaction.
The consolidated financial statements reflect the substance of the transaction, which is that GDEV Inc. is the continuing entity. Nexters Global is deemed to have issued shares in exchange for the cash held by SPAC, together with the listing status of SPAC. However, the listing status does not qualify for recognition as an intangible asset, and therefore needs to be expensed in profit or loss.
4. Accounting judgments, estimates and assumptions
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the reporting dates and the reported amounts of revenues and expenses during the reporting periods. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
F-24
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Key areas of estimation uncertainty and critical judgments
Key judgments and estimates reflected in the Group’s financial statements include:
| ● | Revenue recognition: categorization of in-game purchases between durable and consumable and determination of their periods of usage. |
| ● | Revenue recognition: estimation of the average playing period of our users and estimation of the remaining lifespan of the games. |
| ● | Measurement of cost associated with share-based payments. |
| ● | Uncertain tax positions - indirect taxes. |
| ● | Classification and measurement of share warrant obligation. |
| ● | Measurement of intangible assets recognized in business combination. |
| ● | Measurement of the financial instruments issued as part of the investment in associates. |
| ● | Accounting for SPAC transaction. |
In the process of applying the Group’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements. Actual results could materially differ from those estimates.
Revenue recognition
The approach to in-game purchases, consumable and durable items
The satisfaction of our performance obligation is dependent on the nature of the virtual item purchased and as a result, we categorize our virtual items as either consumable or durable.
| ● | Consumable virtual items represent items that can be consumed by a specific player action. They can, for example, instantly refill certain stats like mana or health points or be used to skip cooldowns. Common characteristics of consumable virtual items are that they are no longer displayed on the player’s game board after a short period of time (usually within few days since the date of purchase), do not provide the player any continuing benefit following consumption (they cannot be used to improve the character), and often enable a player to perform an in-game action immediately. For the sale of consumable virtual items, we recognize revenue at a point in time. |
| ● | Durable virtual items represent items that enhance player’s character or game inventory set over a certain period of time (e.g. that increase player hero’s power in Hero Wars game or enhance an island’s buildings in our Island Experiment game). These items are accessible to the player over an extended period of time or can be exchanged or used for obtaining different items or levels in the games, which in turn are associated with the players character for an extended period of time (e.g. “stars” influencing the specific hero power in the game). Considering the complexity of the gameplay, great variety of in-game items and different behavioural patterns of players on different levels of character development, it is impracticable to estimate the useful life of in-game items. Therefore, we recognize the revenue from the sale of durable virtual items rateably over the average playing period of players for the applicable game (player’s lifespan), which represents our best estimate of the average life of the durable virtual item. We use this approach for substantially all of our revenue. |
F-25
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
To separately account for consumable and durable virtual items, the Company specifically identifies each purchase for the majority of virtual items purchased in our games whether it relates to a durable or consumable item. The players may also purchase within the game virtual currencies which they may use in the future. For those purchases, the Company splits the amounts between consumable and durable items proportionately to the majority of distributed items and relying on expertise in resource content analysis of our games.
Estimate of players lifespan
Since January 1, 2020 we determine the estimated weighted average playing period of payers by game on a quarterly basis (on an annual basis in 2019), beginning at the time of a player’s first purchase in the respective game and ending on a date when that paying player is deemed to be no longer playing. To determine when paying players are no longer playing a given game, we analyse the entire population of payers who made in-game payments in the relevant periods and determine whether each payer is an active or inactive player as at the date of our analysis. To determine which payers are inactive, we analyse the dates that each payer last logged into that game. We determine a player to be inactive once they have reached a period of inactivity for which it is probable that they will not return to a specific game. We use judgment to set a minimum period of inactivity to distinguish between active users and those that are deemed inactive at the date of evaluation which is currently determined as
We use a statistical estimation model to arrive at the average playing period of the paying users for each platform. As at December 31, 2022, 2021 and 2020 player lifespan for Hero Wars averages , and
The estimated player lifespan in our other games as at December 31, 2022, 2021 and 2020 averages
In our core game Hero Wars a significant portion of our revenues is produced by a relatively low percentage of our users, which pay substantially higher dollar amounts for in-game virtual items as compared to the average payment per user and tend to have substantially longer playing periods as compared with average playing periods for the entire population. Moreover, the average playing periods may differ substantially among different platforms, through which we distribute our games. To account for these aspects, we estimate the average playing periods separately for each platform as soon as we have the indicators that the average playing periods for a particular platform may differ from the average periods for other platforms and adjust the average playing periods by assigning greater weight to higher spending payers versus average payers in the population. We use the Kaplan-Meyer survival model to arrive at the average playing period of the paying users for each platform.
Key factors of estimation uncertainty
We expect that in future periods, there may be changes in the mix of consumable and durable virtual items offered and sold, reduced virtual item sales in certain existing games, changes in estimates of the average playing period of players and/or changes in our ability to make such estimates. When such changes occur, and in particular if more of our revenue in any period is derived from durable virtual items or the estimated average playing period of payers increases on average, the amount of revenue that we recognize in a current or future period may be reduced, perhaps significantly. Conversely, if the estimated average playing period of payers decreases on average, the amount of revenue that we recognize in a current or future period may be accelerated, perhaps significantly, and we would disclose the effects of such changes in our consolidated financial statements.
The length of the lifespan depends on the players’ behaviours which vary across different game titles and across different platforms, where lifespans for social and web platforms tend to be longer than for mobile platforms. The length of the lifespans may also depend on the maturity of the game title and our ability to allocate necessary financial and intellectual resources to implement relevant strategies for player attraction and retention.
F-26
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
When a new game is launched and only a limited period of payer data is available for our analysis, then we need to consider other factors to determine the estimated average playing period of payers, such as the estimated average playing period of payers for our other game titles with similar characteristics and review of externally available information, including industry peers.
Sensitivity to input parameters
Our estimates are sensitive to input parameters, particularly to change in proportion between durable and consumable items and to change in estimated player’s lifespan. Below is the analysis of sensitivity to these parameters:
| ● | While other parameters remain constant, an increase/decrease of the share of durable items in total payments by |
| ● | While other parameters remain constant, an increase/ of the share of consumable items in total payments by |
| ● | While other parameters remain constant, an increase in the estimated lifespans applied in 2022 by |
| ● | While other parameters remain constant, a decrease in the estimated lifespans applied in 2022 by |
Measurement of cost associated with share-based payments
Share-based payments included expenses incurred under share options granted in 2021 and earlier. See also Note 30 below for more details.
Management estimates the fair value of certain share options at the date of grant using the Black-Scholes-Merton pricing model. The fair value of complex share options granted in 2019 was calculated as fair value of
The amount of expense is sensitive to the number of awards, which are expected to vest, taking into account estimated forfeitures. Below is the discussion of each of these estimates:
Assumptions used in Black-Scholes-Merton model
Expected life
The Company does not have sufficiently long history to determine the time the option holders will hold the options. Therefore, for the options granted in 2019 and earlier the Company used the expected term as the contractual term of each option tranche for stock option plan. For the options granted in 2020 the Company determined the expected term based on the expected dates of certain events, which influence the vesting of the options. For the options granted in 2021 the Company determined the expected term based on the average of vesting and expiration dates.
F-27
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Expected volatility
Since the Company’s shares have a short trading history, there is no extensive data on the Company’s share price volatility. The volatility for options valuation was defined based on the historical volatility of comparable public companies in a similar industry over a period, which approximates the expected life of option tranches.
Risk-free interest rates
Risk-free interest rates are based on the implied yield available in the US treasury bonds at the date of valuation with a remaining term approximating the expected life of the option award being valued.
Expected dividend yield
The Group set a dividend yield based on historical payout and management’s best expectation for dividends distribution.
Fair value of the underlying shares
The fair value of the underlying shares at the dates before the Transaction was estimated on the basis of valuations of the Company’s peer group multiples and, at the dates close to the Transaction at the anticipated share price in the Transaction, adjusted for the lack of marketability of the Company’s shares if required. The peer group companies were determined based on several factors including, but not limited to industry (primarily gaming companies), similar size and availability of the financial information.
The fair value of the Company’s underlying shares after the Transaction was determined based on their market price at the grant date.
Estimated forfeitures
Management used a forfeiture rate of zero as there is no history of attrition among key personnel and management at the dates of share option grants. Subsequently, if the actual forfeiture rate is higher, the actual amount of related expense will be lower.
Assumptions used in Monte-Carlo simulation
Vesting of the complex options granted in 2019 was tied to reaching certain net income targets. Estimated future net income is determined using an expected equity value and Price/Earnings multiple based on peer historical data. Expected equity value is modelled using Monte-Carlo simulation based on the assumptions of price change in line with Geometric Brownian Motion (GBM). The model runs simulations to define the equity value for the given contractual term, based on input parameters (see below). Based on simulation results target net income is defined through a proxy indicator (net income to equity value based on peer historical data). The expected payout is calculated based on results of future net income estimation and performance condition for each simulation separately. The proportionate share of all dividends distributed during the option’s exercise period are included in the total payout calculation. The amount of simulations performed were
The assumptions used to setup the model are as follows:
| ● | The relation of net income to equity value is defined through proxy EV/EBITDA multiple; |
| ● | Dividends accrued and paid are continuous; |
| ● | Risk-free return rate is continuous; |
| ● | Equity value is modelled through GBM and risk-neutral valuation. |
F-28
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Dividend protection feature
The dividend protection feature included into certain option agreements is accrued if it considered likely to be effected based on the management’s best estimate as of the reporting date.
Accounting treatment of share-based payments where the Group has a choice to settle in cash or equity
The Group determines the accounting treatment of the options based on whether the Group has a present obligation to settle in cash or equity.
Modifications may sometimes alter the manner of settlement; as a result, a share-based payment that was classified as equity settled at grant-date may be modified to become cash-settled, or vice versa. The modification-date fair value of the original share-based payment may increase, decrease or remain equal compared with its grant-date fair value. In addition, the terms of the modified share-based payment may grant incremental fair value to its recipient.
Change from cash-settled to equity-settled arising from modification
A change from cash-settled to equity-settled arising from a modification would occur if, for example, a new equity-settled share-based payment arrangement is identified as a replacement of a cash-settled share-based payment arrangement. At the modification date the Group:
| ● | derecognizes the liability for the cash-settled share-based payment; |
| ● | measures the equity-settled share-based payment at its fair value as at the modification date and recognizes in equity that fair value to the extent that the services have been rendered up to that date; and |
| ● | immediately recognizes in profit or loss the difference between the carrying amount of the liability and the amount recognized in equity. |
Sensitivity to input parameters
Our estimates are sensitive to input parameters, particularly to change in volatility. Below is the analysis of sensitivity to this parameter:
| ● | While other parameters remain constant, an increase of volatility by |
| ● | While other parameters remain constant, a decrease of volatility by |
Another key assumption is a risk-free rate that is derived from the Bloomberg system applied without modifications, below is the analysis of sensitivity to this parameter:
| ● | While other parameters remain constant, an increase of risk-free rate by |
| ● | While other parameters remain constant, a decrease of risk-free rate by |
F-29
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Uncertain tax positions - indirect taxes
Accounting for the tax uncertainties involves a significant judgment in respect of both assessment of the likelihood of the realization of the tax uncertainties and estimation uncertainty in their quantification/measurement.
The Group disclosed possible and accrued probable risks in respect of non-income tax uncertain tax positions. Management estimates the amount of risk based on its interpretation of the relevant legislation, in accordance with the current industry practice and in conformity with its assessment of the likelihood, which require considerable judgment (Note 21).
Classification and measurement of share warrant obligation
Upon completion of the Transaction on August 26, 2021, each outstanding warrant to purchase Kismet’s ordinary shares was converted into a warrant to acquire
The Company accounts for the warrants in its financial statements as a liability in accordance with IAS 32 - Financial Instruments: Presentation and IFRS 9 - Financial Instruments, based on the fact the fixed-for-fixed criteria is not met. This is due to the fact that, as soon as certain conditions are met, investors can exercise their warrants on a cashless basis according to make-whole table, where warrants are exchanged into a fractional number of shares depending on the stock price at time of redemption and remaining time to warrant expiration. The warrants are initially recorded at fair value and then remeasured at each reporting date until exercised or expired, with any change in fair value to be recognized in profit or loss within the line Change in fair value of share warrant obligation and other financial instruments.
Management exercised judgment in applying Monte-Carlo simulation for the purpose of estimating fair value of Private Warrants and, in 2022, for the Public Warrants as well, as there was no active market for the Public Warrants in 2022. For the key assumptions of the model see Note 22.
Sensitivity to input parameters
Our estimates are sensitive to certain input parameters, particularly to change in volatility, starting share price (estimated using the methods described in Note 22) and the risk-free rate. Below is the analysis of the estimate’s sensitivity to reasonably possible changes in these parameters:
Volatility:
| ● | While other parameters remain constant, an increase of volatility by |
| ● | While other parameters remain constant, a decrease of volatility by |
Starting share price:
| ● | While other parameters remain constant, an increase of starting share price by |
| ● | While other parameters remain constant, a decrease of starting share price by |
F-30
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Risk-free rate:
| ● | While other parameters remain constant, an increase of risk-free rate by |
| ● | While other parameters remain constant, a decrease of risk-free rate by |
Measurement of the financial instruments issued as part of the investments in associates
Significant judgment is required in measurement of the fair value of the financial instruments related to the investments in equity-accounted associates during the current reporting period, which included contingent consideration (sellers and founders earn-outs), call and put options of GDEV Inc. and respective shareholders as per shareholders’ and share purchase agreements and conversion option for the loan issued to Castcrown Ltd.
Fair value of the mentioned financial instruments considers the likelihood of achievement by the associates of performance targets such as those in respect of Net bookings and EBITDA over certain agreed periods of time. In order to estimate achievement of such performance targets management utilized Monte-Carlo simulations over the agreed periods and projected various outcomes for each performance target based on the underlying management assumptions of the investees’ future business growth. Management determined the fair values of the financial instruments based on outputs provided by those Monte-Carlo simulations.
In order to determine the fair value of the financial instruments (see Note 3 and 16) management applied the following assumptions:
| ● | Target pay back of 365 days on marketing investments in customer acquisition (i.e. the period over which we expect to recover marketing expenses made) applied to the projected periods. This assumption is based on the historical effectiveness of marketing expenses for Hero Wars game and the adjustment applied by management related to uncertainty of the games being new. |
| ● | Discount rate based on risk-free rate of |
| ● | Valuation of investees based on multiples of Enterprise Value to Net bookings of |
| ● | Assumption of Standard deviation (Sigma parameter of GBM distribution) of marketing expenditure incurred in order to generate bookings over the projected period of time with bookings benchmarked against historic performance of the same genre games in the gaming industry and implying certain Failure rate for such games. |
Due to the fact that stochastic generated marketing costs are mainly dependent from sigma parameter of GBM distribution, sigma was used in sensitivity tests to determine change in fair value of financial instruments with the change of marketing costs.
The analysis of sensitivity to the key parameters of financial model in MX Capital Ltd as at December 31, 2022:
| ● | While other parameters remain constant, an increase of target pay back on marketing investments by |
| ● | While other parameters remain constant, a decrease of target pay back on marketing investments by |
F-31
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
| ● | While other parameters remain constant, an increase of risk-free rate by |
| ● | While other parameters remain constant, a decrease of risk-free rate by |
| ● | While other parameters remain constant, an increase of multiples by |
| ● | While other parameters remain constant, a decrease of multiples by |
| ● | While other parameters remain constant, an increase of sigma by |
| ● | While other parameters remain constant, an decrease of sigma by |
The analysis of sensitivity to the key parameters of financial model in Castcrown Ltd shows that there is no reasonably possible change in the key parameters that would materially change the fair value of the relevant financial instruments.
Measurement of the intangible assets recognized at acquisition
Management used the relief-from-royalty method under the income approach to measure the fair value of the intangible assets acquired as part of the acquisition of Lightmap Ltd relating to Lightmap’s game “Pixel Gun 3D”.
The relief-from-royalty method measures the fair value of intangible assets using assumptions about what would it cost for a market participant to use the acquired intangible asset if another entity owned it. This technique is appropriate only if the highest and best use of the asset is to use it actively in the market. As a result of owning the asset, a market participant is relieved from making royalty payments that might otherwise be required. This method includes assumptions about the stream of payments that would be required, usually in the form of royalties, to another party for the right to use the asset. The fair value of the intangible asset is measured as the discounted stream of payments from which the acquiring entity is relieved because it owns the asset.
Management believes that the ‘relief-from-royalty method’ is the most appropriate method for the valuation of the intangible assets, as it minimizes the unobservable inputs. The highest and best use of main game of Lightmap Ltd is to use it actively in the market and earn revenue from in-app purchases and advertising.
Accounting for the SPAC transaction
Accounting for the SPAC transaction is associated with a number of financial reporting considerations, which require significant management judgment.
Among other things, the determination of the accounting acquirer involves significant judgment and is important, as it has an impact on the accounting and financial statement presentation, which can differ significantly depending on which party is determined to be the accounting acquirer.
F-32
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
For a transaction in which the former shareholders of a non-listed operating entity (the target) become the majority shareholders of the combined entity by exchanging their shares for new shares of a listed non-trading company (the SPAC), it is appropriate to apply the IFRS 3 guidance for reverse acquisitions by analogy. The Transaction is effected partially by transferring cash and partially by exchanging shares. Neither a single shareholder of SPAC nor an organised group of shareholders has obtained unilateral control over the combined group. In addition, the transaction is not effected primarily by transferring cash. Therefore, determination of the acquirer should be made by applying paragraphs B14-B18 of IFRS 3.
Paragraph B15 (a) of IFRS 3 suggests that GDEV Inc. should be determined as the accounting acquirer as the former owners of Nexters Global Ltd, as a group, obtain the largest portion of the voting rights in the combined entity. In addition, paragraphs B15 (c) and (d) of IFRS 3 also indicate that GDEV Inc. should be determined as the accounting acquirer as the former owners of Nexters Global Ltd have the ability to elect, appoint or remove a majority of the members of the governing body of the combined entity and, as a result of the transaction, former management of Nexters Global Ltd dominates the management of the combined entity. Therefore, it is appropriate to identify GDEV Inc. as the accounting acquirer.
As the target is determined to be the accounting acquirer and the SPAC is not a business under IFRS 3, the transaction is not accounted for as a business combination and the financial statements of the combined entity represent the continuation of the pre-acquisition financial statements of the target. IFRS 3 has no clear guidance on how the transaction is accounted for when the accounting acquiree is not a business. It cannot be accounted for as an acquisition of the target by the SPAC under IFRS 3 as the SPAC has not been identified as the accounting acquirer, based on the guidance in the standard.
Instead, we determined that the Transaction would be most appropriately accounted for as a share-based payment transaction under under IFRS 2, whereby GDEV Inc. acquired the SPAC’s net assets together with its listing status in exchange for a deemed issue of its shares. Also, based on that Standard for equity-settled share-based payments, an entity measures the goods or services received, and the corresponding increase in equity, directly at the fair value of the goods or services received. If the entity cannot estimate reliably the fair value of the goods and services received, the entity measures the amounts, indirectly, by reference to the fair value of the equity instruments issued. For transactions with non-employees, IFRS 2 presumes that the fair value of the goods and services received is more readily determinable. This suggests that the increase in equity is based on the fair value of the cash and the fair value of the listing status.
However, as the fair value of the listing status cannot be reliably estimated, the increase in equity is measured by reference to the fair value of the shares that are deemed to have been issued.
As the listed non-trading entity is not a business, the transaction is not a business combination, but a share-based payment transaction which is accounted for in accordance with IFRS 2. Any difference in the fair value of the shares deemed to have been issued by the accounting acquirer and the fair value of the accounting acquiree’s identifiable net assets represents a service received by the accounting acquirer. Regardless of the level of monetary or non-monetary assets owned by the non-listed operating entity, the entire difference should be considered to be payment for the service of obtaining a stock exchange listing for its shares and no amount should be considered a cost of raising capital, i.e. the whole amount was expensed to profit or loss.
Other areas of estimation uncertainty and judgments
Other judgments and estimates reflected in the Group’s financial statements include, but are not limited to:
| ● | Recoverability of deferred tax assets. |
| ● | ECL measurement. |
| ● | Software development costs and recognition of internally built software. |
F-33
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
| ● | Impairment of non-financial assets. |
In the process of applying the Group’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements. Actual results could materially differ from those estimates.
Recoverability of deferred tax assets
The utilization of deferred tax assets will depend on whether it is probable to generate sufficient taxable income against which the deductible temporary differences can be utilized. Various factors are used to assess the probability of the future utilization of deferred tax assets, including past operating results, operational plans, expiration of tax losses carried forward, and tax planning strategies.
ECL measurement
The Group records an allowance for ECLs for all receivables and other debt financial assets not held at fair value through profit or loss (“FVPL”). The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss or LTECL) for Trade and other receivables. The LTECL is also used for other financial assets, unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit loss (12-month ECL). The 12-month ECL is the portion of LTECL that represent the ECLs that result from default events on a financial instrument that are expected within the 12 months after the reporting date. Both LTECL and 12-month ECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio of financial instruments.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate. The mechanics of the ECL’s key elements’ calculations are outlined below:
| ● | PD: The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio. |
| ● | EAD: The Exposure at Default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. |
| ● | LGD: The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD. |
The Group has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.
