January September 2010 - Summary Consolidated revenue for the period January-September 2010 is 14 707 KSEK, up 94% compared to 7 596 KSEK for the same period of 2009. Operating result for the period January-September 2010 is 5 841 KSEK, up 581% compared to 858 KSEK for the same period of 2009. Operating result for the period is affected by one-time write-off of 735 KSEK in connection with MIDS project. This write-off is not connected to G5 s games business. Before the write-off, operating result for the period is 6 576 KSEK. Earnings per share for the period January-September 2010 is 0,55 SEK. However, the management plans to distribute the profit of its development studios headquartered in Malta to the parent company G5 Entertainment AB at the end of the year. Accordingly, G5 Entertainment AB will be entitled to a rebate on tax paid in Malta, in accordance with local regulations. The management estimates the positive effect of the rebate on EPS for the period January-September to be +0,12 SEK, but IFRS requires to report the lower EPS figure before the decision to distribute the dividend is officially made at the end of the year. Operating result for the period is in line with earlier announced forecast. Revenue for the period is 4,5% below earlier announced forecast, due to substantial strengthening of Swedish krona during July-September, and, to some extent, the uncertainties connected with making forecasts, further detailed in Financial Results section. As announced earlier, the management forecasts the group s consolidated revenue for the period January-December 2010 will reach 22 MSEK, with operating result of 9 MSEK, and earnings per share of 0,97 SEK. This forecast corresponds to achieving 151% revenue growth and 41% profitability margin compared to the negative operating result in 2009. As also announced earlier, the management forecasts revenue of 40 MSEK in 2011, with operating result of 15 MSEK, which corresponds to earnings per share of 1,40 SEK. During July-September 2010, G5 released two new games for iphone: Mushroom Age and Virtual City, and three new games for ipad: Mushroom Age HD, Supermarket Mania HD, and Supermarket Management HD. All games received Apple s support through the promotion in New and Noteworthy, What s Hot, and other promotional categories of the App Store. With the release of Virtual City for iphone, G5 had a record day when over 11 400 copies of games for iphone and ipad were sold with the average end user price of USD 3,30. Virtual City for iphone, priced USD 2,99, sold over 50 000 copies in 10 days following the release. In the Apple App Store, the game has achieved Top 10 Grossing Game position in 34 countries, and Top 100 Grossing Game positions in 74 countries. In August, G5 released Supermarket Mania promotional application for Facebook. This interim report has not been reviewed by company s auditor. Important Events After the End of The Period G5 released two new games for iphone: Treasure Seekers: Visions of Gold and Aqua Pearls; and two new games for ipad: Virtual City HD and Treasure Seekers: Visions of Gold HD. 2
Shortly after the release, Virtual City HD achieved #1 Top Grossing Game position in 10 countries, and Top 10 Grossing Game position in 33 countries. G5 announced the upcoming release of The Mystery of the Crystal Portal 2: Beyond the Horizon a sequel to the bestselling iphone and ipad game that G5 released earlier in 2010. G5 announced it will bring two more games from Treasure Seekers series to iphone and ipad. G5 announced the upcoming release of Supermarket Mania for Nintendo DSi. G5 announced that the release of Supermarket Mania 2 on PC is scheduled for early December. Supermarket Mania 2 is a sequel to the best-selling time management game originally released in 2008 on PC, in 2009 on iphone and in 2010 on ipad and PSP. The original game had millions of downloads on PC, and the ios version has sold several hundred thousand copies. Following Apple Inc s announcement of Mac App Store, G5 announced the support and upcoming availability of all G5 s proprietary games on Mac App Store. The total number of downloads on iphone and ipad surpassed 7 million. G5 has a publishing portfolio of 39 games on four platforms: iphone, ipad, PSP, and PC, and is working towards the goal of having over 50 games in its portfolio before the end of the year. The management has accomplished the restructuring of the group, announced in Q2 interim report. The changes to the group s