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Starbreeze lacks funds to operate for another year

Starbreeze lacks funds to operate for another year

May 10, 2019 | By Alissa McAloon

Starbreeze leadership admits that the company is in a precarious position, noting in its quarterly financial report that it currently lacks the funds to guarantee it’ll stay open for the next 12 months.

Specifically, the report says that Starbreeze expects “a liquidity shortfall before mid-year 2019 if no additional funds are provided,” and says that the conditions surrounding the business make for significant uncertainties and doubts about its ability to keep the lights on.

It’s a verdict that comes amid a months-long restructuring effort to get the company back in the survivable range after Overkill’s The Walking Dead failed to take off in the way the company had hoped. Still, Starbreeze leadership is evaluating its options to keep the company up and running and notes that its game series Payday is a key component in the company’s future.

“My main task is to secure financing for the company’s future operations,” reads a statement on the report from acting CEO Mikael Nermark. “This involves both long-term financing we can use to build the Starbreeze of the future, but also making sure that the assets we have determined are unrelated to the core business are managed in a commercially viable way. Once this financing has been secured, we will be able to look ahead and present a more detailed strategy for the future.”

For the first quarter of the 2019 fiscal year, Starbreeze reported net sales of SEK 47.8 million (~$5 million), down from SEK 110.1 million (~$11.5 million) last year. The Payday series accounted for SEK 26.7 million (~$2.8 million) of those total sales alone.

Despite the fact that The Walking Dead owner Skybound pulled out of the licensing deal for Overkill’s The Walking Dead (and has since removed it from sale), that game reported sales of SEK 2.1 million (~$218,410) during the period as well.

Earnings before interest, tax, depreciation, and amortization (EBITDA) were reported as a SEK 106.7 million (~$11 million) loss this quarter, down from earnings of SEK 48.8 million ($5.1 million) last year.

The company does note a handful of oddities affected its reporting this quarter. For instance, Starbreeze sold the publishing rights for System Shock 3 back to developer OtherSide Entertainment, but any income from that sale will be gradually recouped and thus isn't fully reflected in its Q1 earnings. Additionally, because of the sale, System Shock 3 created a one-time SEK 68.1 million (~$7.1 million) cost for its publishing business since, for the purpose of the sale, the “carrying amount of the sold asset must be immediately expensed.”

The company made a similar deal for 10 Crowns just recently, but that agreement will be reflected on the financials for Q2 2019. The company, meanwhile, is still currently on board to publish Double Fine's Psychonauts 2

Starbreeze also says that it "disputes" Skybound's decision to terminate the Overkill's The Walking Dead license agreement, a decision that resulted in the game being pulled from sale on PC shortly after release and halted the development of the planned console versions.

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