In all cases, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due. The Group considers a financial asset in default when contractual payment are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
F-34
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Software development costs
Our development teams, which develop the online games, follow an agile development process, whereas the preliminary project stage remains ongoing until just prior to worldwide launch of the game, at which time final feature selection occurs. As such, the development costs in respect of online games are expensed as incurred in our consolidated statement of profit or loss and other comprehensive income. We did not capitalize any online games development costs during the years ended December 31, 2022, 2021 and 2020, except for the acquired in the business combination.
Development expenditures in respect of the software for the internal use are recognized as an intangible asset when the Group can demonstrate the technical and commercial feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during development. We did not capitalize any software development costs during the years ended December 31, 2022, 2021 and 2020.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the forecasts for the next three to five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill recognized by the Group. The key assumptions used to determine the recoverable amount for the different CGUs are disclosed and further explained in Note 15.
Change in estimates
Warrants
As stated above the Company accounts for the warrants in its financial statements as a liability in accordance with IAS 32 - Financial Instruments: Presentation and IFRS 9 - Financial Instruments.
While management continued to apply Monte-Carlo simulation for the purpose of estimating fair value of Private Warrants and Public Warrants as the trading of the Company’s shares was halted as at December 31, 2022, the following changes were made to the fair value estimation method as at December 31, 2022:
| ● | The discount for the lack of marketability (DLOM) was not applied. |
| ● | Method of estimating the starting share price using last quoted Company´s share price could not be used and the Company used Implied multiples, calculated using the last quoted share price to estimate a discount/(premium) to median multiples of our peer group ( |
We believe it is impracticable to assess the effects on the estimated fair values of the warrants of the change in the measurement approach as at December 31, 2022.
F-35
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
5. Segment reporting
A.Basis for segmentation
The Group operates through
The following summary describes the operations of the reportable segment:
Reportable segments |
| Operations |
Nexters Global Ltd | Game development and publishing |
B.Information about reportable segments
Information related to the reportable segment is set out below. Segment management EBITDA is used to measure performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industry.
The Company defines Management EBITDA as the net income/loss as presented in the Group's consolidated financial statements in accordance with IFRS, adjusted to exclude (i) other comprehensive income/loss, (ii) goodwill and investments in equity accounted associates' impairment, (iii) loss on disposal of subsidiaries, (iv) income tax expense, (v) net finance income/expense, (vi) change in fair value of share warrant obligations and other financial instruments, (vii) share of loss of equity-accounted associates, (viii) depreciation and amortization, (ix) share-based payments and (x) certain non-cash or other special items that we do not consider indicative of our ongoing operating performance (see the reconciliation below).
2022 |
| Nexters Global Ltd |
| All other segments |
| Total |
Segment revenues |
| |
| |
| |
Segment management EBITDA |
| |
| ( |
| |
2021 |
| Nexters Global Ltd |
| All other segments |
| Total |
Segment revenues |
| |
| — |
| |
Segment management EBITDA |
| |
| — |
| |
2020 |
| Nexters Global Ltd |
| All other segments |
| Total |
Segment revenues |
| |
| — |
| |
Segment management EBITDA |
| |
| — |
| |
F-36
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
C.Reconciliation of information on reportable segment to the amounts reported in the financial statements
| 2022 |
| 2021 |
| 2020 | |
Profit/(loss) before income tax |
|
|
|
|
|
|
Management EBITDA for reportable segments |
| |
| |
| |
Management EBITDA for other segments |
| ( |
| — |
| — |
Net effect from recognition of deferred net revenues |
| |
| ( |
| ( |
Depreciation and amortization |
| ( |
| ( |
| ( |
Finance income |
| |
| |
| |
Finance expenses |
| ( |
| ( |
| ( |
Share-based payments expense |
| ( |
| ( |
| ( |
Share listing expense |
| — |
| ( |
| — |
NASDAQ related non-recurring expenses |
| — |
| ( |
| — |
Impairment loss on trade receivables and loans receivable |
| ( |
| ( |
| — |
Change in fair value of share warrant obligation and other financial instruments |
| |
| |
| — |
Impairment loss on Intangible assets |
| ( |
| — |
| — |
Goodwill and investments in equity accounted associates’ impairment |
| ( |
| — |
| — |
Share of loss of equity-accounted associates |
| ( |
| — |
| — |
Other operating income |
| |
| — |
| — |
Consolidated profit/(loss) before income tax |
| |
| ( |
| |
We disclose the geographical distribution of our revenue in Note 7. We do not have the ability to track revenue deferral on a by-country basis therefore we applied average deferral rate to in-game purchases disaggregated by geography.
Non-current assets excluding financial instruments and deferred taxes by geography are presented below:
| Cyprus |
| Armenia |
| Kazakhstan |
| Spain |
| Total | |
Property and equipment |
| |
| |
| |
| |
| |
Right-of-use assets |
| |
| |
| — |
| — |
| |
Intangible assets |
| |
| |
| |
| — |
| |
Goodwill |
| |
| — |
| — |
| — |
| |
Long-term deferred platform commission fees |
| |
| — |
| — |
| — |
| |
Loans receivable - non-current |
| |
| — |
| — |
| — |
| |
| |
| |
| |
| |
| |
6. Earnings/(loss) per share
Basic earnings/(loss) per share amounts are calculated by dividing profit/(loss) for the period net of tax attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings/(loss) per share amounts are calculated by dividing the net profit/(loss) for the period net of tax attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
F-37
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The following reflects the earnings/(loss) and number of shares used in basic and diluted loss per share computations for the years ended December 31, 2022, 2021 and 2020:
2022 | 2021 | 2020 | ||||
Profit/(loss) for the year net of tax attributable to ordinary equity holders of the parent for basic earnings |
| |
| ( |
| ( |
Weighted average number of ordinary shares, basic |
| |
| |
| |
Weighted average number of ordinary shares, diluted | |
| |
| | |
Earnings/(loss) per share: |
|
|
|
|
|
|
Earnings/(loss) attributable to ordinary equity holders of the parent, basic and diluted US$ |
| |
| ( |
| ( |
The Company applies guidance on retrospective adjustments in IAS 33 to reflect the impact of the Transaction on the earnings per share calculation. The number of shares prior to the Transaction was determined as the number of shares of Nexters Global Ltd multiplied by the ratio of the GDEV Inc. shares issued to the Nexters Global Ltd shareholders upon the Transaction to the Nexters Global Ltd shares prior to the Transaction.
The Company does not consider the effect of the warrants sold in the Initial Public Offering and private placement and the options granted under Employee Stock Option plan in the calculation of diluted loss per share, since they do not have a dilutive effect as at the reporting date they are out of the money, except an insignificant portion of vested options with strike price of
The weighted average number of ordinary shares (both basic and diluted) includes
7. Revenue
The following table summarizes revenue from contracts with customers for the years ended December 31, 2022, 2021 and 2020:
2022 | 2021 | 2020 | ||||
In-game purchases |
| | | | ||
Advertising |
| | | | ||
Total |
| | | |
The following table sets forth revenue disaggregated based on geographical location of our payers:
2022 | 2021 | 2020 | ||||
US |
| |
| 136,570 |
| |
Europe |
| |
| 93,620 |
| |
Asia |
| |
| 106,404 |
| |
Other |
| |
| 97,500 |
| |
Total |
| |
| 434,094 |
| |
F-38
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
8. Acquisition and disposal of subsidiaries in Russia
On February 3, 2021, Nexters Global Ltd acquired
On December 9, 2021, Nexters Global Ltd acquired
The fair values of the identifiable assets and liabilities of all the acquired companies as at the date of acquisition were:
|
|
|
| Fair value recognized | ||||
Fair value recognized on | Fair value recognized on | Fair value recognized on | on acquisition, | |||||
acquisition, February 3, 2021, | acquisition, February 3, | acquisition, April 5, 2021, | December 9, 2021, | |||||
Nexters Studio LLC | 2021, Nexters Online LLC | NHW Ltd | Game Positive LLC | |||||
Assets |
|
|
|
|
|
|
|
|
Property and equipment |
| |
| |
| — |
| |
Intangible assets |
| |
| |
| — |
| — |
Right-of-use assets |
| |
| |
| — |
| — |
Trade and other receivables |
| |
| |
| |
| |
Other assets |
| |
| |
| — |
| |
Cash and cash equivalents |
| |
| |
| |
| |
Prepaid tax |
| |
| — |
| — |
| |
| |
| |
| |
| | |
Liabilities |
|
|
|
|
|
|
|
|
Deferred tax liability |
| ( |
| ( |
| — |
| — |
Lease liabilities - current |
| ( |
| ( |
| — |
| — |
Trade and other payables |
| ( |
| ( |
| — |
| ( |
Tax liability |
| — |
| ( |
| — |
| — |
| ( |
| ( |
| — |
| ( | |
Total identifiable net assets at fair value |
| ( |
| ( |
| |
| |
Goodwill gain on bargain purchase |
| |
| |
| |
| ( |
NCI |
| — |
| — |
| — |
| ( |
Purchase consideration transferred |
| |
| |
| |
| |
F-39
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Goodwill recognized in the amount of
Property and equipment of Nexters Studio LLC, Nexters Online LLC and Game Positive LLC (“Russian companies”) consist of office equipment purchased within 2020, so its fair value approximates its carrying amount.
At the date of the acquisition, the fair value of the trade and other receivables of Russian companies approximates its carrying amount due to the fact they are represented by short-term accounts receivable.
The Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities.
The companies’ trade and other payables amount mainly represent gross contractual amounts of the trade payables.
Nexters Global Ltd and Russian companies were parties to a pre-existing relationship, which should be accounted for separately from the business combination. No additional adjustment was made for the amount by which the contract is favorable or unfavorable from the perspective of the acquirer when compared with terms of current market transactions for the same or similar items, as the transactions comprising pre-existing relationship were executed on the market terms.
From the date of acquisition, Nexters Studio LLC, Nexters Online LLC, NHW Ltd and Game Positive LLC have contributed no revenue as prior to the acquisitions all revenues generated by the acquired businesses were from the provision of services to Nexters Global Ltd and they were eliminated on consolidation, and contributed
If the acquisition had taken place at the beginning of the year, consolidated revenue would have been unchanged for the reason described above at
On July 12, 2022, the Company’s Board of Directors resolved to sell all its Russian subsidiaries to local management as part of the Group’s strategy to eliminate to a maximum extent possible the risks related to the Russian Federation.
Therefore the Group sold
The sale of Nexters Studio LLC, Nexters Online LLC and Game Positive LLC was completed on August 18, 2022 and the sale of Lightmap LLC on August 31,2022 with the respective loss of
F-40
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
9. Game operation cost
Game operation cost consists of employee benefits expenses and technical support services. The following table summarizes game operation cost for the years ended December 31, 2022, 2021 and 2020.
2022 | 2021 | 2020 | ||||
Employee benefits expenses | ( | ( | ( | |||
Technical support services |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Technical support services mainly relate to maintenance and upgrades of the Group’s software applications provided by a third party and costs associated with hosting services.
10. Selling and marketing expenses
Selling and marketing expenses consist mainly of expenses to attract new users through advertising. The following table summarizes selling and marketing expenses for years ended December 31, 2022, 2021 and 2020:
| 2022 |
| 2021 |
| 2020 | |
Advertising costs |
| ( |
| ( |
| ( |
Employee benefits expenses |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Advertising costs decreased for year ended December 31, 2022 in comparison to the year ended December 31, 2021 mainly due to the termination of marketing activities in the former Soviet Union (FSU) countries as well as general decrease of marketing expenses due to the saturation of the market in 2022.
11. General and administrative expenses
The following table summarizes general and administrative expenses for years ended December 31, 2022, 2021 and 2020:
2022 | 2021 | 2020 | ||||
Employee benefits expenses |
| ( |
| ( |
| ( |
Professional fees |
| ( |
| ( |
| ( |
Loss on sale of disposal group | ( | — | — | |||
Insurance liability expense | ( | ( | — | |||
Impairment of intangible assets | ( | — | — | |||
Other operating expenses | ( | ( | ( | |||
| ( |
| ( |
| ( |
F-41
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
12. Finance income and finance expenses
| 2022 |
| 2021 |
| 2020 | |
Interest income |
| |
| — |
| |
Net foreign exchange gain |
| — |
| — |
| |
Other income | | | — | |||
Finance income |
| |
| |
| |
|
|
|
| |||
| 2022 |
| 2021 |
| 2020 | |
Bank charges |
| ( |
| ( |
| ( |
Unwinding of discount on the put option liability |
| ( |
| — |
| — |
Transaction cost | ( | — | — | |||
Interest expense | ( | ( | ( | |||
Net foreign exchange loss |
| ( |
| ( |
| — |
Finance expenses |
| ( |
| ( |
| ( |
13. Taxation
For the years ended December 31, 2022, 2021 and 2020 the Group recognized income tax expense in the amount of
The applicable tax rate used for reconciliation of the effective tax rate, below, is
(a)Cyprus IP box regime
In 2012, the government of Cyprus introduced a regime applicable to Intellectual Property (IP) (the ‘Old IP Regime’). The provisions of the Old IP regime allow for an
In 2016, the House of Representatives passed amendments to the Income Tax Law (the ‘New IP Regime’) in order to align the current Cyprus IP tax legislation with the provisions of Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) project. The amendments apply retroactively, from July 1, 2016, but according to transitional arrangements, companies benefiting from the Old IP Regime could continue to apply its provisions until June 30, 2021, as long as the IP assets either generated income or their development was completed as at June 30, 2016. Therefore, the Group continued to benefit from the Old IP Regime up to June 30, 2021.
Starting from July 1, 2021, the Group applies the provisions of the New IP Regime, which are based on the nexus approach. According to the nexus approach, for an intangible asset to qualify for the benefits of the regime, there needs to be a direct link between the qualifying income and the qualifying expenses contributing to that income. An amount equal to
F-42
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
(b)Reconciliation of the effective tax rate
The reconciliation of the effective tax rate to a statutory tax rate is presented in a table below:
| 2022 |
| 2021 |
| 2020 | |
Profit/(loss) before income tax | | ( | | |||
Tax calculated at the applicable tax rate |
| ( |
| |
| ( |
Effect of different tax rates in other countries |
| |
| |
| ( |
Tax effect of expenses not deductible for tax purposes and non-taxable income |
| ( |
| ( |
| |
Tax effect of deductions under special tax regimes |
| |
| |
| ( |
Tax effect of tax losses brought forward |
| |
| |
| |
Tax effect of not recognized deferred tax asset regarding the loss carryforward |
| ( |
| ( |
| — |
Other | ( | ( | ( | |||
Income tax expense |
| ( |
| ( |
| ( |
Income tax liability as at the balance sheet date is
(c)Uncertainty over the income tax treatment and unrecognized deferred tax asset
Starting from January 1, 2019 the Group has changed its tax reporting principles, judgments and estimates in a few areas including, among others, revenue recognition for in-game purchases and software development costs, which resulted in a substantial amount of revenues related to in-game purchases made by Group’s consumers in 2019 being deferred to 2020 and beyond (see Note 26 for details), as well as software development costs being expensed as incurred. As a consequence, the Company’s major operating subsidiary has booked substantial tax losses in 2019, 2020 and 2021.
Tax losses may be carried forward for five years. Group companies may deduct losses against profits arising during the same tax year. As at December 31, 2022 the Group did not recognize a deferred tax asset of
(d)Prepaid tax
Prepaid tax amount is represented by the overpaid corporate income tax by Nexters Global Ltd. The Company plans to offset this amount against the tax liability for the year 2022. Prior to the offset of the amount the tax authorities have to examine our tax accounts. The examination is still in process as at the date of issue of these consolidated financial statements.
F-43
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
14. Property and equipment
Computer | Furniture, fixtures | |||||
hardware |
| and office equipment |
| Total | ||
Cost |
|
|
|
|
|
|
Balance at January 1, 2021 |
| |
| |
| |
Additions |
| |
| |
| |
Acquisitions through business combinations | | | | |||
Disposals | ( | ( | ( | |||
Balance at December 31, 2021 |
| |
| |
| |
Depreciation |
|
|
|
|
|
|
Balance at January 1, 2021 |
| |
| |
| |
Depreciation for the year |
| |
| |
| |
Disposals | ( | ( | ( | |||
Balance at December 31, 2021 |
| |
| |
| |
Carrying amounts |
|
|
|
|
|
|
Balance at December 31, 2021 |
| |
| |
| |
Computer | Furniture, fixtures | |||||
| hardware |
| and office equipment |
| Total | |
Cost |
|
|
|
|
|
|
Balance at January 1, 2022 |
| |
| |
| |
Additions |
| |
| |
| |
Acquisitions through business combinations | | | | |||
Disposals | ( | ( | ( | |||
Disposals through the sale of subsidiaries | ( | ( | ( | |||
Effect of foreign exchange rates | | | | |||
Balance at December 31, 2022 |
| |
| |
| |
Depreciation |
|
|
|
|
|
|
Balance at January 1, 2022 |
| |
| |
| |
Depreciation for the period |
| |
| |
| |
Disposals | ( | ( | ( | |||
Disposals through the sale of subsidiaries | ( | ( | ( | |||
Effect of foreign exchange rates | | | | |||
Balance at December 31, 2022 |
| |
| |
| |
Carrying amounts |
|
|
|
|
|
|
Balance at December 31, 2022 |
| |
| |
| |
F-44
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
15. Intangible assets and goodwill
Intangible assets
Reconciliation of carrying amount of Intangible assets is presented below:
| Computer |
| Licenses and | |||
software |
| IP rights | Total | |||
Cost |
|
| ||||
Balance at January 1, 2021 |
| |
| — |
| |
Additions |
| |
| |
| |
Acquisitions through business combinations | — |
| |
| | |
Balance at December 31, 2021 |
| |
| |
| |
Amortization |
|
|
|
|
|
|
Balance at January 1, 2021 |
| |
| — |
| |
Amortization for the year |
| |
| |
| |
Balance at December 31, 2021 |
| |
| |
| |
Carrying amounts |
| |||||
Balance at December 31, 2021 |
| |
| |
| |
| Computer |
| Licenses and |
| ||
software | IP rights | Total | ||||
Cost | ||||||
Balance at January 1, 2022 |
| |
| |
| |
Additions |
| |
| |
| |
Acquisitions through business combinations (see Note 15.C) |
| |
| |
| |
Disposals through the sale | ( | ( | ( | |||
Effect of foreign exchange rates | | | | |||
Balance at December 31, 2022 |
| |
| |
| |
Amortization |
|
|
|
|
|
|
Balance at January 1, 2022 |
| |
| |
| |
Amortization for the year |
| |
| |
| |
Impairment loss | — | | | |||
Disposals through the sale | ( | ( | ( | |||
Effect of foreign exchange rates | — | ( | ( | |||
Balance at December 31, 2022 |
| |
| |
| |
Carrying amounts | ||||||
Balance at December 31, 2022 |
| |
| |
| |
Acquisition of intangibles in 2022 consists of the intangible assets acquired as part of the acquisition of Lightmap Ltd. The intangible assets acquired mainly include the assets related to the Lightmap’s game “Pixel Gun” and were evaluated as discussed in Note 4 above. The respective intangible assets are amortized over a period of four years. The impairment attributable to intangible assets is accrued based on the CGU valuation as discussed below.
The amount of amortization is mostly attributable to the Game operation cost.
F-45
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Business combinations and goodwill
A.Acquisition of game development studios
On January 25, 2022, Company’s Board of directors approved the acquisition of interest in
The Company acquired
On January 27, 2022, the Company entered into a share purchase agreement to acquire
Based on the Share Purchase Agreement at the date of acquisition the sellers received the option to require GDEV Inc. to acquire back the Company’s shares issued or to be issued to the seller as part of the acquisition for a price of US$
| ● | the first scenario is when the shares are ineligible for sale on Nasdaq in |
| ● | the second scenario represents a general right of the sellers to sell their outstanding consideration shares to GDEV Inc. no later than |
The option is recognized on the acquisition date in the amount of
Acquisitions completed in 2021 are described in Note 8.
B.Consideration transferred
The following table summarises the acquisition-date fair value of each major class of consideration transferred.
Consideration transferred |
|
|
Cash |
| |
Share consideration |
| |
Deferred share consideration |
| |
Total fair value of consideration |
| |
Lightmap Ltd and Lightmap LLC are treated as one integrated business under common control for the acquisition made as in substance they represent different legal entities within one business.