structure simplify reporting, improve cost efficiency, and reflect G5 s changed needs in the new business model as both publisher and developer. Swedish head entity G5 Entertainment AB has taken the role of the publisher, profit center, and the holder of the group s intellectual property. The holding companies of the group s development studios: G5 Holdings and G5 UA Holdings were transferred to EU jurisdiction (Malta). Shape Games Inc transferred its intellectual property assets to G5 Entertainment AB, and is going to be subsequently removed from the group. The changes in the structure of the group affected the tax calculation for the period. The Company G5 Entertainment AB (publ) unites a group of companies: G5 Holdings Limited (Malta), G5 UA Holdings Limited (Malta), and G5 Holding RUS LLC (Russia). G5 Holdings Limited and G5 Holding RUS LLC are wholly-owned subsidiaries of G5 Entertainment AB. G5 UA Holdings Limited is a head company of G5 s cost-efficient QA and development office in Kharkov, Ukraine. G5 UA Holdings Limited is a JV between G5 Entertainment AB (owns 70%) and local partner Pipe Studio (www.pipestudio.ru). 30% of G5 UA Holdings Limited is owned by the physical person the founder of Pipe Studio. G5 Entertainment AB (publ) is listed on Aktietorget exchange in Stockholm since November 19 th 2008. Before that, G5 Entertainment AB was listed on NGM Nordic MTF since 2 nd October 2006. Game Development and Publishing G5 Entertainment is a developer and publisher of high quality downloadable casual games for digital networks: iphone, ipad, portable and home consoles, and PC. G5 Entertainment started as the world s leading mobile game development studio, developing games based on popular licenses for Electronic Arts, Disney, THQ, Konami, and other publishers. More information about G5 s contract development track record can be obtained here: http://www.g5e.com/contract_games. G5 is now developing and 3
publishing downloadable games for iphone, ipad, PlayStation consoles, and PC. G5 s portfolio includes popular casual games like Supermarket Mania, Stand O Food, and Mahjongg Artifacts. G5 also develops games based on third party licenses, and publishes games developed by third party developers in both cases, on certain revenue share terms. G5 s games target the growing audience of over 200 million casual game players on PC, over 75 million Apple iphone and ipod touch devices sold to date, and over 52 million Sony PSP devices sold to date. G5 s audience is going to expand further as the group brings its established franchises and new products to other platforms. G5 s team has extensive experience of development for mobile, PC, and consoles. One of the group s competitive advantages is its proprietary Talisman cross-platform technology unavailable to other developers, which allows effective development of innovative technologically advanced games across numerous platforms and devices: J2ME, BREW, iphone, Windows Mobile, Symbian, Blackberry, PC, Mac OS, Nintendo DS, Sony PlayStation. More information about Talisman is available here: http://www.g5e.com/company/technology. Financial Information Financial result for the period Consolidated revenue for the period January-September 2010 is 14 707 KSEK, up 94% compared to 7 596 KSEK for the same period of 2009. Operating result for the period January-September 2010 is 5 841 KSEK, up 581% compared to 858 KSEK for the same period of 2009. Operating result for the period is affected by one-time write-off of 735 KSEK in connection with MIDS project. This write-off is not connected to G5 s games business. Before the write-off, operating result for the period is 6 576 KSEK. Earnings per share for the period January-September 2010 is 0,55 SEK. However, the management plans to distribute the profit of its development studios headquartered in Malta to the parent company G5 Entertainment AB at the end of the year. Accordingly, G5 Entertainment AB will be entitled to a rebate on tax paid in Malta, in accordance with local regulations. The management estimates the positive effect of the rebate on EPS for the period January-September to be +0,12 SEK, but IFRS requires to report the lower EPS figure before the decision to distribute the dividend is officially made at the end of the year. Operating result for the period is in line with earlier announced forecast. Revenue for the period is 4,5% below earlier announced forecast, due to substantial strengthening of Swedish krona during