The maker of hit kids’ game Moshi Monsters is in critical talks to extend the terms of a loan it cannot afford to start paying back after revenues slumped by more than half pushing the company into a £14m loss in 2014.
Mind Candy, the British firm that also makes World of Warriors, reported a 57% slump in revenues from £30.6m to just £13.24m in 2014.
The slump contributed to the company reporting a drastic fall in pre-tax losses from £2.84m to £14.1m year-on-year, according to Mind Candy’s latest financial filing published at Companies House on Tuesday.
The company, which said that 2014 represented a year of “heavy investment”, has now been forced into renegotiating a long-term loan and must arrest the revenue decline or it will struggle to remain a going concern.
Mind Candy took out a £6.5m loan with company Triplepoint in 2014, secured against company assets, at a rate of 12%. The loan is due to be repaid from June next year, with the first payment due in July.
“The company has a good relationship with the lender and is in negotiations to delay the capital repayment start date,” the company said in a statement approved by its board of directors. “In the event that the negotiations are not successful or that the company cannot generate sufficient revenues then there exists a material uncertainty which may cast significant doubt over the company’s ability to continue as a going concern”.
Mind Candy’s board said it has looked at a “number of options” for repaying its debt and strengthening its working capital to ensure it can “continue in operational existence”.
The company is confident it can complete the negotiation of an extension to the loan repayment terms, but it also needs to shore up its revenues.
“Having completed certain sensitivity analysis on the forecasts, it is evident should the level of revenue fall short of expectations, the company would need to arrange additional finance,” the company said. “While the directors are confident that they would be able to obtain the necessary financial support, there are no binding agreements in place.”
Mind Candy’s revenues from Moshi Monsters subscriptions and membership cards fell from £13.2m in 2013 to £5.7m in 2014, but it was the company’s licensing business that was hardest hit, with sales of magazines, toys and other merchandise falling from £12.8m in 2013 to just under £3m in 2014.
While Mind Candy’s mobile business grew from nothing in 2013 to £2.1m in 2014, it was not enough to stave off a significant increase in the company’s net losses from £2.2m to £14.1m.
“As our financials show, 2014 was a year of very heavy investment for Mind Candy with multiple teams developing a wide range of products and apps across all three of our brands: PopJam, World of Warriors and Moshi Monsters,” said a spokeswoman for the company.
The company’s chief operating officer, Divinia Knowles, left in September 2015, with founder Michael Acton Smith leading the search for a new managing director for the company.
Mind Candy also found itself in hot water with the Advertising Standards Authority in 2015 over the way subscriptions were advertised to children within Moshi Monsters. The company also closed its Brighton office in November 2015.
Acton Smith said that Mind Candy’s biggest challenge had been adapting from a shift in children’s entertainment habits away from the web and towards mobile apps.
“We, and many others, assumed that it would be relatively simple to transfer our business from the web to mobile, but the learning has been that, in the mobile eco-system, there are now millions of apps that they can choose from,” he told GamesIndustry.biz in November.
“They’re less interested in playing traditional kids games when they have access to everything from Clash of Clans to Game of War to Candy Crush Saga. Games that aren’t designed for them but have marketing budgets of hundreds of millions of dollars, which means they see them every day, in pop culture and elsewhere.”