F-46
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Share consideration and deferred share consideration fair value were determined using the number of the shares stated in the share purchase agreement multiplied by the share price of GDEV Inc. as at the date of acquisition, which is US$
The difference between the fair values of share consideration and put option of the sellers of Lightmap Ltd of
C.Fair value of the assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Lightmap Ltd (Lightmap LLC did not have any material assets or liabilities) as at the date of acquisition were:
Fair value recognized on acquisition, | ||
| January 31, 2022, Lightmap Ltd | |
Assets |
|
|
Property and equipment (Note 4) |
| |
Intangible assets |
| |
Right-of-use assets |
| |
Indemnification asset | | |
Trade and other receivables |
| |
Cash and cash equivalents |
| |
Prepaid tax |
| |
| | |
Liabilities |
|
|
Lease liabilities |
| ( |
Trade and other payables |
| ( |
Provisions for non-income tax risks (Note 21) | ( | |
Tax liability (Note 21) |
| ( |
| ( | |
Total identifiable net assets at fair value | | |
Goodwill arising on acquisition | | |
NCI | — | |
Purchase consideration transferred | |
The Group recognized certain tax uncertainties and risks regarding the determination of taxable income, tax positions, and the calculation of tax liabilities resulting from the acquisition of Lightmap Ltd. The Group considered a range of possible outcomes and probability-weighted amounts associated with the tax risks to determine the expected value of the recognized tax risks in the amount of
The Group also recognized a liability in respect of Lightmap Ltd of
As at December 31, 2022 the amount of the mentioned liability was decreased by
F-47
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
D.Goodwill
Goodwill recognized in the amount of
Lightmap Ltd’s property and equipment consist of office equipment purchased within the last
At the date of the acquisition, the fair value of the trade and other payables of Lightmap Ltd approximates their carrying amount due to the fact they are represented by short-term advances received and VAT payable.
The Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities.
The Group’s trade and other receivables amount represents gross contractual amounts for the acquired receivables, its fair value approximates its carrying amount as they are predominantly short-term.
Lightmap Group (i.e. Lightmap Ltd and its subsidiaries) as one CGU was tested for impairment as at December 31, 2022.
From the date of acquisition Lightmap Ltd has contributed revenue of
If the acquisition had taken place at the beginning of the year, consolidated revenue of the Group would have been
For the details of measurement of the intangible assets recognized as at acquisition date see Note 4.
E.Reconciliation of carrying amount of goodwill
Cost
Balance at January 1, 2022 |
| |
Acquisition through business combination |
| |
Goodwill impairment |
| ( |
Translation reserve |
| |
Balance at December 31, 2022 |
| |
The Group performed its annual impairment test as at December 31, 2022.
The recoverable amount of the CGU of
F-48
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
remaining
The impairment process includes assumptions of significant importance, such as a compound average growth rate of revenues over the forecasted period of
Sensitivity to input parameters
Our estimates are sensitive to input parameters, particularly to change in the multiples stated above (EV/EBITDA). Below is the analysis of sensitivity to this parameter:
| ● | While other parameters remain constant, an increase/decrease of the EV/EBITDA multiple by |
16. Investments in equity accounted associates
MX Capital Ltd
On January 27, 2022, the Company entered into a share purchase agreement to acquire
Further earn-out payments of up to
On the same date, the Company entered into a shareholders’ agreement with the remaining shareholder of MX Capital Ltd, which provided for a put and call options allowing the Company to obtain control over
The sellers earn-outs (contingent consideration) meet the definition of financial liabilities on the basis that they shall be settled in variable amounts of shares and/or cash depending on the achievement of certain targets by the relevant associates and are recognized within the line Other non-current liabilities in this consolidated statement of financial position.
F-49
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The MX Capital group’s loss net of tax since the date of acquisition amounted to
Castcrown Ltd
On January 27, 2022, the Company entered into a share purchase agreement to acquire approximately
The transaction was fully executed on March 30, 2022. The fair value of the call option at acquisition is
The group’s loss net of tax since the date of acquisition amounted to
The Group recognized indemnification asset in the amounts of
The Group capitalized legal expenses of
The carrying amount of investments in our consolidated statement of financial position as at December 31, 2022 being equal to
| MX Capital Ltd |
| Castcrown Ltd | |
Investment in associates at acquisition |
| |
| |
Indemnification asset | ( | ( | ||
Legal expenses capitalized | | — | ||
Contingent consideration - sellers earn-outs | | — | ||
Contingent consideration - founders earn-outs | | — | ||
Liability arising from symmetric put option | | — | ||
Asset arising from symmetric call option | ( | — | ||
Derivative asset arising from call option | — | ( | ||
Initial cost at acquisition | | | ||
Share of loss of equity-accounted associates |
| ( |
| ( |
Share of OCI of equity-accounted associates |
| |
| — |
Carrying amount of investment at December 31, 2022 before impairment |
| |
| — |
Investment impairment |
| ( |
| — |
Carrying amount of investment as at December 31, 2022 |
| — |
| — |
F-50
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The impairment occurred as a result of the overall decline in the gaming industry around the world, as well as the ongoing economic uncertainty, which also led to a decrease in bookings in CGU MX Capital Ltd.
The recoverable amount of the CGU was
The impairment process includes assumptions of significant importance, such as growth of revenues and free cash flows, the discount rate as a pre-tax weighted average cost of capital (WACC), the exit EV/EBITDA and EV/ Bookings multiple, the list of peer companies, and the discount to the peer multiples. The assumptions used are based on management's best judgment and were made using Level 2 inputs.
Sensitivity to input parameters
Our estimates are sensitive to input parameters, particularly to change in the multiples stated above (EV/EBITDA and EV/Bookings). Below is the analysis of sensitivity to this parameter:
| ● | While other parameters remain constant, an increase/decrease of the EV/EBITDA multiple by |
| ● | While other parameters remain constant, an increase/decrease of the EV/Bookings multiple by |
The following table summarizes the financial information of MX Capital Ltd as at December 31, 2022 and for the period from the date of acquisition until December 31, 2022 as included in its own financial statements adjusted for differences in accounting policies. The financial information for Castcrown Ltd has not been presented as the amounts are not material.
Statement of Financial Position
| December 31, 2022 | |
ASSETS |
|
|
Non-current assets |
| |
Current assets |
| |
Total assets |
| |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
Total Equity |
| ( |
Non-current liabilities |
| |
Current liabilities |
| |
Total liabilities |
| |
Total liabilities and shareholders' equity |
| |
F-51
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Statement of Profit or Loss and Other Comprehensive Income
For the period February 1, | ||
2022 to December 31, 2022 | ||
Revenue |
| |
Loss from operations |
| ( |
Other comprehensive income/(loss) |
| |
Total comprehensive loss for the period, net of tax |
| ( |
17. Loans receivable
As part of the share purchase agreement with MX Capital Ltd, the Company entered into a loan agreement with the associate for a total amount of up to
The second tranche of the loan for an amount of
As part of the share purchase agreement with Castcrown Ltd, the Company entered into an unsecured convertible notes agreement on March 30, 2022 for the amount of up to
The fair value of conversion feature amounted to
The loans granted in 2021 are represented by loans to the Group’s employees. The exposure of the Group to credit risk is reported in Note 29 to these consolidated financial statements.
| December 31, 2022 |
| December 31, 2021 | |
Balance at January 1 |
| |
| |
New loans granted |
| |
| |
Repayments of principal |
| ( |
| — |
Interest charged |
| |
| — |
Interest received |
| — |
| ( |
Foreign exchange (gain) / loss |
| |
| ( |
Expected credit losses | ( | — | ||
Write-off of loans receivable | ( | — | ||
Balance at December 31 |
|
| |
Expected credit losses for loans receivable consist of
F-52
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The amount of ECL on the loan receivable from Castcrown Ltd was accrued based on provisions of IFRS 9 on an individual basis as
The amount of ECL on the loan receivable from MX Capital Ltd was accrued based on provisions of IFRS 9 on an individual basis as
18. Leases
| Right-of-use assets |
| Lease liabilities | |
Balance at January 1, 2021 |
| |
| |
Additions |
| |
| |
Acquisitions through business combinations | | | ||
Depreciation |
| ( |
| — |
Interest expense |
| — |
| |
Payments |
| — |
| ( |
Effect of foreign exchange rates |
| |
| |
Balance at December 31, 2021 |
| |
| |
Lease liabilities - current |
|
| | |
Lease liabilities - non-current |
|
| |
| Right-of-use assets |
| Lease liabilities | |
Balance at January 1, 2022 |
| |
| |
Additions |
| |
| |
Acquisitions through business combinations | | | ||
Gain on modification | | — | ||
Depreciation |
| ( |
| — |
Interest expense |
| — |
| |
Payments |
| — |
| ( |
Derecognition of right-of-use assets/lease liabilities due to sale of subsidiaries | ( | ( | ||
Effect of foreign exchange rates |
| ( |
| ( |
Balance at December 31, 2022 |
| |
| |
Lease liabilities - current |
| | ||
Lease liabilities - non-current |
| |
The amounts reflected in the line General and administrative expenses of this consolidated statement of profit or loss and other comprehensive income other than depreciation in relation to leases are presented in the table below:
| 2022 |
| 2021 | |
Expense relating to low-value leases |
| |
| |
Interest expense on lease liabilities |
| |
| |
| |
| |
On June 1, 2019 Nexters Global Ltd entered into a new lease agreement for the office spaces with a new owner in Larnaca, Cyprus. On June 1, 2021, the lease was renewed for another
F-53
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
estimated as at the reporting date management decided not to account for the lease renewal option while determining the amount of right-of-use assets and lease liabilities.
On March 24, 2020 Nexters Global Ltd entered into a new lease agreement over the office spaces in Limassol, Cyprus with a new owner. The lease runs for
On February 3, 2021 Nexters Global Ltd acquired
The Group measures the lease liability at the present value of the remaining lease payments as if the acquired lease were a new lease at the acquisition date. The Group measures the right-of-use asset at the same amount as the lease liability.
On October 4, 2021 GDEV Inc. entered into a new lease agreement over the office spaces in Limassol, Cyprus. The lease runs for
On December 1, 2021 and October 4, 2022 Nexters Global Ltd entered into new lease agreements for vehicles. As the terms of the contracts were the same and were entered into at the same time with the same counterparty, the contracts are combined as a single contract. The lease runs for
On January 31, 2022 GDEV Inc. acquired Lightmap Ltd group which had a lease agreement for the office building in Rostov-on-Don. Lightmap LLC was sold. Derecognition of right-of-use assets and lease liabilities is a result of the disposal of all Russian subsidiaries in August of 2022 (see Note 8).
Other than the office leases discussed above the Company has no other material leases.
Total cash outflow for leases recognized in the consolidated statement of cash flow is presented below:
| 2022 |
| 2021 | |
Cash outflow for leases |
| |
| |
Cash outflow for low-value leases |
| |
| |
Total cash outflow for leases |
| |
| |
All lease obligations of Cypriot companies are denominated in €. The rate of
19. Trade and other receivables
| December 31, 2022 | December 31, 2021 | ||
Trade receivables |
| |
| |
Deposits and prepayments |
| |
| |
Other receivables |
|
| | |
Total |
| |
| |
The Group does not hold any collateral over the trade receivables balances, nor is there any related financing component.
F-54
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The fair values of trade and other receivables approximate to their carrying amounts as presented above as they are mostly of a short-term nature.
The exposure of the Group to credit risk and impairment losses in relation to trade and other receivables is reported in Note 29 to these consolidated financial statements.
The amount of ECL in respect of trade and other receivables is
20. Trade and other payables
December 31, 2022 | December 31, 2021 | |||
Trade payables | | | ||
Provision for indirect taxes | | |||
Indirect taxes payables |
| |
| |
Accrued salaries, bonuses, vacation pay and related taxes |
| |
| |
Accrued professional services | | | ||
Other payables and advances received |
| |
| |
Total |
| |
| |
The exposure of the Group to liquidity risk in relation to financial instruments is reported in Note 29 to the consolidated financial statements.
21. Provisions for non-income tax risks
The provisions consist of probable tax risks of Lightmap Ltd of
It is mainly related to the acquired company’s indirect taxes risks together with the interest and penalties accrued which could be claimed by the relevant tax authorities.
22. Share warrant obligation
Upon completion of the Transaction on August 26, 2021, each outstanding warrant to purchase Kismet’s ordinary shares was converted into a warrant to acquire
The fair value of Private Warrants as at December 31, 2022 and 2021 and the fair value of the Public Warrants as at December 31, 2022 was determined using Level 3 inputs within the fair value hierarchy and is measured using Monte-Carlo simulation method. The fair value of Public Warrants as at December 31, 2021 was determined using quoted market prices (Level 1) as they were traded in an active market.
F-55
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Key assumptions of the Monte-Carlo model:
| December 31, 2021 |
| December 31, 2022 | |
Risk free rate |
| forward USD overnight index swap (OIS) rates (curve 42) |
| forward USD overnight index swap (OIS) rates (curve 42) |
Volatility |
| forward implied volatility rates based on volatilities of publicly traded peers |
| forward implied volatility rates based on volatilities of publicly traded peers |
Starting share price1 |
| |
| |
Expected warrant life (years) |
|
|
Key input parameter of the model is starting share price. As the trading of the Company’s shares was halted as at December 31, 2022, the Company used Multiples of the Enterprise value (EV) to Bookings and EV to EBITDA based on valuation of our publicly traded peers to estimate the enterprise value and accordingly the starting share price by dividing enterprise value with the number of shares outstanding as follows:
| ● | Implied multiples were calculated using the last quoted share price before the trading halt was introduced to estimate a discount/(premium) to median multiples of peer group (30% for EV/Bookings and 2% for EV/EBITDA); |
| ● | Median EV/Bookings and EV/EBITDA multiples of peer group were calculated as at the reporting date; |
| ● | Discounts/(premiums) from the multiples calculated in the first step were applied to estimate our multiples as at the reporting date. |
| ● | Based on the above multiples and our actual number of our earnings and EBITDA during the year, we estimated our enterprise value and, based on the number of outstanding shares as at the reporting date, the starting price of our shares. |
These methods provided as at December 31, 2022 the range of the starting share price from US$
An average of prices determined by multiples above was used as a starting share price for the warrants model.
1 Starting share price was the market price for valuation as at December 31, 2021. As at December 31, 2022 it was based on the methods disclosed above.
F-56
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The Company has recognized the following warrant obligation:
Private | ||||||
| Public Warrants |
| Warrants |
| Total | |
Balance at August 27, 2021 | | | | |||
Fair value adjustment |
| ( |
| ( |
| ( |
Balance at December 31, 2021 |
| |
| |
| |
Private | ||||||
| Public Warrants |
| Warrants |
| Total | |
Balance at January 1, 2022 | | | | |||
Fair value adjustment |
| ( |
| ( |
| ( |
Balance at December 31, 2022 |
| |
| |
| |
The change in fair value of share warrant obligation is included in the line Change in fair value of share warrant obligation and other financial instruments in the consolidated statement of profit or loss and other comprehensive income.
23. Other investments
Other investments consist of the following:
| December 31, |
| December 31, | |
Other investments - current |
|
|
|
|
| |
| — | |
| |
| — | |
| |
| — | |
Other investments - non-current |
|
|
|
|
| |
| — | |
iShares 20+ Year Treasury Bond ETF (TLT) - at fair value through profit or loss |
| |
| — |
| |
| — |
Debt securities classified as fair value through other comprehensive income, denominated in EUR, have an interest rate of
Debt securities classified as amortized cost investments have an interest rate of
F-57
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
24. Cash
December 31, | December 31, 2021 | |||
Current accounts | | | ||
Bank deposits | | | ||
Total |
| |
| |
Currency | December 31, | December 31, 2021 | ||
United States Dollars | | | ||
Euro | | | ||
Russian Ruble |
| |
| |
Armenian Dram | | — | ||
Kazakhstani tenge | | — | ||
Total |
| |
| |
Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. Therefore,
25. Share capital and reserves
Nature and purpose of reserves
Additional paid-in capital
The additional paid-in capital is used to recognize equity contributions from shareholders due to Transaction and Lightmap Ltd put option, see Note 15 for further details.
Share-based payments
The share-based payments reserve is used to recognize the cost of equity-settled share-based payments provided to employees, including key management personnel and one service provider performing similar functions, as part of their remuneration, see Note 30 for further details of these plans.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations into the presentation currency of these consolidated financial statement as well as revaluation of goodwill as at the reporting date, see consolidated statement of changes in equity.
F-58
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Share capital
Share capital as at December 31, 2022 and 2021 consisted from the following:
2021 | 2021 | |||
Number of shares | US$ | |||
Ordinary shares of $ | | — | ||
| |
| — | |
Issued and fully paid |
|
|
|
|
Balance at January 1, 2021 |
| |
| |
Balance at December 31, 2021 |
| |
| — |
2022 | 2022 | |||
Number of shares | US$ | |||
Ordinary shares of $ | — | |||
|
| — | ||
Issued and fully paid |
| |||
Balance at January 1, 2022 |
| |
| — |
Balance at December 31, 2022 |
| |
| — |
Each issued and outstanding share in the Company was automatically and without any action on the part of the holder thereof, cancelled in exchange for the right to receive
Dividends
The following dividends were declared and paid by Nexters Global Ltd prior to the Transaction:
| 2022 |
| 2021 |
| 2020 | |
Dividends unpaid as at January 1 | — | | | |||
Dividends declared for year, per share US$ |
| — |
| |
| |
Dividends paid |
| — |
| ( |
| ( |
Effect of foreign exchange rates |
| — |
| ( |
| |
Dividends unpaid as at December 31 |
| — |
| — |
| |
The Cypriot law requires companies established under the laws of Cyprus to pay dividends out of available distributable profits. Profits in the legal sense are construed on principles different from IFRS. Management of Nexters Global Ltd determined the amount of the distributable profits of Nexters Global Ltd as at the dates of dividends declaration in accordance with the applicable law, ensuring the availability of funds for covering all potential and contingent liabilities and taking into account that deferred revenue, appearing on the balance sheet as a liability does not constitute liability in the legal sense but it is in essence a postponement in the recognition of revenue.
F-59
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
26. Deferred revenue and deferred platform commission fees
Deferred revenue is expected to be recognized over an estimated average playing period of the paying users.
Deferred revenue is associated with the portion of in-game purchases revenue that is recognized over time. The tables below summarize the change in deferred revenue and platform commission fees for the years ended December 31, 2022 and 2021:
| 2021 | |
Liabilities (Deferred Revenue) |
| |
January 1, 2021 |
| |
Deferred during the year |
| |
Released to profit or loss (Note 7) |
| ( |
December 31, 2021 |
| |
Current portion |
| |
Non-current portion |
| |
Assets (Deferred platform commission fees) |
|
|
January 1, 2021 |
| |
Deferred during the year |
| |
Released to profit or loss |
| ( |
December 31, 2021 |
| |
| 2022 | |
Liabilities (Deferred Revenue) |
|
|
January 1,2022 |
| |
Deferred during the year |
| |
Released to profit or loss |
| ( |
December 31, 2022 |
| |
Current portion |
| |
Non-current portion |
| |
Assets (Deferred platform commission fees) |
|
|
January 1, 2022 |
| |
Deferred during the year |
| |
Released to profit or loss | ( | |
| ||
December 31, 2022 | |
The amount of revenue recognized at a point in time was
F-60
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
27. Related party transactions
As at December 31, 2022 the Company’s key shareholders are Andrey Fadeev and Boris Gertsovsky, each owning
The transactions and balances with related parties are as follows:
(i)Directors and key management’s remuneration
The remuneration of Directors and other members of key management was as follows:
| 2022 |
| 2021 |
| 2020 | |
Directors' remuneration | | | | |||
—short-term employee benefits | | | | |||
—share-based payments | | | — | |||
Other members of key management’s remuneration | | | | |||
—short-term employee benefits | | | | |||
—share-based payments | | | — | |||
Total | | |
(ii)Other operating income
Other operating income is presented below:
| 2022 |
| 2021 |
| 2020 | |
Income from technical support services from Lightmap Ltd to Castcrown Ltd |
| |
| — |
| — |
Income from technical support services from Nexters Armenia LLC to Castcrown Ltd |
| |
| — |
| — |
| |
| — |
| — |
(iii)Interest income
| 2022 |
| 2021 |
| 2020 | |
Castcrown Ltd |
| |
| — |
| — |
MX Capital Ltd |
| |
| — |
| — |
| |
| — |
| — |
(iv)Trade and other receivables
| December 31, |
| December 31, | |
2022 | 2021 | |||
Receivable from Castcrown Ltd to Lightmap Ltd | | — | ||
Receivable from Castcrown Ltd to Nexters Armenia LLC | | — | ||
| — |
F-61
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
(v) Loan receivable
| December 31, |
| December 31, | |
2022 | 2021 | |||
Loan to Castcrown Ltd - net (Note 17) | — | — | ||
Loan to MX Capital Ltd - net (Note 17) | | — | ||
| |
| — |
The amount of ECL in respect of loans receivable from related parties is
In 2022 the Company acquired from Everix Investments Ltd jointly controlled by Dmitrii Bukhman and Igor Bukhman the
28. List of subsidiaries
Set out below is a list of subsidiaries of the Group. Ownership interest corresponds to voting rights.
Ownership | Ownership | |||
Interest | Interest | |||
December 31, | December 31, | |||
2022 | 2021 | |||
Name |
| % |
| % |
Flow Research S.L. | | | ||
Nexters Studio LLC | — | | ||
Nexters Online LLC | — | | ||
NHW Ltd | | | ||
Nexters Global Ltd | | | ||
SGBOOST Limited | | | ||
Game Positive LLC | — | | ||
Lightmap Ltd | | — | ||
Lightmap LLC | — | — | ||
Nexters Studio Armenia LLC | | — | ||
Nexters Studio Kazakhstan Ltd | | — |
Flow Research S.L.
Flow Research S.L. was incorporated in Barcelona, Spain, on November 10, 2017. The registered office of the company is at CL Fontanella 4, Orihuela Alicante, 03189 Spain. The company’s principal activities are creative design of online games.