July-September, and the uncertainties connected with making forecasts, further detailed at the end of this section. The management has decided to make a write-off of 735 KSEK of capitalized development costs connected with the development of MIDS (Mobile Interface Design System), which G5 has developed, and licensed to Vimpel Communications. G5 continues to provide technical support for MIDS under contract with Vimpel Communications. As announced earlier, the management forecasts the group s consolidated revenue for the period January-December 2010 will reach 22 MSEK, with operating result of 9 MSEK, and earnings per share of 0,97 SEK. This forecast corresponds to achieving 151% revenue growth and 41% profitability margin compared to the negative operating result in 2009. During the period July-September, the group had positive cash flow, and Cash at Bank increased from 1 592 KSEK on 30 June to 2 421 KSEK on 30 September. The management expects the group to have substantial positive cash flow in the period October-December 2010. At the moment G5 has more opportunities for growth than resources available. The group is hiring more staff and the management prioritizes the opportunities based on long-term strategic benefits and maximization of return on investment, 4
with the goal to maintain profitability and strong organic growth at the same time. As announced earlier, the management forecasts revenue of 40 MSEK in 2011, with operating result of 15 MSEK, which corresponds to earnings per share of 1,40 SEK. The management of the group is providing the guidance for the next quarter at the time of the announcement of the previous quarter results, and updates the forecast for the quarter during the first days of the next quarter. The accuracy of such forecasts for the already selling games is high, because at the time of the announcement of the forecast, the sales figures for the first half of the quarter are already known. However, the accuracy of such forecasts for the upcoming releases is affected by: a) game release delays due to 3 rd party (Apple, Sony, PC portals) approvals and reviews on the way to the market; b) game release delays due to group s when it s done approach to game development crucial to create high quality games with long tail of sales; c) low prediction accuracy when it comes to forecasting sales of games in new genres or on new platforms, when there is no accumulated statistics from similar previously released games; d) general difficulty with predicting sales of a particular game precisely; e) changes in the development plans because of new business opportunities, like new platform announcements, new API releases, and such other important events requiring immediate action and change of development plans. Liquidity Current assets of the group as of September 30 th 2010 were 6 515 KSEK. Current liabilities: 1 953 KSEK. Working capital (CA-CL): 4 562 KSEK. Current ratio (CA divided by CL): 3,34. Accounting Principles During the period, G5 group applied international accounting standards IFRS according to EU regulations. G5 Entertainment AB holding company is applying Annual Accounts Act, RR 32:06 accounting for legal entities and RR 30:06 has been used for the group accounts. Revenue Recognition Revenues are license payments, advances and royalties paid by customers. Advances payments are accounted as revenue at the date when corresponding work was actually complete and approved by customer. License payments are accounted as revenue at the date when license rights are actually transferred to customer. Royalties are accounted as revenue at the date when royalty report was received from customer. Interest income is reported continuously and dividends received are reported after the right to the dividend is deemed secure. In the consolidated accounts, intra-group sales are eliminated. 5
Consolidated Group Income Statement January-September 2010 GROUP INCOME STATEMENT 2010 01 01 2010 09 30 2009 01 01 2009 09 30 Net turnover (revenue) 14 707 7 596 Production cost * 5 061 5 662 Gross Profit 9 646 1 934 General and administrative expenses 2 416 798 Other operating losses 643 97 Operating Result before financial items 6 587 1 039 One time write off Capitalized development costs (MIDS) 735 Financial income 178 Financial expenses 189 181 Operating Result after financial items 5 841 858 Taxes 1 600 0 NET RESULT FOR THE PERIOD 4 241 858 Attributed to: Minority interest 157 53 Parent Company's shareholders 4 084 805 * Production cost consists of: Production expenses 8 126 8 038 Capitalized development costs 5 002 2 824 Depreciation of Capitalized development costs ** 1 937 448 Total production cost 5 061 5 662 ** Capitalized development costs for the game are evenly depreciated over 2 years period following the day of commercial release of the game 6