Nexters Studio LLC
NX Studio LLC was incorporated in Moscow, the Russian Federation on July 7, 2015. The registered office of the company is Zemlyanoy lane, 50A Building 2, 109028, Moscow. The company’s principal activities are game development. NX Studio LLC was renamed to Nexters Studio LLC in June of 2021. Nexters Studio LLC was sold to the local management on August 18, 2022.
Nexters Online LLC
NX Online LLC was incorporated in Moscow, the Russian Federation on January 29, 2020. The registered office of the company is Zemlyanoy lane, 50A Building 2, 109028, Moscow. The company’s principal activities are technical support for the online gaming.
F-62
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
NX Online LLC was renamed to Nexters Online LLC in June of 2021. Nexters Online LLC was sold to the local management on August 18, 2022.
NHW Ltd
On April 5, 2021, Nexters Global Ltd acquired
NHW Ltd was incorporated in Larnaca, Republic of Cyprus on March 9, 2020. The registered office of the company is Faneromenis, 107, P.C. 6031, Larnaca, Cyprus. The company’s principal activities are publication and testing of program applications.
Nexters Global Ltd
Nexters Global Ltd was incorporated in Larnaca, Republic of Cyprus on November 2, 2009. The registered office of the Company is at Faneromenis 107, 6031, Larnaca, Cyprus. The company’s principal activities are game development and publishing.
SGBOOST Limited
Synergame Investment Ltd was incorporated in Limassol, Republic of Cyprus on September 1, 2021. The registered office of the company is Griva Digeni, 55, P.C. 3101, Limassol, Cyprus. The company’s principal activity are game development as well as the provision of independent developers with expertise and funds needed to launch their games and build successful international businesses. The company was renamed on May 12, 2022 to SGBOOST Limited.
Game Positive LLC
Game Positive LLC was incorporated in Moscow, the Russian Federation on September 27, 2021. The registered office of the company is Spartakovskiy lane, 2, Building 1, 105082, Moscow. The company’s principal activities are game development. Game Positive LLC was sold to the local management on August 18, 2022.
Lightmap Ltd
The group encompasses
Lightmap LLC
Lightmap LLC was incorporated in Rostov-on-Don, the Russian Federation on April 21, 2017. The registered office of the company is Nizhnebulvarnaya str., 8, Building 1, 344022, Rostov-on-Don. The company’s principal activities are game development. Lightmap LLC was sold to the local management on August 31, 2022.
Nexters Studio Armenia LLC
Nexters Studio Armenia LLC was incorporated in Yerevan, Armenia on April 8, 2022. The registered office of the company is Arabkir 23, Yerevan. The company’s principal activities are game development and support.
F-63
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Nexters Studio Kazakhstan Ltd
Nexters Studio Kazakhstan Ltd was incorporated in Astana, Republic of Kazakhstan on May 5, 2022. The registered office of the company is Dinmuhamed Konaev Street, 14, Astana. The company’s principal activities are game development and support.
29. Financial instruments - fair values and risk management
A. | Accounting classifications |
The following table shows the carrying amounts of financial assets and financial liabilities as at December 31, 2022 and December 31, 2021.
The Company’s trade and other receivables, prepaid tax, indemnification asset and related tax liabilities, cash and cash equivalents, 1.5% treasury notes recorded at amortized cost and trade and other payables approximate their fair value due their short-term nature. Company’s investments, current and non-current (other than the 1.5% treasury notes) are accounted at fair value (either through profit and loss or through OCI). Loans receivable current and non-current are a reasonable approximation of their fair value as they have been impaired to their expected return.
Financial assets are as follows:
Risks
| December 31, |
| December 31, | |
2022 | 2021 | |||
Financial assets at amortized cost |
|
| ||
Trade receivables |
| |
| |
Cash and cash equivalents |
| |
| |
Loans receivable |
| |
| |
Other investments - current | | — | ||
Total | |
| |
| December 31, |
| December 31, | |
| 2022 |
| 2021 | |
Financial assets measured at fair value |
|
|
|
|
Other investments - current - fair value through profit or loss |
| |
| — |
Other investments - non-current - fair value through other comprehensive income |
| |
| — |
Other investments - non-current - fair value through profit or loss | | — | ||
Total |
| |
| — |
Financial liabilities are as follows:
| December 31, |
| December 31, | |
2022 | 2021 | |||
Financial liabilities not measured at fair value |
|
|
|
|
Trade and other payables |
| |
| |
Total | |
| |
F-64
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
| December 31, |
| December 31, | |
2022 | 2021 | |||
Financial liabilities measured at fair value |
|
|
|
|
Put option liability | | — | ||
Share warrant obligation |
| |
| |
Other non-current liabilities | | — | ||
Total |
| |
| |
B. | Financial risk management |
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in the Group’s activities.
The Group has exposure to the following risk arising from financial instruments:
(i) | Credit risk |
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The Group’s credit risk arises from Trade and other receivables, Loans receivable and Other investments. As at December 31, 2022 and December 31, 2021 the largest debtor of the Group constituted
Credit risk related to trade receivables is considered insignificant, since almost all sales are generated through major companies, with consistently high credit ratings. These distributors pay the Group monthly, based on sales to the end users. Payments are made within 3 months after the sale to the end customer. The distributors take full responsibility for tracking and accounting of end customer sales and send to the Group monthly reports that show amounts to be paid. The Group does not have any material overdue or impaired accounts receivable.
Credit risk related to Other investments is also insignificant due to the fact that they are represented by government bonds and US treasury notes which are rated AAA based on Fitch’s ratings.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
| December 31, |
| December 31, | |
2022 | 2021 | |||
Loan receivables |
| |
| |
Trade receivables |
| |
| |
Cash and cash equivalents |
| |
| |
Other investments - current | | — | ||
Other investments - non-current | | — |
F-65
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Expected credit loss assessment for corporate customers as at December 31, 2022 and December 31, 2021
The Group allocates each exposure a credit risk grade based on data that is determined to be predictive of the risk of loss (including but not limited to external ratings, audited financial statements, management accounts, and cash flows projections) and applying experienced credit judgment.
Loan receivables
Loan receivables are provided to associates and the Company’s employees. The Group considers that both of its loans provided to associates have increased credit risk based on the weak recent performance of associates due to general market conditions. As a result, the specific provisions for ECL were booked in respect of the loans to both associates. The ECL in respect of Loan receivables is
Trade and other receivables
The ECL allowance in respect of Trade and other receivables is determined on the basis of the lifetime expected credit losses (“LTECL”). The Group uses the credit rating for each of the large debtors where available or makes its own judgment as to the credit quality of its debtors based on their most recent financial reporting or the rating assigned to their country of incorporation. After assigning the credit rating to each of the debtors the Group determines the probability of default (“PD”) and loss given default (“LGD”) based on the data published by the internationally recognized rating agencies. The determined amounts of allowances for ECL for each of the debtors are then adjusted for the forecasted macroeconomic factors, which include the forecasted unemployment rate in each of the countries where the debtors are incorporated and forecasted growth rate of the global gaming market from publicly available sources. The amount of ECL in respect of trade and other receivables is
Cash and cash equivalents
The cash and cash equivalents are held with financial institutions, which are rated CCC- to BBB- based on Fitch’s ratings.
(ii) | Liquidity risk |
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s objective when managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables over the next 90 days.
Excess cash is invested only in highly liquid triple A rated securities (mainly US treasury notes, bonds and ETFs).
F-66
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The following are the contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted and include contractual interest payments.
Carrying | Contractual | 3 months | Between | Between | ||||||
December 31, 2022 |
| amounts |
| cash flows |
| or less |
| 3 – 12 months |
| 1 – 5 years |
Non-derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
Lease liabilities |
| |
| |
| |
| |
| |
Trade and other payables |
| |
| |
| |
| — |
| — |
| |
| |
| |
| |
| |
| Carrying |
| Contractual |
| 3 months |
| Between 3‑12 |
| Between 1‑5 | |
December 31, 2022 |
| amounts |
| cash flows |
| or less |
| months |
| years |
Derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
Share warrant obligation |
| |
| — |
| — |
| — |
| |
Put option liability | | — | — | — | | |||||
| |
| — |
| — |
| — |
| |
Carrying | Contractual | 3 months | Between | Between | ||||||
December 31, 2021 |
| amounts |
| cash flows |
| or less |
| 3 – 12 months |
| 1 – 5 years |
Non-derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
Lease liabilities |
| |
| |
| |
| |
| |
Trade and other payables |
| |
| |
| |
| — |
| — |
| |
| |
| |
| |
| |
| Carrying |
| Contractual |
| 3 months |
| Between 3‑12 |
| Between 1‑5 | |
December 31, 2021 | amounts | cash flows | or less | months | years | |||||
Derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
Share warrant obligation |
| |
| — |
| — |
| — |
| |
| |
| — |
| — |
| — |
| |
(iii) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and/or equity prices will affect the Group's income or the value of its financial instruments. The Company is not exposed to any equity risk.
The objective of the market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
| a. | Currency risk |
Currency risk is the risk that the values of and cash flows associated with financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company's functional currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Euro, the Russian Ruble, Armenian Dram and Kazakhstani Tenge. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
F-67
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The Group’s exposure to foreign currency risk was as follows:
December 31, 2022 |
| Euro |
| Russian Ruble | Armenian Dram | Kazakhstani Tenge | ||
Assets |
|
|
|
| ||||
Loans receivable |
| |
| — | | — | ||
Trade and other receivables |
| |
| — | — | — | ||
Cash and cash equivalents |
| |
| | | | ||
| |
| | | | |||
Liabilities |
|
|
|
| ||||
Lease liabilities |
| ( |
| — | ( | — | ||
Trade and other payables |
| ( |
| — | ( | ( | ||
| ( |
| — | ( | ( | |||
Net exposure |
| |
| | ( | |
December 31, 2021 |
| Euro |
| Russian Ruble |
Assets |
|
|
|
|
Loans receivable |
| |
| — |
Trade and other receivables |
| |
| |
Cash and cash equivalents |
| |
| |
| |
| | |
Liabilities |
|
|
|
|
Lease liabilities |
| ( |
| ( |
Trade and other payables |
| ( |
| ( |
| ( |
| ( | |
Net exposure |
| |
| |
Sensitivity analysis
A reasonably possible
Strengthening of US$ | Weakening of US$ by | |||
December 31, 2022 |
| by 10% |
| 10% |
Euro |
| ( |
| |
Russian Ruble | ( | | ||
Armenian Dram | | ( | ||
Kazakhstani Tenge |
| ( |
| |
| ( |
| |
Strengthening of US$ | Weakening of US$ | |||
December 31, 2021 |
| by 10% |
| by 10% |
Euro |
| ( |
| |
Russian Ruble |
| ( |
| |
| ( |
| |
F-68
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
| b. | Interest risk |
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates is minimal as it does not have long-term debt obligations with floating interest rates or material fixed-rate debt instruments carried at fair value.
C.Measurement of fair values
There were no transfers from Level 2 to Level 1 in 2020 and 2021, the only transfer occurred in 2022 for the valuation of Public warrants which were valued using Level 3 inputs (versus Level 1 in 2021) after the Company’s securities were suspended for trading.
The following table shows a reconciliation from the opening balances to the closing balances for financial liabilities based on Level 3 fair values.
| Share warrant |
| Put option |
| Other non- | |
obligation | liability | current | ||||
(Note 4) | (Note 4) | liabilities | ||||
Balance at January 1, 2021 (August, 2021 for Share warrant obligation) |
| |
| — |
| — |
Change in fair value of share warrant obligation and other financial instruments included in profit or loss
Net change in fair value |
| ( |
| — |
| — |
Balance at December 31, 2021 |
| |
| — |
| — |
Balance at January 1, 2022 |
| |
| — |
| — |
Initial recognition |
| — |
| |
| |
Change in fair value of share warrant obligation and other financial instruments included in profit or loss
Net change in fair value |
| ( |
| |
| ( |
Gain included in finance cost |
|
|
|
|
|
|
Net change in fair value |
| — |
| |
| — |
Balance at December 31, 2022 |
| |
| |
| |
The following table shows a reconciliation from the opening balances to the closing balances for financial assets based on Level 3 fair values.
| Other | |
non-current | ||
current assets | ||
Balance at January 1, 2022 |
|
|
Purchases |
| |
Net change in fair value |
| ( |
Balance at December 31, 2022 |
| — |
30. Share-based payments
In 2016 the Company adopted a Long-Term Incentive Plan (“LTIP”). Under the LTIP key employees and deemed employees (individuals providing similar personal services) rendered services to the Group in exchange for share options (further referred to as “options”). Within the LTIP several tranches of share options for Nexters Global’s Class A shares and Class B shares were issued as stated below.
F-69
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
In addition to the LTIP, in November 2021 the Company approved its 2021 Employee Stock Option Plan (the “ESOP”). Under the ESOP, key staff employed by the Group and our independent non-executive directors have rendered services in exchange for equity instruments.
The Company granted a number of stock options under the ESOP, including:
| ● | Newly granted stock options (see section Stock options granted in 2021 further below); |
| ● | Stock options, which represent modification of the outstanding options (see Modified complex options further below). |
The common condition for both of these stock option types is that they have service condition. The Group’s management believes that all employees, which received share-based compensation will continue to contribute to the Group’s projects and/or be employed by the Group during the respective vesting periods. Below is the descriptions of the options granted:
No. of options | Vesting | Vesting | ||||||
Type of options |
| Grant Date |
| outstanding |
| period |
| conditions |
ESOP options | November 2021, depending on the employee | 2021 – 2026 | Service condition | |||||
LTIP - Modified Class B complex vesting options | January 1, 2019 | 2022-2026 | Service condition, non-market performance condition | |||||
LTIP - Modified complex conditional upon listing | November 18, 2020 | 2021 | Service condition, non-market performance condition | |||||
Total share options granted as at December 31, 2022 |
| |
| — |
| — |
* | Options granted refer to GDEV Inc. shares |
We classified these share-based payment transactions as equity-settled whereby the Group receives services in exchange for its own equity instruments. We recorded share-based payments expense in general and administrative expenses, game operation cost and selling and marketing expenses of our consolidated statement of profit or loss and other comprehensive income.
The table below summarizes the share-based payments expense for years ended December 31, 2022, 2021 and 2020:
2022 | 2021 | 2020 | ||||
Class B complex vesting |
| |
| |
| |
Complex conditional upon listing |
| — |
| |
| |
Employee stock option plan | | | — | |||
Total recorded expenses |
| |
| |
| |
therein recognized: |
|
|
|
|
|
|
within Game operation cost |
| |
| |
| |
within Selling and marketing expenses | | | — | |||
within General and administrative expenses |
| |
| |
| |
F-70
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
In relation to the share-based payment expense for the year ended December 31, 2020 we recognized the increase in Other reserves of
In relation to the share-based payment expense for the year ended December 31, 2021 we recognized the increase in Other reserves of
In relation to the share-based payment expense for the year ended December 31, 2022 we recognized the increase in Other reserves of
The table below summarizes the number of outstanding share options at the beginning and the end of 2021 and 2022:
| Employee |
| Class B complex |
| Class B complex |
| Complex | |
stock | vesting - related to | vesting - related to | conditional upon | |||||
option | Nexters Global Ltd | GDEV Inc. | listing - related to | |||||
plan | shares | shares | GDEV Inc. shares | |||||
Outstanding at the beginning of 2021 (units) |
| | | — |
| | ||
Granted during the period (units) |
| | — | — |
| | ||
Modification of options (units) |
| | ( | |
| | ||
Exercised and forfeited during the period (units) |
| | — | — |
| ( | ||
Outstanding at the end of 2021 (units) |
| | — | |
| | ||
Forfeited | | — | ( | | ||||
Outstanding at the end of 2022 (units) |
| | — | |
| |
During 2022
Stock options granted in 2021 (ESOP options)
The ESOP stock options have only the service condition.
We have estimated the fair value of granted awards using Black-Scholes-Merton pricing model taking into account the terms and conditions on which the options were granted.
The following table presents fair value per one option and related assumptions used to estimate the fair value at the grant date:
Evaluation date (grant date) |
| November 16-30, 2021 |
|
Vesting period |
| ||
Share market price, US$ |
| From | |
Strike (exercise) price, US$ |
| ||
Expected volatility |
| ||
Dividend yield |
| ||
Risk-free interest rate |
| ||
Average grant-date FV of one option, US$ |
|
F-71
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Modified complex options
Under the LTIP adopted in 2016, the Company granted Class B share options on January 1, 2019 with a service condition and a performance-based non-market vesting condition (net income thresholds per management accounts). The contractual term of the options was
For the purposes of the valuation each performance condition threshold was treated as a separate option with a separate valuation of the vesting period.
The following table presents fair value of options and related parameters used to estimate the fair value of our options at the grant date and probability of vesting:
Evaluation date (grant date) |
| January 1, 2019 |
|
Equity value, US$ mln |
| | |
Expected volatility |
| | % |
Dividend yield |
| | % |
Proxy net income indicator |
| | |
Discount for Lack of Marketability* |
| | % |
Total FV for |
| |
* | — applied to the result of fair value estimation. |
** | — total FV of |
Strike price for the above-mentioned option at the beginning of 2021 was US$
As part of the new ESOP, the Company modified the complex options in November 2021. Under the modified program for a portion of the options the non-market performance condition was eliminated and they include only the service condition. For the remaining options the performance conditions were modified such that only the non-market performance targets were modified. The Company considered the modification to be beneficial to the recipients.
As at December 31, 2022 management reviewed the assessment of future achievement of non-market performance targets and the remaining grant-date fair value was applied to the revised number of share options.
Complex conditional upon listing
Under the LTIP share options in the entity surviving the Transaction were granted to
We estimate the fair value of cash consideration first and estimate the fair value of the equity component consequently. The fair value of cash consideration is estimated as nominal value of related cash payments at assumed vesting date. We estimate the fair value of granted awards using Black-Scholes-Merton pricing model taking into account the terms and conditions on which the options were granted.
F-72
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The following table presents fair value per one option and related assumptions used to estimate the fair value of equity component of our options at the grant date:
| November 18, | November 18, |
| ||
Evaluation date (grant date) | 2020 |
| 2020 |
| |
Vesting period |
|
| |||
Market price, US$ |
| ||||
Strike price, US$ |
| ||||
Expected volatility |
| % | % | ||
Dividend yield |
| % | % | ||
Risk-free interest rate |
| % | % | ||
Discount for Lack of Marketability |
| not applicable |
| not applicable | |
FV of option, US$ |
|
For the purposes of the valuation each performance condition threshold is treated as
The first
The table below summarizes the expenses recognized in relation to the above-mentioned options:
| 2022 |
| 2021 |
| 2020 | |
Expenses in relation to fulfilled condition | — | | | |||
Total recorded expenses | — |
| |
| |
Share listing expense
Merger of Nexters Global Ltd, GDEV Inc. and Kismet Acquisition One Corp
On August 26, 2021 the Company successfully consummated the merger with Kismet Acquisition One Corp. (“Kismet”, a Special Purpose Acquisition Company (“SPAC”)), which was announced on February 1, 2021. The Company treated the Transaction as a capital transaction equivalent to the issue of shares of the Company in exchange for the net monetary assets of Kismet and its listing status. The Transaction did not constitute a business combination as defined under IFRS 3 Business Combinations, as Kismet was a non-operating entity that does not meet the definition of a business under IFRS 3, given that it consisted predominantly of cash in the Trust Account.
As at the Closing Date, the following transactions occurred pursuant to the terms of the Business Combination Agreement (the “Transaction”):
| ● | the merger of Kismet into GDEV Inc., with GDEV Inc. surviving the merger and the security holders of Kismet (other than security holders of Kismet who elected to redeem their Kismet ordinary shares) becoming security holders of GDEV Inc. (the “Merger”), |
| ● | the acquisition, in a common control transaction by GDEV Inc., of all the issued and outstanding share capital of Nexters Global from the holders of Nexters Global’s share capital for a combination of cash and GDEV Inc. ordinary shares, such that Nexters Global became a direct wholly owned subsidiary of GDEV Inc. (the “Share Acquisition”). |
F-73
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Prior to the Merger, a total of
Under the Business Combination Agreement, in consideration for the purchase of Nexters Global’s share capital in the Share Acquisition, GDEV Inc.:
| ● | paid to the shareholders of Nexters Global cash in an aggregate amount of |
| ● | issued to the shareholders of Nexters Global a total of |
| ● | will issue to the former shareholders of Nexters Global |
The cash acquired by the Group in the Transaction (after all transaction related expenses) amounted to
On January 31, 2021, Kismet, GDEV Inc. and Kismet Sponsor Limited, a British Virgin Islands business company (the “Sponsor”) entered into an amended and restated Forward Purchase Agreement (the “A&R Forward Purchase Agreement”). The A&R Forward Purchase Agreement amended the Forward Purchase Agreement, dated August 5, 2020, between Kismet and the Sponsor by, among other things, increasing the Sponsor’s purchase commitment thereunder from US$
On July 16, 2021, Kismet, Nexters Global Ltd and the Sponsor entered into separate subscription agreements (each as amended, restated or supplemented from time to time, a “PIPE Subscription Agreement”) with certain institutional investors that are not “U.S. persons” as defined in Regulation S under the Securities Act and with whom the Sponsor had prior business relationships (each, a “PIPE Investor”), pursuant to which the PIPE Investors agreed to subscribe for and purchase an aggregate of
As at the Closing Date, immediately subsequent to the consummation of the Transaction, there were
The following table sets forth information regarding the shareholdings of GDEV Inc. ordinary shares as at the Closing Date immediately subsequent to the consummation of the Transaction, based on the actual number of shares held and outstanding.
| Number of |
| Percentage of |
| |
Ordinary Shares | Ordinary Shares |
| |||
Kismet’s public shareholders |
| |
| | % |
Sponsor |
| |
| | % |
Nexters Global shareholders |
| |
| | % |
PIPE investors |
| |
| | % |
Total |
| |
| | % |
F-74
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The consideration for the acquisition of Kismet was determined using the fair values of the Company´s ordinary shares and public and private warrants as at August 27, 2021. The net assets of Kismet had a fair value upon closing of
Details of the calculation of the Share listing expense are as follows:
| Number of Shares |
| Amount | |
Kismet's existing public shareholders |
| |
|
|
Sponsor |
| |
|
|
PIPE investors |
| |
|
|
Total GDEV Inc. Shares issued to Kismet shareholders |
| |
|
|
Market value per share at August 27, 2021 |
| US$ |
|
|
Fair value of shares issued |
|
| | |
Net assets of Kismet at August 27, 2021 |
|
| | |
Effect of accounting for fair value of warrants |
|
| ( | |
Net assets of Kismet at August 27, 2021 including effect of fair value of warrants2 |
|
|
| |
Difference - being IFRS 2 charge for listing services |
| |
Effect of accounting for fair value of warrants represents the difference in fair values between Kismet warrants as at the date of the Transaction of
31. Commitments and contingencies
Taxation
Although we generally are not responsible for indirect taxes (VAT and withholding sales taxes) generated on games accessed and operated through third-party platforms, we are responsible for collecting and remitting applicable sales, value added, use or similar taxes for revenue generated on games accessed and operated on our own platforms and/or in countries where the law requires the game publishers to pay such taxes even if games are made available for users through third-party platforms. Furthermore, an increasing number of U.S. states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. This is also the case in respect of the European Union, where value added taxes or digital services taxes were or may be imposed on companies making digital sales to consumers within the European Union. In addition, as taxation of IT industries is rapidly developing there is a risk that various tax authorities may interpret certain agreements or tax payment arrangements differently than the Company (including identification of the taxpayer and determination of the tax residency).
We believe that these consolidated financial statements reflect our best estimate of tax liabilities and uncertain tax positions, which are appropriately accounted for and/or disclosed in these consolidated financial statements. In respect of the above risks, we consider them to be reasonably possible of being materialised, however, the potential financial effects thereof cannot be presently reliably estimated.
2 | Includes the effects of i) US GAAP to IFRS conversion adjustment and ii) effect of difference in fair values between Kismet warrants and GDEV Inc. warrants. |
F-75
GDEV INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
32. Russian Geopolitical and Economic Risks
As a result of the military actions in Ukraine, a number of governments, including those of the United States, United Kingdom and European Union, imposed unprecedented sanctions on specified persons and entities in Russia. While the situation remains highly fluid and additional sanctions are possible, neither we, nor any of our subsidiaries are currently subject to any sanctions that have been imposed. Nevertheless, as result of the ongoing conflict in Ukraine, many U.S. and other multi-national businesses across a variety of industries, including consumer goods and retail, food, energy, finance, media and entertainment, tech, travel and logistics, manufacturing and others, have indefinitely suspended their operations and paused all commercial activities in Russia and Belarus. For example, Apple and Google, two of the primary platforms that distribute our games, have suspended their respective digital wallet and mobile payment services, Apple Pay and Google Pay, in relation to credit cards issued by Russian financial institutions that are the subject of sanctions. Players who access our games via these platforms in Russia may therefore be disconnected from the primary means to make in-game purchases. Based on our current geographical distribution of Bookings, management believes that the latest geopolitical developments will have certain residual negative effects on GDEV Inc.’s future financial performance, limited to the share of Bookings deriving from the markets of the former Soviet Union (FSU), which stood at
Our board of directors determined that it is in the best interests of the Company, our player community and our investors to eliminate – to the maximum extent possible within the Company’s control – our exposure to country risks related to Russia. To this end, in 2022 we disposed of our Russian subsidiaries, relocated or laid-off all employees in Russia, and moved all our former Russian business operations to other countries and discontinued offering of our games through Russian social networks however players form Russia continue accessing our games through other platforms.
We do not expect these measures to have a material impact on the Company, as none of the divested subsidiaries represented a material revenue-generating asset. The divestment has no effect on the Company’s ability to continue to offer its full suite of games through its primary third-party platforms which are not based in Russia: Apple, Facebook, Google, Xsolla and Huawei. We have recorded losses on disposal in respect of our divestment of our (former) Russian based subsidiaries in the amount of
Additionally, the Company has incurred additional expenses as a consequence of the Russian military conflict in Ukraine. For example, we have incurred costs related to the relocation of critical personnel from Russia, Ukraine and Belarus to Cyprus, Armenia, Kazakhstan and certain other “safe-harbor” countries. Furthermore, prior to the disposition of our Russian-based subsidiaries, we supplemented the compensation paid to our employees located in Russia with additional amounts designed to safeguard these employees against the devaluation of the Russian Ruble and high inflation of consumer prices in Russia that was seen since March of 2022. As of the date of these financial statements, we have largely completed the relocation program and therefore do not expect any impact of the relocation expenses in 2023 and beyond, though we expect a certain increase in labor costs per employee starting from 2022 and going forward resulting from our policy of providing salary increases and various compensations on an ongoing basis to our employees to support them during the relocation process and to assist them with settling in their new locations.
33. Events after the reporting period
Liquidation of Russian subsidiaries of the Company’s associates
Subsequent to December 31, 2022, the management of the Group’s equity-accounted associate, Castcrown Ltd, applied for the liquidation of its Russian subsidiaries (Kaktus LLC and Primeforce LLC) – the companies are liquidated as at the date of these consolidated financial statements.
The Group´s management does not expect significant impact from these liquidations on its consolidated financial statements, as the companies’ revenues were intragroup, and most employees were relocated to the other companies of the group.
A Russian subsidiary of MX Capital Ltd, Rocket Jump LLC, is also in the liquidation process as at the date of the approval of these consolidated financial statements for issue. The Group´s management does not expect a significant impact from this liquidation on its consolidated financial statements, as this company’s revenue was intercompany, and most employees will be relocated to the other companies of the group.
F-76
GDEV Inc.
Interim Condensed Consolidated Statement of Financial Position
As at June 30, 2023 (unaudited) and December 31, 2022
(in thousands of US$)
| Note |
| June 30, 2023 |
| December 31, 2022 | |
ASSETS | ||||||
Non-current assets |
|
|
|
|
| |
Property and equipment |
| 14 |
| |
| |
Right-of-use assets | 18 | | | |||
Intangible assets |
| 15 |
| |
| |
Goodwill |
| 3,15 |
| |
| |
Investments in equity accounted associates |
| 16 |
| — |
| — |
Long-term deferred platform commission fees |
| 26 |
| |
| |
Deferred tax asset |
| 13 |
| |
| |
Other non-current investments |
| 23 |
| |
| |
Other non-current assets | 13 | | | |||
Loans receivable - non-current |
| 17 |
| — |
| |
Total non-current assets |
| |
| | ||
Current assets |
|
|
|
|
| |
Indemnification asset |
| 13,16,21 |
| |
| |
Trade and other receivables |
| 19 |
| |
| |
Loans receivable |
| 17 |
| |
| |
Other investments | 23 | | | |||
Prepaid tax |
| 13 |
| |
| |
Cash | 24 | | | |||
Total current assets |
| |
| | ||
Total assets |
| |
| | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| |
Equity |
|
|
|
|
| |
Share capital | 25 | — | — | |||
Additional paid-in capital | | | ||||
Share-based payments reserve | | | ||||
Translation reserve | | | ||||
Accumulated deficit |
| ( |
| ( | ||
Equity attributable to equity holders of the Company |
| ( |
| ( | ||
Non-controlling interest |
| — |
| — | ||
Total equity |
| ( |
| ( | ||
Non-current liabilities |
|
|
|
|
| |
Lease liabilities - non-current |
| 18 |
| |
| |
Long-term deferred revenue |
| 26 |
| |
| |
Share warrant obligations |
| 22 |
| |
| |
Put option liabilities - non-current |
| 3,16 |
| |
| |
Other non-current liabilities | 16 | | | |||
Total non-current liabilities |
| |
| | ||
Current liabilities |
|
|
|
|
| |
Lease liabilities - current |
| 18 |
| |
| |
Trade and other payables |
| 20 |
| |
| |
Provisions for non-income tax risks |
| 3,21 |
| |
| |
Put option liabilities - current | 3,16 | | — | |||
Tax liability |
| 3,13 |
| |
| |
Deferred revenue |
| 26 |
| |
| |
Total current liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Total liabilities and shareholders’ equity |
| |
| |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-74
GDEV Inc.
Unaudited Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the six months ended June 30, 2023 and 2022
(in thousands of US$)
|
| Six months ended |
| Six months ended | ||
Note | June 30, 2023 | June 30, 2022 | ||||
Revenue | 7 | | | |||
Costs and expenses, excluding depreciation and amortization | ||||||
Cost of revenue: | ||||||
Platform commissions |
| ( |
| ( | ||
Game operation cost |
| 9 |
| ( |
| ( |
Other operating income | | | ||||
Selling and marketing expenses |
| 10 |
| ( |
| ( |
General and administrative expenses | 11 | ( | ( | |||
Impairment loss on trade receivables and loans receivable | 9,10 | ( | ( | |||
Total costs and expenses, excluding depreciation and amortization |
| ( |
| ( | ||
Depreciation and amortization |
| 14,15,18 | ( |
| ( | |
Profit from operations |
| |
| | ||
Finance income |
| 12 |
| |
| |
Finance expenses | ( | ( | ||||
Change in fair value of share warrant obligation and other financial instruments |
| 22,29 |
| |
| |
Share of loss of equity-accounted associates |
| 16 |
| ( |
| ( |
Profit before income tax |
| |
| | ||
Income tax expense |
| 13 |
| ( |
| ( |
Profit for the period, net of tax |
| |
| | ||
Attributable to equity holders of the Company | | | ||||
Attributable to non-controlling interest | — | ( | ||||
Other comprehensive income | ||||||
Items that are or may be reclassified subsequently to profit or loss |
| |
| | ||
Foreign currency translation difference | | | ||||
Other | | — | ||||
Total comprehensive income for the period, net of tax |
| |
| | ||
Attributable to equity holders of the Company |
| |
| | ||
Attributable to non-controlling interest |
| — |
| ( | ||
Earnings per share: |
|
|
|
|
| |
Basic and diluted earnings per share, US$ |
| 6 | |
| |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-75
GDEV Inc.
Unaudited Interim Condensed Consolidated Statement of Changes in Equity
For the six months ended June 30, 2023 and 2022
(in thousands of US$ except number of shares)
|
|
|
|
|
|
|
| Equity |
|
| ||||||||||
Number | Additional | Share-based | attributable to | Non- | ||||||||||||||||
of shares | Share | paid-in | payments | Translation | Accumulated | equity holders of | controlling | |||||||||||||
Note | outstanding | capital | capital | reserve | reserve | deficit | the Company | interest | Total | |||||||||||
Balance at January 1, 2022 | | — | | ( | ( | | ( | |||||||||||||
Profit for the period |
| — |
| — |
| — |
| — |
| — |
| |
| |
| ( |
| | ||
Other comprehensive income |
| 25 | — |
| — |
| — |
| — |
| |
| — |
| |
| — |
| | |
Total comprehensive income for the period |
| — |
| — |
| — |
| — |
| |
| |
| |
| ( |
| | ||
Issue of ordinary shares related to business combination | 15 | — | — | ( | — | — | — | ( | — | ( | ||||||||||
Share-based payments |
| 30 |
| — |
| — |
| — |
| |
| — |
| — |
| |
| — |
| |
Total transactions with shareholders |
| — |
| — |
| ( |
| |
| — |
| — |
| ( |
| — |
| ( | ||
Balance at June 30, 2022 |
| |
| — |
| |
| |
| |
| ( |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
| Equity |
|
| ||||||||||
Number | Additional | Share-based | attributable to | Non- | ||||||||||||||||
of shares | Share | paid-in | payments | Translation | Accumulated | equity holders of | controlling | |||||||||||||
Note | outstanding | capital | capital | reserve | reserve | deficit | the Company | interest | Total | |||||||||||
Balance at January 1, 2023 | | — | | | | ( | ( | — | ( | |||||||||||
Profit for the period |
| — |
| — |
| — |
| — |
| — |
| |
| |
| — |
| | ||
Other comprehensive income |
| 25 | — |
| — |
| |
| — |
| |
| — |
| |
| — |
| | |
Total comprehensive loss for the period |
| — |
| — |
| |
| — |
| |
| |
| |
| — |
| | ||
Share-based payments and exercise of options |
| 30 |
| |
| — |
| |
| |
| — |
| — |
| |
| — |
| |
Total transactions with shareholders |
| |
| — |
| |
| |
| — |
| — |
| |
| — |
| | ||
Balance at June 30, 2023 |
| |
| — |
| |
| |
| |
| ( |
| ( |
| — |
| ( |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-76
GDEV Inc.
Unaudited Interim Condensed Consolidated Statement of Cash Flows
For the six months ended June 30, 2023 and 2022
(in thousands of US$)
|
| Six months ended |
| Six months ended | ||
Note | June 30, 2023 | June 30, 2022 | ||||
Operating activities | ||||||
Profit for the period, net of tax | | | ||||
Adjustments for: |
|
|
|
|
| |
Depreciation and amortization |
| 14,15,18 | |
| | |
Share-based payments expense |
| 30 |
| |
| |
Income from share option forfeiture | 3,16 | ( | — | |||
Share of loss of equity-accounted associates |
| 16 |
| |
| |
Expected credit losses |
| 17,19,29 |
| |
| |
Property and equipment write-off |
|
| — |
| | |
Impairment of intangible assets |
|
| — |
| | |
Change in fair value of share warrant obligations and other financial instruments |
| 22,29 |
| ( |
| ( |
Change in fair value of other investments | ( | — | ||||
Unwinding of discount on the put option liability |
| 12 |
| |
| |
Receivables write-off | 19 | | — | |||
Interest income |
| 12 |
| ( |
| ( |
Interest expense |
| 12 |
| |
| |
Dividend income | ( | — | ||||
Foreign exchange loss/(gain) |
| 12 |
| |
| |
Income tax expense |
| 13 |
| |
| |
| |
| | |||
Changes in working capital: |
|
|
|
|
| |
Decrease in deferred platform commissions |
| 26 |
| |
| |
Decrease in deferred revenue | 26 | ( | ( | |||
Increase/(decrease) in trade and other receivables |
| 19 |
| |
| ( |
Decrease in trade and other payables |
| 20 | ( |
| ( | |
( | ( | |||||
Income tax paid |
| ( |
| ( | ||
Net cash flows (used in)/generated from operating activities |
| ( |
| | ||
Investing activities |
|
|
|
|
| |
Acquisition of intangible assets |
| 15 |
| ( |
| ( |
Acquisition of property and equipment |
| 14 |
| ( |
| ( |
Acquisition of right of use |
|
| ( |
| — | |
Acquisition of subsidiary net of cash acquired | 3 | — | ( | |||
Investments in equity accounted associates |
| 16 |
| ( |
| ( |
Loans granted |
| 17 |
| ( |
| ( |
Proceeds from repayment of loans |
| 17 | |
| | |
Acquisition of other investments | 23 | ( | — | |||
Proceeds from redemption of investments | | — | ||||
Interest received | | — | ||||
Dividends received | | — | ||||
Net cash flows used in investing activities |
| ( |
| ( | ||
Financing activities |
|
|
|
|
| |
Payments of lease liabilities |
| 18 |
| ( |
| ( |
Proceeds from borrowings |
|
| — |
| | |
Interest on lease |
| 18 |
| ( |
| ( |
Net cash flows used in financing activities |
| ( |
| ( | ||
Net (decrease)/increase in cash for the period |
| ( |
| ( | ||
Cash at the beginning of the period |
| |
| | ||
Effect of changes in exchange rates on cash held |
| |
| | ||
Cash at the end of the period | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-77
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
1.Reporting entity
GDEV Inc. (formerly, Nexters Inc.) (the “Company”) is a company incorporated under the laws of the British Virgin Islands on January 27, 2021, which was formed for the sole purpose of effectuating a merger with Kismet Acquisition One Corp (“Kismet” a Special Purpose Acquisition Company (“SPAC”)).
The mailing and registered address of GDEV Inc.’s principal executive office is 55, Griva Digeni, 3101, Limassol, Cyprus.
GDEV Inc. is the direct parent of Nexters Global Ltd, which was incorporated in Cyprus on November 2, 2009 as a private limited liability company under the Cyprus Companies Law, Cap. 113. Nexters Global Ltd’s registered office is at Faneromenis 107, 6031, Larnaca, Cyprus. Nexters Global Ltd generates the majority of the Company’s revenues.
These interim condensed consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at and for the six months ended June 30, 2023 and 2022.
The principal activities of the Company and its subsidiaries (the “Group”) are the development and publishing of online games for mobile, web and social platforms. The Group also derives revenue from advertising services. Information about the Company’s main subsidiaries is disclosed in Note 28.
The Company’s ordinary shares and warrants are listed on Nasdaq under the symbols GDEV and GDEVW, respectively.
The Group has no ultimate controlling party.
2.Basis of presentation
2.1.Statement of compliance
The accompanying interim condensed financial information that refer to the period ended on June 30, 2023, have been prepared in accordance with the International Accounting Standard (IAS) 34 “Interim Financial Reporting”.
These interim condensed consolidated financial statements were authorized for issue by the Group’s Board of Directors on September 28, 2023.
2.2.Basis of presentation
These interim condensed consolidated financial statements have been prepared based on historical cost basis unless disclosed otherwise and are presented in United States Dollars ($) which is also the functional currency of GDEV Inc. and Nexters Global Ltd. All amounts are presented in thousands, rounded to the nearest thousand unless indicated otherwise.
2.3.Basis of consolidation
The Group controls the entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
| ● | Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee), |
| ● | Exposure, or rights, to variable returns from its involvement with the investee, and |
| ● | The ability to use its power over the investee to affect its returns. |
F-78
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
When the Group has less than a majority of the voting or similar rights of an investee, where control is exercised through voting rights, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
| ● | The contractual arrangement with the other vote holders of the investee, |
| ● | Rights arising from other contractual arrangements, |
| ● | The Group’s voting rights and potential voting rights. |
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of an investee begins when the Group obtains control over the investee and ceases when the Group loses control over the investee. Assets, liabilities, income and expenses of an investee acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date the Group ceases to control the investee. The financial statements of the investees are prepared for the same reporting period as the parent company, using consistent accounting policies.
All intra-group balances, income, expenses and unrealized gains and losses resulting from intra-group transactions are eliminated in full.
3.Summary of significant accounting policies
The accounting policies have been applied consistently throughout the periods presented in these interim condensed consolidated financial statements.
The principal accounting policies used to prepare these interim condesed consolidated financial statements are set out below.
3.1.Business combinations and goodwill
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the total of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed and included in general and administrative expenses.
The Group measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as at the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination.
If control is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit or loss.
A contingent liability of the acquiree is recognized in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.
F-79
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Only components of non-controlling interest constituting a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are measured at their acquisition date fair value.
The Group accounts for a change in the ownership interest of a subsidiary (without loss of control) as a transaction with owners in their capacity as owners. Therefore, such transactions do not give rise to goodwill, nor do they give rise to a gain or loss and are accounted for as an equity transaction.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the synergies of the combination and/or from the future cash flows provided by the acquired businesses, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. If the Group reorganizes its reporting structure in a way that changes the composition of one or more cash-generating units to which goodwill has been allocated, the goodwill is reallocated to the units affected. The reallocation is performed using a relative value approach similar to that used in connection with the disposal of an operation within a cash-generating unit, unless some other method better reflects the goodwill associated with the reorganized units.
3.2.Foreign currency translation
The interim condensed consolidated financial statements are presented in US dollars (US$), which is the Group’s presentation currency. Each entity in the Group determines its own functional currency, depending on what the underlying economic environment is, and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured into the functional currency at the functional currency rate of exchange at the reporting date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive income or profit or loss is also recognized in other comprehensive income or profit or loss, respectively).
The functional currency of the foreign operations is generally US Dollar or the respective local currency – Euro (€), Russian rouble (RUB), Armenian dram (AMD) or Kazakhstani tenge (KZT). As at the reporting date, the assets and liabilities of these operations are translated into the presentation currency of the Group (the US$) at the rate of exchange at the reporting date and their statements of comprehensive income are translated at the average exchange rates for the relevant periods or exchange rates prevailing on the dates of specific transactions. The exchange differences arising on the translation are recognized in other comprehensive income. On disposal of a foreign entity, the cumulative amount recognized in equity relating to that particular foreign operation is reclassified to the profit or loss.
4.Accounting judgments, estimates and assumptions
In preparing these interim condensed consolidated financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, incomes and expenses. Actual results may differ from these estimates.
F-80
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those described in the Group’s consolidated financial statements for the year ended December 31, 2022 except for as described below.
Change in estimates
Warrants’ valuation
Upon completion of the Transaction on August 26, 2021, each outstanding warrant to purchase Kismet’s ordinary shares was converted into a warrant to acquire
The Company accounts for the warrants in its financial statements as a liability in accordance with IAS 32 - Financial Instruments: Presentation and IFRS 9 - Financial Instruments, based on the fact the fixed-for-fixed criteria is not met. This is due to the fact that investors can exercise their warrants on a cashless basis according to make-whole table, where warrants are exchanged into a fractional number of shares depending on the stock price at time of redemption and remaining time to warrant expiration. The warrants are initially recorded at fair value and then remeasured at each reporting date until exercised or expired, with any change in fair value to be recognized in profit or loss within the line Change in fair value of share warrant obligation and other financial instruments.
Management used traded market price from NASDAQ for the purpose of estimating fair value of Private and Public Warrants as at June 30, 2023 as the trading was resumed on the 16th of March while as at December 31,2022 management used the Monte Carlo simulations to determine the value of the Private and Public warrants (see Note 22 for details).
The effect of the change in the measurement of the warrants’ fair value as at June 30, 2023 is
| ● | Implied multiples were calculated using the last quoted share price before the trading halt was introduced to estimate a discount/(premium) to median multiples of peer group ( |
| ● | Median EV/Bookings and EV/EBITDA multiples of peer group were calculated as at the reporting date; |
| ● | Discounts/(premiums) from the multiples calculated in the first step were applied to estimate our multiples as at the reporting date. |
Based on the above multiples and actual number of bookings and EBITDA during the year we estimated our enterprise value and, based on the number of outstanding shares as at December 21, 2022, the starting price of our shares, which was the input parameter of the Monte Carlo model, which is different from the approach used as at June 30, 2023, where quoted market price was used as the fair value of one warrant.
Measurement of the financial instruments issued as part of the investments in associates
Significant judgment is required in measurement of the fair value of the financial instruments related to the investments in equity-accounted associates during the current reporting period, which included contingent consideration (sellers and founders earn-outs), call and put options of GDEV Inc. and respective shareholders as per shareholders’ and share purchase agreements and conversion option for the loan issued to Castcrown Ltd.
F-81
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Fair value of the mentioned financial instruments considers the likelihood of achievement by the associates of performance targets such as those in respect of Net bookings and EBITDA over certain agreed periods of time. In order to estimate achievement of such performance targets management utilized Monte-Carlo simulations over the agreed periods and projected various outcomes for each performance target based on the underlying management assumptions of the investees’ future business growth. Management determined the fair values of the financial instruments based on outputs provided by those Monte-Carlo simulations.
In order to determine the fair value of the financial instruments (see Note 16 for details) as at June 30, 2023 management applied the following assumptions:
| ● | Target pay back of |
| ● | Discount rate based on risk-free rate of |
| ● | Valuation of investees based on forward multiples of Enterprise Value to Net bookings of |
| ● | Assumption of Standard deviation (Sigma parameter of GBM distribution) of marketing expenditure incurred in order to generate bookings over the projected period of time with bookings benchmarked against historic performance of the same genre games in the gaming industry and implying certain Failure rate for such games. |
Due to the fact that stochastic generated marketing costs are mainly dependent from sigma parameter of GBM distribution, sigma was used in sensitivity tests to determine change in fair value of financial instruments with the change of marketing costs.
The effect of the change in the measurement approach on the estimated fair values of the financial instruments of MX Capital Ltd as at June 30, 2023 is
The analysis of sensitivity to the key parameters of financial model in MX Capital Ltd as at June 30, 2023:
| ● | While other parameters remain constant, an increase of target pay back on marketing investments by |
| ● | While other parameters remain constant, a decrease of target pay back on marketing investments by |
| ● | While other parameters remain constant, an increase of risk-free rate by |
| ● | While other parameters remain constant, a decrease of risk-free rate by |
| ● | While other parameters remain constant, an increase of multiples by |
F-82
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
| ● | While other parameters remain constant, a decrease of multiples by |
| ● | While other parameters remain constant, an increase of sigma by |
| ● | While other parameters remain constant, a decrease of sigma by |
The analysis of sensitivity to the key parameters of financial model of Castcrown Ltd shows that there is no reasonably possible change in the key parameters that would materially change the fair value of the relevant financial instruments.
5.Segment reporting
A.Basis for segmentation
The Group operates through
The following summary describes the operations of the reportable segment:
Reportable segments |
| Operations |
Nexters Global Ltd | Game development and publishing | |
MX Capital Ltd | Game development and publishing |
B.Information about reportable segments
Information related to the reportable segment is set out below. Segment management EBITDA is used to measure performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industry.
The Company defines Management EBITDA as the net income/loss as presented in the Group's consolidated financial statements in accordance with IFRS, adjusted to exclude (i) loss for the period from our Russian subsidiaries that have been sold, (iii) income tax expense, (iv) net finance income/expense, (v) change in fair value of share warrant obligations and other financial instruments, (vi) share of loss of equity-accounted associates, (vii) depreciation and amortization, (viii) share-based payment expense and (ix) certain non-cash or other special items that are not considered indicative of our ongoing operating performance (see the reconciliation below).
Six months ended June 30, 2023 |
| Nexters Global Ltd |
| MX Capital Ltd |
| All other segments |
| Total |
Segment revenue |
| |
| — |
| |
| |
Segment management EBITDA |
| |
| — |
| ( |
| ( |
Six months ended June 30, 2022 |
| Nexters Global Ltd |
| MX Capital Ltd |
| All other segments |
| Total |
Segment revenue |
| |
| — |
| |
| |
Segment management EBITDA |
| |
| ( |
| ( |
| |
F-83
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
C.Reconciliation of information on reportable segment to the amounts reported in the financial statements
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Profit/(loss) before income tax |
|
|
|
|
Management EBITDA for reportable segments |
| |
| |
Management EBITDA for other segments |
| ( |
| ( |
Net effect from recognition of deferred net revenues |
| |
| |
Depreciation and amortization |
| ( |
| ( |
Finance income |
| |
| |
Finance expenses |
| ( |
| ( |
Share-based payments expense |
| |
| |
Impairment loss on trade receivables and loans receivable |
| ( |
| ( |
Change in fair value of share warrant obligation and other financial instruments |
| |
| |
Impairment loss on Intangible assets |
| — |
| |
Share of loss of equity-accounted associates |
| ( |
| ( |
Other operating income |
| |
| |
Consolidatied profit/(loss) before income tax |
| |
| |
We disclose the geographical distribution of our revenue in Note 7. We do not have the ability to track revenue deferral on a by-country basis therefore we applied average deferral rate to in-game purchases disaggregated by geography.
Non-current assets excluding financial instruments and deferred taxes by geography are presented below as at June 30, 2023:
| Cyprus |
| Armenia |
| Kazakhstan |
| Spain |
| Total | |
Property and equipment |
| |
| |
| |
| |
| |
Right-of-use assets |
| |
| |
| — |
| — |
| |
Intangible assets |
| |
| |
| |
| — |
| |
Goodwill |
| |
| — |
| — |
| — |
| |
Long-term deferred platform commission fees |
| |
| — |
| — |
| — |
| |
| |
| |
| |
| |
| |
As at December 31, 2022:
| Cyprus |
| Armenia |
| Kazakhstan |
| Spain |
| Total | |
Property and equipment |
| |
| |
| |
| |
| |
Right-of-use assets |
| |
| |
| — |
| — |
| |
Intangible assets |
| |
| |
| |
| — |
| |
Goodwill |
| |
| — |
| — |
| — |
| |
Long-term deferred platform commission fees |
| |
| — |
| — |
| — |
| |
Loans receivable - non-current |
| |
| — |
| — |
| — |
| |
| |
| |
| |
| |
| |
F-84
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
6.Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the period net of tax attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net profit for the period net of tax attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the earnings and number of shares used in basic and diluted earnings per share computations for the six months ended June 30, 2023 and 2022:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Profit for the year net of tax attributable to ordinary equity holders of the parent for basic earnings | | | ||
Weighted average number of ordinary shares for basic and diluted earnings per share | | | ||
Earnings per share: |
|
|
|
|
Earnings attributable to ordinary equity holders of the parent, US$ |
|
| |
The Company does not consider the effect of the warrants sold in the Initial Public Offering and private placement and the options granted under Employee Stock Option plan in the calculation of diluted earnings per share, since they do not have a dilutive effect as at the reporting date they are out of the money, except an insignificant portion of vested options with strike price of
The weighted average number of ordinary shares (both basic and diluted) includes
7.Revenue
The following table summarizes revenue from contracts with customers for the six months ended June 30, 2023 and 2022:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
In-game purchases | | | ||
Advertising |
| |
| |
Total | | |
F-85
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The following table sets forth revenue disaggregated based on geographical location of our payers:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
US | | | ||
Europe |
| |
| |
Asia |
| |
| |
Other |
| |
| |
Total | | |
The amount of revenue recognized at a point in time was
8.Acquisition and disposal of subsidiaries in Russia
On February 3, 2021, Nexters Global Ltd acquired
On December 9, 2021, Nexters Global Ltd acquired
Goodwill recognized in the amount of
Property and equipment of Nexters Studio LLC, Nexters Online LLC and Game Positive LLC (“Russian companies”) consist of office equipment purchased within 2020, therefore its fair value approximates to its carrying amount.
At the date of the acquisition, the fair value of the trade and other receivables of Russian companies approximates to its carrying amount due to the fact they are represented by short-term accounts receivable.
The Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities.
The companies’ trade and other payables amount mainly represent gross contractual amounts of the trade payables.
F-86
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Nexters Global Ltd and Russian companies were parties to a pre-existing relationship, which should be accounted for separately from the business combination. No additional adjustment was made for the amount by which the contract is favorable or unfavorable from the perspective of the acquirer when compared with terms of current market transactions for the same or similar items, as the transactions comprising pre-existing relationship were executed on the market terms.
On July 12, 2022, the Company’s Board of Directors resolved to sell all its Russian subsidiaries to local management as part of the Group’s strategy to eliminate to a maximum extent possible the risks related to the Russian Federation.
Therefore the Group sold
The sale of Nexters Studio LLC, Nexters Online LLC and Game Positive LLC was completed on August 18, 2022 and the sale of Lightmap LLC on August 31, 2022 with the respective loss of
9.Game operation cost
Game operation cost consists of employee benefits expenses and technical support services. The following table summarizes game operation cost for the six months ended June 30, 2023 and 2022.
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Employee benefits expenses | ( | ( | ||
Technical support services |
| ( |
| ( |
| ( |
| ( |
Technical support services mainly relate to maintenance and upgrades of the Group’s software applications provided by a third party and costs associated with hosting services.
10.Selling and marketing expenses
Selling and marketing expenses consist mainly of expenses to attract new users through advertising. The following table summarizes selling and marketing expenses for the six months ended June 30, 2023 and 2022.
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Advertising costs | ( | ( | ||
Employee benefits expenses |
| ( |
| ( |
| ( |
| ( |
F-87
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
11.General and administrative expenses
The following table summarizes general and administrative expenses for the six months ended June 30, 2023 and 2022:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Employee benefits expenses | ( | ( | ||
Professional fees | ( | ( | ||
Liability insurance cost | ( | ( | ||
Other operating expenses |
| ( |
| ( |
| ( |
| ( |
12.Finance income and finance expenses
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Interest income under the effective interest method on: |
|
| ||
— Debt securities - at amortised cost |
| |
| — |
— Debt securities - at FVOCI |
| |
| — |
— Loans receivable |
| |
| |
Total interest income arising from financial assets |
| |
| |
Dividend income: |
|
|
|
|
— Equity securities at FVTPL |
| |
| — |
Financial assets at FVTPL - net change in fair value: |
|
|
|
|
— Mandatorily measured at FVTPL - held for trading |
| |
| — |
Net foreign exchange gain |
| — |
| — |
Finance income ‑ other |
| |
| — |
Interest expense |
| ( |
| ( |
Bank charges |
| ( |
| ( |
Unwinding of discount on the put option liability |
| ( |
| ( |
Net foreign exchange loss |
| ( |
| ( |
Finance expenses ‑ other |
| ( |
| ( |
Net finance income/(expense) |
| |
| ( |
13.Taxation
For the six months ended June 30, 2023 and 2022 the Group recognized income tax expense in the amount of
The applicable tax rate used for reconciliation of the effective tax rate, below, is
(a)Cyprus IP box regime
In 2012, the government of Cyprus introduced a regime applicable to Intellectual Property (IP) (the ‘Old IP Regime’). The provisions of the Old IP regime allow for an
F-88
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
In 2016, the House of Representatives passed amendments to the Income Tax Law (the ‘New IP Regime’) in order to align the current Cyprus IP tax legislation with the provisions of Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) project. The amendments apply retroactively, from July 1, 2016, but according to transitional arrangements, companies benefiting from the Old IP Regime could continue to apply its provisions until June 30, 2021, as long as the IP assets either generated income or their development was completed as at June 30, 2016. Therefore, the Group continued to benefit from the Old IP Regime up to June 30, 2021.
Starting from July 1, 2021, the Group applies the provisions of the New IP Regime, which are based on the nexus approach. According to the nexus approach, for an intangible asset to qualify for the benefits of the regime, there needs to be a direct link between the qualifying income and the qualifying expenses contributing to that income. An amount equal to
Under both the Old and the New IP Regimes, in case a loss arises instead of profit, the amount of loss that can be set off is limited to
(b)Reconciliation of the effective tax rate
The reconciliation of the effective tax rate to a statutory tax rate is presented in a table below:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Profit/(loss) before income tax | | | ||
Tax calculated at the applicable tax rate |
| ( |
| ( |
Effect of different tax rates in other countries |
| ( |
| ( |
Tax effect of expenses not deductible for tax purposes and non-taxable income |
| |
| ( |
Tax effect of deductions under special tax regimes |
| |
| |
Tax effect of tax losses brought forward |
| |
| |
Tax effect of not recognised deferred tax asset regarding the loss carryforward |
| ( |
| ( |
Overseas tax in excess of credit claim used during the period |
| ( |
| ( |
Income tax related to prior periods | ( | — | ||
Income tax expense |
| ( |
| ( |
(c)Uncertainty over the income tax treatment and unrecognized deferred tax asset
Starting from January 1, 2019 the Group has changed its tax reporting principles, judgments and estimates in a few areas including, among others, revenue recognition for in-game purchases and software development costs, which resulted in a substantial amount of revenues related to in-game purchases made by Group’s consumers in 2019 being deferred to 2020 and beyond (see Note 26 for details), as well as software development costs being expensed as incurred. As a consequence, the Company’s major operating subsidiary has booked substantial tax losses in 2019, 2020 and 2021.
Tax losses may be carried forward for five years. As at June 30, 2023 the Group did not recognize a deferred tax asset of
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
(d)Prepaid tax
Prepaid tax amount is mainly represented by the overpaid corporate income tax by Nexters Global Ltd. The Company plans to offset this amount against the tax liability for the years 2022, 2023 and 2024 if applicable. Prior to the return of the amount the tax authorities have to examine our tax accounts. The examination is still in process as at the date of issue of these interim condensed consolidated financial statements.
14.Property and equipment
During the six months ended June 30, 2023, the Group acquired property and equipment with a cost of
15.Intangible assets and goodwill
Intangible assets
During the six months ended June 30, 2023, the Group acquired intangible assets with a cost of
Acquisition of intangibles in the first half of 2022 consists of the intangible assets acquired as part of the acquisition of Lightmap Ltd. The intangible assets acquired mainly include the assets related to the Lightmap’s game “Pixel Gun”. The respective intangible assets are amortized over a period of
The amount of amortization is mostly attributable to the Game operation cost.
Business combinations and goodwill
A.Acquisition of game development studios
On January 25, 2022, Company’s Board of directors approved the acquisition of interest in
The Company acquired
On January 27, 2022, the Company entered into a share purchase agreement to acquire
Based on the Share Purchase Agreement at the date of acquisition the sellers received the option to require GDEV Inc. to acquire back the Company’s shares issued or to be issued to the seller as part of the acquisition for a price of US$
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
| — | the first scenario is when the shares are ineligible for sale on Nasdaq in |
| — | the second scenario represents a general right of the sellers to sell their outstanding consideration shares to GDEV Inc. no later than |
The option is recognized on the acquisition date in the amount of
Acquisitions completed in 2021 are described in Note 8.
B.Consideration transferred
The following table summarises the acquisition-date fair value of each major class of consideration transferred.
Consideration transferred |
|
|
Cash |
| |
Share consideration |
| |
Deferred share consideration |
| |
Total fair value of consideration | |
Lightmap Ltd and Lightmap LLC are treated as one integrated business under common control for the acquisition made as in substance they represent a unique business chain.
Share consideration and deferred share consideration fair value were determined using the number of the shares stated in the share purchase agreement multiplied by the share price of GDEV Inc. as at the date of acquisition, which is US$
The difference between the fair values of share consideration and put option of the sellers of Lightmap Ltd of
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
C.Fair value of the assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Lightmap Ltd (Lightmap LLC did not have any material assets or liabilities) as at the date of acquisition were:
| Fair value recognized on | |
acquisition, January 31, 2022, | ||
Lightmap Ltd | ||
Assets |
| |
Property and equipment | | |
Intangible assets (Note 4) |
| |
Right-of-use assets |
| |
Indemnification asset |
| |
Trade and other receivables |
| |
Cash and cash equivalents |
| |
Prepaid tax |
| |
| | |
Liabilities |
|
|
Lease liabilities |
| ( |
Trade and other payables |
| ( |
Provisions for non-income tax risks (Note 21) |
| ( |
Tax liability (Note 21) |
| ( |
| ( | |
Total identifiable net assets at fair value |
| |
Goodwill arising on acquisition |
| |
NCI |
| — |
Purchase consideration transferred |
| |
The Group recognized certain tax uncertainties and risks regarding the determination of taxable income, tax positions, and the calculation of tax liabilities resulting from the acquisition of Lightmap Ltd. The Group considered a range of possible outcomes and probability-weighted amounts associated with the tax risks to determine the expected value of the recognized tax risks in the amount of
The Group also recognized a liability in respect of Lightmap Ltd of
As at December 31, 2022 the amount of the mentioned liability was decreased by
D.Goodwill
Goodwill recognized in the amount of
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Lightmap Ltd’s property and equipment consist of office equipment purchased within the last
At the date of the acquisition, the fair value of the trade and other payables of Lightmap Ltd approximates their carrying amount due to the fact they are represented by short-term advances received and VAT payable.
The Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities.
The Group’s trade and other receivables amount represents gross contractual amounts for the acquired receivables, its fair value approximates its carrying amount as they are predominantly short-term.
Lightmap Group (i.e. Lightmap Ltd and its subsidiaries) as one CGU was tested for impairment as at December 31, 2022 and subsequently as at March 31, 2023 and June 30, 2023.
E.Reconciliation of carrying amount of goodwill
Cost |
|
|
Balance at January 1, 2022 |
| |
Acquisition through business combination | | |
Goodwill impairment | ( | |
Translation reserve | | |
Balance at December 31, 2022 | | |
Change | — | |
Balance at June 30, 2023 |
| |
The recoverable amount of the CGU of
The recoverable amount of the CGU as at June 30, 2023 is
The impairment process includes assumptions of significant importance, such as а EV/EBITDA multiples, a compound average growth rate of revenues over the forecasted period of
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Sensitivity to input parameters
Our estimates are sensitive to input parameters, particularly to change in the EV/EBITDA multiples. Below is the analysis of sensitivity to this parameter:
| ● | While other parameters remain constant, an increase/decrease of the EV/EBITDA multiple by |
16.Investments in equity accounted associates
MX Capital Ltd
On January 27, 2022, the Company entered into a share purchase agreement to acquire
Further earn-out payments of up to
On the same date, the Company entered into a shareholders’ agreement with the remaining shareholder of MX Capital Ltd, which provided for a put and call options allowing the Company to obtain control over
The sellers earn-outs (contingent consideration) meet the definition of financial liabilities on the basis that they shall be settled in variable amounts of shares and/or cash depending on the achievement of certain targets by the relevant associates and are recognized within the line Other non-current liabilities in this consolidated statement of financial position.
The MX Capital group’s loss net of tax for the six months ended June 30, 2023 amounted to
Castcrown Ltd
On January 27, 2022, the Company entered into a share purchase agreement to acquire approximately
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Company. In consideration for being granted this call option, the Company agreed to pay to the remaining shareholders an option premium of
The transaction was fully executed on March 30, 2022. The fair value of the call option at acquisition is
The group’s loss net of tax for the six months ended June 30, 2023 amounted to
The carrying amount of investments in our consolidated statement of financial position as at December 31, 2022 being equal to
| MX Capital Ltd |
| Castcrown Ltd | |
Investment in associates at acquisition |
| |
| |
Indemnification asset |
| ( |
| ( |
Legal expenses capitalized |
| |
| — |
Contingent consideration - sellers earn-outs |
| |
| — |
Contingent consideration - founders earn-outs |
| |
| — |
Liability arising from symmetric put option |
| |
| — |
Asset arising from symmetric call option |
| ( |
| — |
Derivative asset arising from call option |
| — |
| ( |
Initial cost at acquisition |
| |
| |
Share of loss of equity-accounted associates |
| ( |
| ( |
Share of OCI of equity-accounted associates |
| |
| — |
Carrying amount of investment at December 31, 2022 before impairment |
| |
| — |
Investment impairment |
| ( |
| — |
Carrying amount of investment as at December 31, 2022 |
| — |
| — |
The carrying amount of investments in our interim condensed consolidated statement of financial position as at June 30, 2023 being equal to
| MX Capital Ltd |
| Castcrown Ltd | |
Carrying amount of investment as at December 31, 2022 |
| — |
| — |
Additional investment in associate |
| — |
| |
Share of loss of equity-accounted associates |
| — |
| ( |
Carrying amount of investment at June 30, 2023 before impairment |
| — |
| — |
Investment impairment |
| — |
| — |
Carrying amount of investment as at June 30, 2023 |
| — |
| — |
The impairment as at December 31, 2022 occurred as a result of the overall decline in the gaming industry around the world, as well as the ongoing economic uncertainty, which also led to a decrease in bookings in CGU MX Capital Ltd.
The recoverable amount of the CGU was
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
determined in the following way: for the public peer group analysis, a list of peer companies was compiled, which closely resembled the Group's business model; the most appropriate multiples to estimate the value of the gaming company were identified as EV/Bookings of
The impairment process includes assumptions of significant importance, such as growth of revenues and free cash flows, the discount rate as a pre-tax weighted average cost of capital (WACC), the exit EV/EBITDA and EV/ Bookings multiple, the list of peer companies, and the discount to the peer multiples. The assumptions used are based on management's best judgment and were made using Level 2 inputs.
Sensitivity to input parameters
Our estimates are sensitive to input parameters, particularly to change in the multiples stated above (EV/EBITDA and EV/Bookings). Below is the analysis of sensitivity to this parameter:
| ● | While other parameters remain constant, an increase/decrease of the EV/EBITDA multiple by |
| ● | While other parameters remain constant, an increase/decrease of the EV/Bookings multiple by |
17.Loans receivable
As part of the share purchase agreement with MX Capital Ltd, the Company entered into a loan agreement with the associate for a total amount of up to
The second tranche of the loan for an amount of
As part of the share purchase agreement with Castcrown Ltd, the Company entered into an unsecured convertible notes agreement on March 30, 2022 for the amount of up to
The fair value of conversion feature amounted to
The exposure of the Group to credit risk is reported in Note 29 to these interim condensed consolidated financial statements.
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Expected credit losses for loans receivable consist of
The amount of ECL on the loan receivable from Castcrown Ltd was accrued based on provisions of IFRS 9 on an individual basis as
The amount of ECL on the loan receivable from MX Capital Ltd was accrued based on provisions of IFRS 9 on an individual basis as
On June 20, 2023 the Group entered into new loan agreement with Levelapp Limited issuing the loan of
18.Leases
| Right-of-use assets |
| Lease liabilities | |
Balance at January 1, 2023 |
| |
| |
Additions |
| |
| |
Acquisitions through business combinations | — | — | ||
Loss on modification | — | — | ||
Depreciation |
| ( |
| — |
Interest expense |
| — |
| |
Payments |
| — |
| ( |
Derecognition of right-of-use assets/lease liabilities due to sale | — | — | ||
Effect of foreign exchange rates |
| ( |
| |
Balance at June 30, 2023 |
| |
| |
Lease liabilities - current |
|
| | |
Lease liabilities - non-current |
|
| |
| Right-of-use assets |
| Lease liabilities | |
Balance at January 1, 2022 |
| |
| |
Additions |
| |
| |
Acquisitions through business combinations |
| |
| |
Loss on modification |
| — |
| — |
Depreciation |
| ( |
| — |
Interest expense |
| — |
| |
Payments |
| — |
| ( |
Effect of foreign exchange rates |
| |
| |
Balance at June 30, 2022 |
| |
| |
Lease liabilities - current |
|
| | |
Lease liabilities - non-current |
|
| |
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The amounts reflected in the line General and administrative expenses of this interim condensed consolidated statement of profit or loss and other comprehensive income other than depreciation in relation to leases are presented in the table below:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Expense relating to low-value leases |
| |
| |
Interest expense on lease liabilities |
| |
| |
| |
| |
On June 1, 2019 Nexters Global Ltd entered into a new lease agreement for the office spaces with a new owner in Larnaca, Cyprus. On June 1, 2021, the lease was renewed for another
On March 24, 2020 Nexters Global Ltd entered into a new lease agreement over the office spaces in Limassol, Cyprus with a new owner. The lease runs for
The Group measures the lease liability at the present value of the remaining lease payments as if the acquired lease were a new lease at the acquisition date. The Group measures the right-of-use asset at the same amount as the lease liability.
On October 4, 2021 GDEV Inc. entered into a new lease agreement over the office spaces in Limassol, Cyprus. The lease runs for
On December 1, 2021, Jule 29, 2022 and October 4, 2022 Nexters Global Ltd entered into new lease agreements for vehicles. As the terms of the contracts were the same and were entered into at the same time with the same counterparty, the contracts are combined as a single contract. The lease runs for
On January 31, 2022 GDEV Inc. acquired Lightmap Ltd group which had a lease agreement for the office building in Limassol, Cyprus. The agreement is renewed on April 1, 2023 for
On August 9, 2022 Nexters Studio Armenia LLC entered into a new lease agreement over the office spaces and co-working spaces in Yerevan, Armenia, the lease runs for
Other than the office and leases discussed above the Company has no other material leases.
Total cash outflow for leases recognized in the interim condensed consolidated statement of cash flow is presented below:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Сash outflow for leases |
| |
| |
Cash outflow for low-value leases |
| |
| |
Total cash outflow for leases |
| |
| |
All lease obligations of Cypriot companies are denominated in €. The rate of
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
19.Trade and other receivables
| June 30, 2023 |
| December 31, 2022 | |
Trade receivables |
| |
| |
Deposits and prepayments |
| |
| |
VAT refundable | | | ||
Other receivables |
| |
| |
Total |
| |
| |
The Group does not hold any collateral over the trade receivables balances, nor is there any related financing component.
The fair values of trade and other receivables approximate to their carrying amounts as presented above as they are mostly of a short-term nature.
The exposure of the Group to credit risk and impairment losses in relation to trade and other receivables is reported in Note 29 to these interim condensed consolidated financial statements.
The amount of ECL in respect of trade and other receivables is
20.Trade and other payables
| June 30, 2023 |
| December 31, 2022 | |
Trade payables |
| |
| |
Accrued salaries, bonuses, vacation pay and related taxes |
| |
| |
Provision for indirect taxes | | | ||
Accrued professional services |
| |
| |
VAT payable |
| |
| — |
Indirect taxes payables |
| |
| |
Other payables and advances received |
| |
| |
Total |
| |
| |
The exposure of the Group to liquidity risk in relation to financial instruments is reported in Note 29 to the interim condensed consolidated financial statements.
21.Provisions for non-income tax risks
The provisions consist of probable tax risks of Lightmap Ltd of
It is mainly related to the acquired company’s indirect taxes risks together with the interest and penalties accrued which could be claimed by the relevant tax authorities.
22.Share warrant obligation
Upon completion of the Transaction on August 26, 2021, each outstanding warrant to purchase Kismet’s ordinary shares was converted into a warrant to acquire
F-99
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The fair value of Private and Public Warrants as at June 30, 2023 is determined using Level 1 inputs and is measured using the market price, as at December 31, 2022 the fair value was determined using Level 3 inputs within the fair value hierarchy and is measured using Monte-Carlo simulation method.
Key assumptions of the Monte-Carlo model:
| June 30, 2023 |
| December 31, 2022 | |
Risk free rate |
| n/a |
| forward USD overnight index swap (OIS) rates (curve 42) |
Volatility |
| n/a |
| forward implied volatility rates based on volatilities of publicly traded peers |
Starting share price1 |
| n/a |
| |
Expected warrant life (years) |
| n/a |
|
Key input parameter of the model is starting share price. As the trading of the Company’s shares was halted as at December 31, 2022, the Company used Multiples of the Enterprise value (EV) to Bookings and EV to EBITDA based on valuation of our publicly traded peers to estimate the enterprise value and accordingly the starting share price by dividing enterprise value with the number of shares outstanding as follows:
| ● | Implied multiples were calculated using the last quoted share price before the trading halt was introduced to estimate a discount/(premium) to median multiples of peer group ( |
| ● | Median EV/Bookings and EV/EBITDA multiples of peer group were calculated as at the reporting date; |
| ● | Discounts/(premiums) from the multiples calculated in the first step were applied to estimate our multiples as at the reporting date. |
| ● | Based on the above multiples and our actual number of our earnings and EBITDA during the year we estimated our enterprise value and, based on the number of outstanding shares as at the reporting date, the starting price of our shares. |
These methods provided as at December 31, 2022 the range of the starting share price from US$
An average of prices determined by multiples above was used as a starting share price for the warrants model.
As at June 30, 2023 Warrants’ price was taken from the market as trading hault was already released, for the effect of change in estimate see Note 4.
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The Company has recognized the following warrant obligation:
| Public Warrants |
| Private Warrants |
| Total | |
Balance at January 1, 2022 |
| |
| |
| |
Fair value adjustment |
| ( |
| ( |
| ( |
Balance at June 30, 2022 |
| |
| |
| |
| Public Warrants |
| Private Warrants |
| Total | |
Balance at January 1, 2023 |
| |
| |
| |
Fair value adjustment |
| ( |
| ( |
| ( |
Balance at June 30, 2023 |
| |
| |
| |
The change in fair value of share warrant obligation is included in the line Change in fair value of share warrant obligation and other financial instruments in the interim condensed consolidated statement of profit or loss and other comprehensive income.
23.Other investments
Other investments consist of the following:
| June 30, 2023 |
| December 31, 2022 | |
Other investments - current |
|
|
|
|
| |
| | |
| — |
| | |
| |
| — | |
| |
| — | |
| |
| — | |
| |
| | |
Other investments - non-current |
|
|
|
|
| |
| | |
iShares 20+ Year Treasury Bond ETF (TLT) - at fair value through profit or loss |
| |
| |
| |
| |
Debt securities classified as fair value through other comprehensive income, denominated in EUR, have an interest rate of
Debt securities classified as amortized cost investments have an interest rate of from
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
24.Cash
| June 30, 2023 |
| December 31, 2022 | |
Current accounts |
| |
| |
Bank deposits |
| |
| |
Cash |
| |
| |
Currency | June 30, 2023 |
| December 31, 2022 | |
United States Dollars | | | ||
Euro | | | ||
Russian Ruble | | | ||
Armenian Dram | | | ||
Kazakhstani tenge | | | ||
Total | | |
Impairment on cash has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Group considers that its cash have low credit risk based on the external credit ratings of the counterparties. Therefore,
25.Share capital and reserves
Nature and purpose of reserves
Additional paid-in capital
The additional paid-in capital is used to recognize equity contributions from shareholders due to Transaction and Lightmap Ltd put option, see Note 15 for further details.
Share-based payments
The share-based payments reserve is used to recognize the cost of equity-settled share-based payments provided to employees, including key management personnel and one service provider performing similar functions, as part of their remuneration, see Note 30 for further details of these plans.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations into the presentation currency of these interim condensed consolidated financial statement as well as revaluation of goodwill as at the reporting date, see interim condensed consolidated statement of changes in equity.
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Share capital
Share capital as at June 30, 2023 and December 31, 2022 consisted from the following:
| 2022 |
| 2022 | |
Number of shares | US$ | |||
Ordinary shares of $ |
| |
| — |
| |
| — | |
Issued and fully paid |
|
|
|
|
Balance at January 1, 2022 |
| |
| — |
Balance at December 31, 2022 |
| |
| — |
| 2023 |
| 2023 | |
| Number of shares |
| US$ | |
Ordinary shares of $ |
| |
| — |
| |
| — | |
Issued and fully paid | ||||
Balance at January 1, 2023 |
| |
| — |
Balance at June 30, 2023 |
| |
| — |
26.Deferred revenue and deferred platform commission fees
As at June 30, 2023, deferred revenue is expected to be recognized over an estimated average playing period of the paying users.
Deferred revenue is associated with the portion of in-game purchases revenue that is recognized over time.
The text below summarizes the change in deferred revenue and platform commission fees for six months ended June 30, 2023 and 2022.
The Group recognized during the period of six months ended June 30, 2023 the revenue of
The Group recognized during the period of six months ended June 30, 2023 the platform commissions of
We use statistical estimation model to arrive at the average playing period of the paying users for each platform. As at June 30, 2023 and 2022 player lifespan for Hero Wars averages
The estimated player lifespan in our other games as at June 30, 2023 and 2022 averages
27.Related party transactions
As at June 30, 2023 the Company’s key shareholders are Andrey Fadeev and Boris Gertsovsky, each
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The transactions and balances with related parties are as follows:
(i)Directors and key management’s remuneration
The remuneration of Directors and other members of key management was as follows:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Directors’ remuneration |
| |
| |
—short-term employee benefits |
| |
| |
—share-based payments |
| — |
| |
Other members of key management’s remuneration |
| |
| |
—short-term employee benefits |
| |
| |
—share-based payments |
| |
| |
Total |
| |
| |
(ii)Other operating income
Other operating income is presented below:
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Income from technical support services from Lightmap Ltd to Castcrown Ltd | — | |||
| — |
| |
(iii)Interest income
| Six months ended |
| Six months ended | |
June 30, 2023 | June 30, 2022 | |||
Castcrown Ltd |
| |
| |
MX Capital Ltd |
| |
| |
| |
| |
(iv)Trade and other receivables
| June 30, |
| December 31, | |
2023 | 2022 | |||
Receivable from Castcrown Ltd to Lightmap Ltd |
| — |
| |
Receivable from Castcrown Ltd to Nexters Studio Armenia LLC |
| — |
| |
| — |
| |
(v)Loan receivable
| June 30, 2023 |
| December 31, 2022 | |
Loan to Castcrown Ltd - net |
| — |
| — |
Loan to MX Capital Ltd - net |
| — |
| |
| — |
| |
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The amount of ECL in respect of loans receivable from related parties is
In 2022 the Company acquired from Everix Investments Ltd jointly controlled by Dmitrii Bukhman and Igor Bukhman the
28.List of subsidiaries
Set out below is a list of subsidiaries of the Group. Ownership interest corresponds to voting rights.
| Ownership Interest |
| Ownership Interest | |
June 30, 2023 | December 31, 2022 | |||
Name | % | % | ||
Flow Research S.L. |
| |
| |
NHW Ltd | | | ||
Nexters Global Ltd |
| |
| |
SGBOOST Limited |
| |
| |
Lightmap Ltd |
| |
| |
Nexters Studio Armenia LLC |
| |
| |
Nexters Studio Kazakhstan Ltd | | | ||
Nexters Studio Portugal, Unipersonal LDA | | — | ||
Nexters Midasian FZ LLC | | — | ||
Nexters Finance Ltd |
| |
| — |
Nexters Lithuania UAB |
| |
| — |
Tourish Limited | |
| — | |
| |
| — |
Flow Research S.L.
Flow Research S.L. was incorporated in Barcelona, Spain, on November 10, 2017. The registered office of the company is at CL Fontanella 4, Orihuela Alicante, 03189 Spain. The company's principal activities are creative design of online games.
NHW Ltd
On April 5, 2021, Nexters Global Ltd acquired
Nexters Global Ltd
Nexters Global Ltd was incorporated in Larnaca, Republic of Cyprus on November 2, 2009. The registered office of the Company is at Faneromenis 107, 6031, Larnaca, Cyprus. The company's principal activities are game development and publishing.
SGBOOST Limited
Synergame Investment Ltd was incorporated in Limassol, Republic of Cyprus on September 1, 2021. The registered office of the company is Griva Digeni, 55, P.C. 3101, Limassol, Cyprus. The company's principal activity are game development as well as the
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GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
provision of independent developers with expertise and funds needed to launch their games and build successful international businesses. The company was renamed on May 12, 2022 to SGBOOST Limited.
Lightmap Ltd
The group encompasses
Nexters Studio Armenia LLC
Nexters Studio Armenia LLC was incorporated in Yerevan, Armenia on April 8, 2022. The registered office of the company is Arabkir 23, Yerevan. The company's principal activities are game development and support.
Nexters Studio Kazakhstan Ltd
Nexters Studio Kazakhstan Ltd was incorporated in Astana, Republic of Kazakhstan on May 5, 2022. The registered office of the company is Dinmuhamed Konaev Street, 14, Astana. The company's principal activities are game development and support.
Nexters Studio Portugal, Unipersonal LDA
Nexters Studio Portugal, Unipersonal LDA was incorporated in Lisboa, Portugal on February 2, 2023. The registered office of the company is Avenidas Novas 1050 046 Lisboa. As of the date of these financial statements the company has not yet started its active operations.
Nexters Finance Ltd
Nexters Finance Ltd was incorporated in Limassol, Republic of Cyprus on April 7, 2023. The registered office of the Company is at 28 Oktovriou 313, 3105, Limassol, Cyprus. The company's principal activities are financial activities such as provision of intra-group loans.
Nexters Midasian FZ LLC
Nexters Midasian FZ LLC was incorporated in Ras Al Khaimah Economic Zone in UAE on January 24, 2023. As of the date of these financial statements the company has not yet started its active operations.
Nexters Lithuania UAB
Nexters Lithuania UAB was incorporated in Vilnus, Lithuania on June 27, 2023. The registered office of the company is Didžioji, 1, Vilnius. As of the date of these financial statements the company has not yet started its active operations.
Tourish Limited
Tourish Limited was acquired in Nicosia, Cyprus on May 29, 2023. The registered office of the company is Georgiou Griva Digeni, 113, Astromeritis, 2722, Nicosia, Cyprus. As of the date of these financial statements the company has not yet started its active operations.
F-106
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
29.Financial instruments - fair values and risk management
A.Accounting classifications
The following table shows the carrying amounts of financial assets and financial liabilities as at June 30, 2023 and December 31, 2022.
The Company’s trade and other receivables, prepaid tax, indemnification asset and related tax liabilities, cash,
Financial assets are as follows:
| June 30, 2023 |
| December 31, 2022 | |
Financial assets at amortized cost |
|
|
|
|
Trade receivables |
| |
| |
Cash |
| |
| |
Loans receivable |
| |
| |
Other investments - current |
| |
| |
Total |
| |
| |
| June 30, 2023 |
| December 31, 2022 | |
Financial assets measured at fair value |
|
|
|
|
Other investments - current - fair value through profit or loss | | | ||
Other investments - non-current - fair value through other comprehensive income | | | ||
Other investments - non-current - fair value through profit or loss | | | ||
Total |
| |
| |
Financial liabilities are as follows:
| June 30, 2023 |
| December 31, 2022 | |
Financial liabilities not measured at fair value |
|
|
|
|
Trade and other payables |
| |
| |
Total |
| |
| |
| June 30, 2023 |
| December 31, 2022 | |
Financial liabilities measured at fair value |
|
|
|
|
Put option liability |
| |
| |
Share warrant obligations |
| |
| |
Other non-current liabilities |
| |
| |
Total |
| |
| |
B.Financial risk management
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
F-107
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in the Group’s activities.
The Group has exposure to the following risk arising from financial instruments:
(i)Credit risk
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The Group’s credit risk arises from Trade and other receivables, Loans receivable and Other investments. As at June 30, 2023 and December 31, 2022 the largest debtor of the Group constituted
Credit risk related to trade receivables is considered insignificant, since almost all sales are generated through major companies, with consistently high credit ratings. These distributors pay the Group monthly, based on sales to the end users. Payments are made within
Credit risk related to Other investments is also insignificant due to the fact that they are represented by government bonds and US treasury notes which are rated AAA based on Fitch’s ratings.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
| June 30, 2023 |
| December 31, 2022 | |
Loans receivables |
| |
| |
Trade receivables |
| |
| |
Cash | | | ||
Other investments - current | | | ||
Other investments - non-current |
| |
| |
Expected credit loss assessment for corporate customers as at June 30, 2023 and December 31, 2022
The Group allocates each exposure a credit risk grade based on data that is determined to be predictive of the risk of loss (including but not limited to external ratings, audited financial statements, management accounts, and cash flows projections) and applying experienced credit judgment.
Loan receivables
Loan receivables are provided to associates and the Company’s employees. The Group considers that both of its loans provided to associates have increased credit risk based on the weak recent performance of associates due to general market conditions. As a result, the specific provisions for ECL were booked in respect of the loans to both associates. The ECL in respect of Loan receivables is
F-108
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
Trade and other receivables
The ECL allowance in respect of Trade and other receivables is determined on the basis of the lifetime expected credit losses (“LTECL”). The Group uses the credit rating for each of the large debtors where available or makes its own judgment as to the credit quality of its debtors based on their most recent financial reporting or the rating assigned to their country of incorporation. After assigning the credit rating to each of the debtors the Group determines the probability of default (“PD”) and loss given default (“LGD”) based on the data published by the internationally recognized rating agencies. The determined amounts of allowances for ECL for each of the debtors are then adjusted for the forecasted macroeconomic factors, which include the forecasted unemployment rate in each of the countries where the debtors are incorporated and forecasted growth rate of the global gaming market from publicly available sources. The amount of ECL in respect of trade and other receivables is
Cash
The cash are held with financial institutions, which are rated CCC- to BBB- based on Fitch’s ratings.
(ii)Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s objective when managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables over the next 90 days.
Excess cash is invested only in highly liquid triple A rated securities (mainly US treasury notes, bonds and ETFs).
F-109
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The following are the contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted and include contractual interest payments.
June 30, 2023 |
| Carrying amounts |
| Contractual cash flows |
| 3 months or less |
| Between 3‑12 months |
| Between 1‑5 years |
Non‑derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
Lease liabilities |
| |
| |
| |
| |
| |
Trade and other payables |
| |
| |
| |
| — |
| — |
| |
| |
| |
| |
| |
June 30, 2023 |
| Carrying amounts |
| Contractual cash flows |
| 3 months or less |
| Between 3‑12 months |
| Between 1‑5 years |
Derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
Share warrant obligation |
| |
| — |
| — |
| — | ||
Put option liability |
| |
| — |
| — |
| |
| |
| |
| |
| |
| |
| |
December 31, 2022 |
| Carrying amounts |
| Contractual cash flows |
| 3 months or less |
| Between 3‑12 months |
| Between 1‑5 years |
Non‑derivative financial liabilities |
|
|
|
|
| |||||
Lease liabilities |
| |
| |
| |
| |
| |
Trade and other payables |
| |
| |
| |
| — |
| — |
| |
| |
| |
| |
| |
December 31, 2022 |
| Carrying amounts |
| Contractual cash flows |
| 3 months or less |
| Between 3‑12 months |
| Between 1‑5 years |
Derivative financial liabilities |
|
|
|
|
| |||||
Share warrant obligation |
| |
| — |
| — |
| — |
| |
Put option liability |
| |
| — |
| — |
| — |
| |
| |
| — |
| — |
| — |
| |
(iii)Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and/or equity prices will affect the Group’s income or the value of its financial instruments. The Company is not exposed to any equity risk.
The objective of the market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
| a. | Currency risk |
Currency risk is the risk that the values of and cash flows associated with financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company’s functional currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Euro, the Russian Ruble, Armenian Dram and Kazakhstani Tenge. The Group’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
F-110
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The Group’s exposure to foreign currency risk was as follows:
June 30, 2023 |
| Euro |
| Russian Ruble |
| Armenian Dram |
| Kazakhstani Tenge |
Assets |
|
|
|
|
|
|
|
|
Loans receivable |
| |
| — |
| |
| — |
Trade and other receivables |
| |
| — |
| — |
| — |
Cash |
| |
| |
| |
| |
| |
| |
| |
| | |
Liabilities |
|
|
|
|
|
|
|
|
Lease liabilities |
| ( |
| — |
| ( |
| — |
Trade and other payables |
| ( |
| — |
| ( |
| ( |
| ( |
| — |
| ( |
| ( | |
Net exposure |
| |
| |
| ( |
| ( |
December 31, 2022 |
| Euro |
| Russian Ruble |
| Armenian Dram |
| Kazakhstani Tenge |
Assets |
|
|
|
|
|
|
|
|
Loans receivable |
| |
| — |
| |
| — |
Trade and other receivables |
| |
| — |
| — |
| — |
Cash |
| |
| |
| |
| |
| |
| |
| |
| | |
Liabilities |
|
|
|
|
|
|
|
|
Lease liabilities |
| ( |
| — |
| ( |
| — |
Trade and other payables |
| ( |
| — |
| ( |
| ( |
| ( |
| — |
| ( |
| ( | |
Net exposure |
| |
| |
| ( |
| |
Sensitivity analysis
A reasonably possible
| Strengthening of |
| Weakening of US$ | |
June 30, 2023 | US$ by 10% | by 10% | ||
Euro |
| ( |
| |
Russian Ruble |
| ( |
| |
Armenian Dram |
| |
| ( |
Kazakhstani Tenge | | ( | ||
| ( |
| |
| Strengthening of |
| Weakening of US$ | |
December 31, 2022 | US$ by 10% | by 10% | ||
Euro |
| ( |
| |
Russian Ruble |
| ( |
| |
Armenian Dram | | ( | ||
Kazakhstani Tenge | ( | | ||
| ( |
| |
F-111
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
| b. | Interest risk |
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates is minimal as it does not have long-term debt obligations with floating interest rates or material fixed-rate debt instruments carried at fair value.
C.Measurement of fair values
The transfer from Level 3 to Level 1 occurred in 2023 for the valuation of Public and Private warrants which were valued using Level 3 inputs (versus Level 1 in 2023) while the Company’s securities were suspended for trading.
The following table shows a reconciliation from the opening balances to the closing balances for financial liabilities based on Level 3 fair values.
| Share warrant |
| Put option |
| Other non-current | |
obligation (Note 4) | liability (Note 4) | liabilities | ||||
Balance at January 1, 2022 | | — | — | |||
Purchase |
| — |
| |
| |
Net change in fair value |
| ( |
| ( |
| ( |
Balance at June 30, 2022 |
| |
| |
| |
| Share warrant |
| Put option |
| Other non-current | |
obligation (Note 4) | liability (Note 4) | liabilities | ||||
Balance at January 1, 2023 | | | | |||
Net change in fair value |
| ( |
| |
| ( |
Balance at June 30, 2023 |
| |
| |
| |
The following table shows a reconciliation from the opening balances to the closing balances for financial assets based on Level 3 fair values.
| Other non-current assets | |
Balance at January 1, 2022 | | |
Purchases |
| |
Net change in fair value |
| ( |
Balance at June 30, 2022 |
| |
There were
30.Share-based payments
In 2016 the Company adopted a Long-Term Incentive Plan (“LTIP”). Under the LTIP key employees and deemed employees (individuals providing similar personal services) rendered services to the Group in exchange for share options (further referred to as “options”). Within the LTIP several tranches of share options for Nexters Global’s Class A shares and Class B shares were issued as stated below.
In addition to the LTIP, in November 2021 the Company approved its 2021 Employee Stock Option Plan (the “ESOP”). Under the ESOP, key staff employed by the Group and our independent non-executive directors have rendered services in exchange for equity instruments.
F-112
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The Company granted a number of stock options under the ESOP, including:
| ● | Newly granted stock options (see section Stock options granted in 2021 further below); |
| ● | Stock options, which represent modification of the outstanding options (see Modified complex options further below). |
The common condition for both of these stock option types is that they have service condition. The Group’s management believes that all employees, which received share-based compensation will continue to contribute to the Group’s projects and/or be employed by the Group during the respective vesting periods.
Below is the descriptions of the options granted:
Type of options |
| Grant Date |
| No. of options outstanding |
| Vesting period |
| Vesting conditions |
ESOP options |
| November 2021, depending on the employee |
| | * | 2021-2026 |
| Service condition |
LTIP - Modified Class B complex vesting options |
| January 1, 2019 |
| | * | 2022-2026 |
| Service condition, performance non-market condition |
LTIP - Modified complex conditional upon listing |
| November 18, 2020 |
| | * | 2021 |
| Service condition, performance non-market condition |
Total share options granted as at June 30, 2022 | | – |
| – |
* Options granted refer to GDEV Inc. shares
We classified these share-based payment transactions as equity-settled whereby the Group receives services in exchange for its own equity instruments. We recorded share-based payments expense in general and administrative expenses, game operation cost and selling and marketing expenses of our interim condensed consolidated statement of profit or loss and other comprehensive income.
The table below summarizes the share-based payments expense for the six months ended June 30, 2023 and 2022:
| Six months ended | Six months ended | ||
|
| June 30, 2023 |
| June 30, 2022 |
Class B complex vesting |
| |
| |
Employee stock option plan |
| |
| |
Total recorded expenses |
| |
| |
therein recognized: |
|
|
|
|
within Game operation cost |
| |
| |
within Selling and marketing expenses |
| |
| |
within General and administrative expenses |
| |
| |
In relation to the share-based payment expense for six months ended June 30, 2022 we recognized the increase in Other reserves of
In relation to the share-based payment expense for the six months ended June 30, 2023 we recognized the increase in Other reserves of
F-113
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The table below summarizes the number of outstanding share options at the beginning of 2022 and end of June 2023:
| Employee |
| Class B complex |
| Complex conditional | |
stock option | vesting - related to | upon listing – related | ||||
plan | GDEV Inc. shares | to GDEV Inc. shares | ||||
Outstanding at the end of 2022 (units) | | | | |||
Granted during the period (units) |
| — |
| — |
| — |
Modification of options (units) |
| — |
| — |
| — |
Exercised during the period (units) |
| ( |
| ( |
| — |
Forfeited |
| ( |
| ( |
| — |
Outstanding at the end of June 2023 (units) |
| |
| |
| |
During 2023
Stock options granted in 2021 (ESOP options)
The ESOP stock options have only the service condition.
We have estimated the fair value of granted awards using Black-Scholes-Merton pricing model taking into account the terms and conditions on which the options were granted.
The following table presents fair value per one option and related assumptions used to estimate the fair value at the grant date:
Evaluation date (grant date) |
| November 16-30, 2021 |
Vesting period |
| |
Share market price, US$ |
| From |
Strike (exercise) price, US$ |
| |
Expected volatility |
| |
Dividend yield |
| |
Risk-free interest rate |
| |
Average grant-date FV of one option, US$ |
|
As at June 30, 2023 two of the Group’s employees exercised first tranche of their ESOP option plan of
Modified complex options
Under the LTIP adopted in 2016, the Company granted Class B share options on January 1, 2019 with a service condition and a performance-based non-market vesting condition (net income thresholds per management accounts). The contractual term of the options was ten years. The fair value of granted awards was calculated as fair value of
For the purposes of the valuation each performance condition threshold was treated as a separate option with a separate valuation of the vesting period.
F-114
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
The following table presents fair value of options and related parameters used to estimate the fair value of our options at the grant date and probability of vesting:
Evaluation date (grant date) |
| January 1, 2019 |
|
Equity value, US$ mln |
| ||
Expected volatility |
| ||
Dividend yield |
| ||
Proxy net income indicator |
| ||
Discount for Lack of Marketability* |
| ||
Total FV for |
|
* | — applied to the result of fair value estimation. |
** | — total FV of |
Strike price for the above-mentioned option at the beginning of 2021 was US$
As part of the new ESOP, the Company modified the complex options in November 2021. Under the modified program for a portion of the options the non-market performance condition was eliminated and they include only the service condition. For the remaining options the performance conditions were modified such that only the non-market performance targets were modified. The Company considered the modification to be beneficial to the recipients.
As at December 31, 2022 and June 30, 2023 management reviewed the assessment of future achievement of non-market performance targets and the remaining grant-date fair value was applied to the revised number of share options.
As at June 30, 2023 one of the Group’s employees exercised two tranches of
31.Commitments and contingencies
Taxation
Although we generally are not responsible for indirect taxes (VAT and withholding sales taxes) generated on games accessed and operated through third-party platforms, we are responsible for collecting and remitting applicable sales, value added, use or similar taxes for revenue generated on games accessed and operated on our own platforms and/or in countries where the law requires the game publishers to pay such taxes even if games are made available for users through third-party platforms. Furthermore, an increasing number of U.S. states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. This is also the case in respect of the European Union, where value added taxes or digital services taxes were or may be imposed on companies making digital sales to consumers within the European Union. In addition, as taxation of IT industries is rapidly developing there is a risk that various tax authorities may interpret certain agreements or tax payment arrangements differently than the Company (including identification of the taxpayer and determination of the tax residency).
We believe that these interim condensed consolidated financial statements reflect our best estimate of tax liabilities and uncertain tax positions, which are appropriately accounted for and/or disclosed in these interim condensed consolidated financial statements. In respect of the above risks, we consider them to be reasonably possible of being materialised, however, the potential financial effects thereof cannot be presently reliably estimated.
F-115
GDEV Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of US$ unless stated otherwise)
32.Russian Geopolitical and Economic Risks
As a result of the military actions in Ukraine, a number of governments, including those of the United States, United Kingdom and European Union, imposed unprecedented sanctions on specified persons and entities in Russia. While the situation remains highly fluid and additional sanctions are possible, neither we, nor any of our subsidiaries are currently subject to any sanctions that have been imposed. Nevertheless, as result of the ongoing conflict in Ukraine, many U.S. and other multi-national businesses across a variety of industries, including consumer goods and retail, food, energy, finance, media and entertainment, tech, travel and logistics, manufacturing and others, have indefinitely suspended their operations and paused all commercial activities in Russia and Belarus. For example, Apple and Google, two of the primary platforms that distribute our games, have suspended their respective digital wallet and mobile payment services, Apple Pay and Google Pay, in relation to credit cards issued by Russian financial institutions that are the subject of sanctions. Players who access our games via these platforms in Russia may therefore be disconnected from the primary means to make in-game purchases. Based on our current geographical distribution of Bookings, management believes that the latest geopolitical developments will have certain residual negative effects on GDEV Inc.’s future financial performance, limited to the share of Bookings deriving from the markets of the former Soviet Union (FSU), which stood at
Our board of directors determined that it is in the best interests of the Company, our player community and our investors to eliminate – to the maximum extent possible within the Company’s control – our exposure to country risks related to Russia. To this end, in 2022 we disposed of our Russian subsidiaries, relocated or laid-off all employees in Russia, and moved all our former Russian business operations to other countries and discontinued offering of our games through Russian social networks however players from Russia continue accessing our games through other platforms.
We do not expect these measures to have a material impact on the Company, as none of the divested subsidiaries represented a material revenue-generating asset. The divestment has no effect on the Company’s ability to continue to offer its full suite of games through its primary third-party platforms which are not based in Russia: Apple, Facebook, Google, Xsolla and Huawei. We have recorded losses on disposal in respect of our divestment of our (former) Russian based subsidiaries in the amount of
Additionally, the Company has incurred additional expenses as a consequence of the Russian military conflict in Ukraine. For example, we have incurred costs related to the relocation of critical personnel from Russia, Ukraine and Belarus to Cyprus, Armenia, Kazakhstan and certain other “safe-harbor” countries. Furthermore, prior to the disposition of our Russian-based subsidiaries, we supplemented the compensation paid to our employees located in Russia with additional amounts designed to safeguard these employees against the devaluation of the Russian Ruble and high inflation of consumer prices in Russia that was seen since March of 2022. As of the date of these financial statements, we have largely completed the relocation program and therefore do not expect any impact of the relocation expenses further in 2023 and beyond, though we expect a certain increase in labor costs per employee resulting from our policy of providing salary increases and various compensations on an ongoing basis to our employees to support them during the relocation process and to assist them with settling in their new locations.
33.Events after the reporting period
On August 25, 2023 the Group authorized the acquisition of unsecured convertible notes of Castcrown Ltd in the amount of
F-116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers
British Virgin Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, provided that such person acted honestly and in good faith with a view to the best interests of the indemnifying company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful, except to the extent any such provision may be held by the British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. GDEV’s memorandum and articles of association permit indemnification of officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud or the commission of a crime.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 7. Recent Sales of Unregistered Securities
Set forth below is information regarding all securities sold or granted by us within the past three years that were not registered under the Securities Act and the consideration, if any, received by us for such securities:
| ● | Under the Transactions, we issued 176,584,343 ordinary shares to the former shareholders of Nexters Global as part of the consideration in the Share Acquisition for all of the issued and outstanding share capital of Nexters Global. |
| ● | In connection with the Transactions, we issued 5,000,000 ordinary shares and 1,000,000 public warrants to the Sponsor under the A&R Forward Purchase Agreement for a purchase price of $50 million. |
| ● | In connection with the Transactions, we issued an aggregate of 5,000,000 ordinary shares to the PIPE Investors under the PIPE Subscription Agreements for an aggregate purchase price of $50 million. |
| ● | In August 2022, we issued an aggregate of 569,301 ordinary shares to the former owners of Gracevale Limited as a portion of the consideration we paid for our acquisition of Gracevale Limited. |
The foregoing securities issuances were made in private placements in reliance upon the exemption from registration under the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D or Regulation S promulgated thereunder.
II-1
Item 8. Exhibits and Financial Statement Schedules
(a)Exhibits
The following exhibits are included or incorporated by reference in this registration statement on Form F-1:
Exhibit |
| Description |
| Incorporation by Reference | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
Form |
| File Number |
| Exhibit |
| Filing Date | ||||
2.1 | F-4 | 333-257103 | 2.1 | June 15, 2021 | ||||||
2.2 | F-4/A | 333-257103 | 2.2 | July 28, 2021 | ||||||
2.3 | 20-F | 001-40758 | 4.3 | August 27, 2021 | ||||||
3.1 | Amended and Restated Memorandum and Articles of Association of the Company. | 20-F | 001-40758 | 1.1 | August 27, 2021 | |||||
4.1 | F-4 | 333-257103 | 4.1 | June 15, 2021 | ||||||
4.2 | F-4 | 333-257103 | 4.2 | June 15, 2021 | ||||||
4.3 | F-4 | 333-257103 | 4.3 | June 15, 2021 | ||||||
4.4 | Assignment, Assumption and Amendment Agreement for Kismet’s outstanding warrants. | 20-F | 001-40758 | 2.4 | August 27, 2021 | |||||
4.5 | F-4 | 333-257103 | 4.5 | June 15, 2021 | ||||||
4.6 | F-4 | 333-257103 | 4.4 | June 15, 2021 | ||||||
II-2
Exhibit |
| Description |
| Incorporation by Reference | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
Form |
| File Number |
| Exhibit |
| Filing Date | ||||
5.1 | F-1 | 333-259707 | 5.1 | September 22, 2021 | ||||||
5.2 | F-1 | 333-259707 | 5.2 | September 22, 2021 | ||||||
10.1 | F-4 | 333-257103 | 10.1 | June 15, 2021 | ||||||
10.2† | Registration Rights Agreement, by and among the Issuer and the other parties thereto. | 20-F | 001-40758 | 4.5 | August 27, 2021 | |||||
10.3† | Lockup Agreement, between the Issuer and the other parties thereto. | 20-F | 001-40758 | 4.6 | August 27, 2021 | |||||
10.4 | Lock-up Agreement, between the Issuer and Kismet Sponsor Limited. | 20-F | 001-40758 | 4.7 | August 27, 2021 | |||||
10.5 | F-4/A | 333-257103 | 10.7 | July 28, 2021 | ||||||
10.6 | 20-F | 001-40758 | 4.9 | August 27, 2021 | ||||||
10.7 | 6-K | 001-40758 | 99.1 | November 19, 2021 | ||||||
10.8 | 6-K | 001-40758 | 99.2 | January 27, 2022 | ||||||
14 | F-1 | 333-259707 | 14 | September 22, 2021 | ||||||
21.1 | F-1/A | 333-259707 | 21.1 | September 1, 2022 | ||||||
23.1 | F-1 | 333-259707 | 23.1 | June 26, 2023 | ||||||
23.2 | F-1 | 333-259707 | 23.2 | June 26, 2023 |
23.3 | F-1 | 333-259707 | 23.3 | September 22, 2021 | ||||||
23.4 | F-1 | 333-259707 | 23.4 | September 22, 2021 | ||||||
24.1 | F-1 | 333-259707 | 24.1 | September 22, 2021 |
(†) | Certain identified confidential information has been redacted from this exhibit because disclosure of that information would constitute a clearly unwarranted invasion of personal privacy. |
(b) | Financial Statement Schedules |
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
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Item 9. | Undertakings. |
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| i. | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. |
| iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Securities Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
| ● | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| ● | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| ● | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| ● | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Post-Effective Amendment No. 7 to the Registration Statement on Form F-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Limassol, Cyprus on the 29th day of September, 2023.
GDEV INC. | ||
By: | /s/ Andrey Fadeev | |
Name: | Andrey Fadeev | |
Title: | Chief Executive Officer and Director | |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Andrey Fadeev as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any subsequent registration statement filed by the registrant pursuant to Rule 462(b) of the Securities Act, and to file or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
| Capacity |
| Date |
/s/ Andrey Fadeev | Chief Executive Officer and Director | September 29, 2023 | ||
Andrey Fadeev | (principal executive officer) | |||
/s/ Alexander Karavaev | Chief Financial Officer | September 29, 2023 | ||
Alexander Karavaev | (principal financial officer and | |||
/s/Natasha Braginsky Mounier | Director | September 29, 2023 | ||
Natasha Braginsky Mounier | ||||
/s/ Marie Holive | Director | September 29, 2023 | ||
Marie Holive | ||||
/s/ Olga Loskutova | Director | September 29, 2023 | ||
Olga Loskutova | ||||
/s/ Andrew Sheppard | Director | September 29, 2023 | ||
Andrew Sheppard | ||||
/s/ Tal Shoham | Director | September 29, 2023 | ||
Tal Shoham |
AUTHORIZED REPRESENTATIVE
Pursuant to the requirement of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of GDEV Inc., has signed this Post-Effective Amendment No. 7 to the Registration Statement on Form F-1 in Newark, Delaware, on the 29th day of September, 2023.
PUGLISI & ASSOCIATES | ||
By: | /s/ Donald J. Puglisi | |
Name: Donald J. Puglisi | ||
Title: Managing Director | ||