Consolidated Group Balance Sheet January-September 2010 GROUP BALANCE SHEET 2010 09 30 2009 09 30 ASSETS Fixed Assets Intangible fixed assets Capitalized development costs 7 792 4 716 Goodwill 2 272 2 727 10 064 7 443 Tangible fixed assets Equipment 780 1 263 780 1 263 Total fixed assets 10 844 8 706 Current assets Account receivable 2 995 1 256 Worked up, non invoiced revenues 1 051 Other receivables 1 099 163 Cash at bank 2 421 2 637 Total Current assets 6 515 5 107 TOTAL ASSETS 17 359 13 813 Equity Share capital 742 742 Other capital contribution 7 451 7 451 Other reserves 46 128 Profit\Loss Brought Forward 6 938 4 704 Total shareholders equity 15 085 13 025 Minority 321 670 Total equity 15 406 13 695 Current liabilities Account payable 97 29 Other liabilities 349 16 Tax liabilities 1 433 17 Accrued expenses 74 56 Total current liabilities 1 953 118 TOTAL EQUITY AND LIABILITIES 17 359 13 813 7
Consolidated Group Cash Flow Statement January-September 2010 GROUP CASH FLOW 2010 01 01 2010 09 30 2009 01 01 2009 09 30 Operating activities Profit after financial items 5 841 90 Adjusting items not included in cash flow 3 139 287 8 980 197 Taxes paid 175 113 Cash flow before changes in working capital 8 805 84 Cash flow from changes in working capital Decrease in operating receivables 2 099 738 Increase in operating liabilities 807 102 Cash flow from operating activities 5 899 720 Investing activities Purchase of property and equipment 270 114 Capitalized development costs 5 002 1 399 Cash flow on sale of subsidiary 151 Cash flow from investing activities 5 423 1 513 CASH FLOW 476 793 Cash at the beginning of the year 1 962 3 812 Cash flow 476 793 Exchange Rate diff 17 2 CASH AT THE END OF THE PERIOD 2 421 3 021 8
Consolidated Group Changes in Equity Statement January-September 2010 GROUP CHANGES IN EQUITY Share Capital Other Capital Contribution Other Reserves Proft/loss brought forward Shareholders equity attributable to Parent Company Minority interest Total Equity Shareholder s Equity as of 2009 12 31 742 7 451 349 2 634 11 176 188 11 364 Exchange difference 395 220 175 24 199 Net result for the period 4 084 4 084 157 4 241 Shareholder's Equity as of 2010 09 30 742 7 451 46 6 938 15 085 321 15 406 The Share The number of outstanding shares at the end of the period: 7 419 574 shares. The average number of outstanding shares during the period: 7 419 574 shares. There are no outstanding convertibles or options in G5 Entertainment AB (publ). This interim report has not been reviewed by company's auditor. Insiders Name Shares VLADISLAV SUGLOBOV 715,000 SERGEY SHULTS 673,000 ALEXANDER TABUNOV 660,000 ADAM COWBURN 52,000 EIN STADALNINKAS 0 JOHAN WRANG 0 TOMAS AHLGREN 0 ÅSA ANDERSSON ENEBERG 0 9
Stockholm 15 November 2010 G5 Entertainment AB (publ) With the questions regarding this report please contact Sergey Shults, Investor Relations by email at investors@g5e.se, or by phone at +7 495 978 54 79 or +7 916 652 36 73. G5 Entertainment will be publishing Q4 2010 report on 25 th February 2011. 10
G5 Entertainment AB (publ) unites a group of companies: G5 Holdings Limited (Malta), G5 UA Holdings Limited (Malta), G5 Holding RUS LLC (Russia). G5 Entertainment is a developer and publisher of high quality downloadable games for digital networks: mobile, PC, home and portable consoles. G5 Entertainment started as the world s leading mobile game development studio, developing games based on popular licenses for Electronic Arts, Disney, THQ, Konami, and other publishers. G5 is now developing and publishing downloadable games for mobile, PC, home and portable consoles. G5 s portfolio includes popular iphone, ipad and PC games like Supermarket Mania, Stand O Food, and Mahjongg Artifacts. G5 s games target the growing audience of over 200 million casual game players on PC, over 75 million Apple iphone and ipod touch devices sold to date, and over 52 million Sony PSP devices sold to date. G5 s audience is going to expand further as the group brings its established franchises and new products to other platforms. G5 ENTERTAINMENT AB (publ) BOX 5339, 102 47 STOCKHOLM SWEDEN PHONE: +7 495 978 54 79 FAX: +46-8 545 075 49, +7 495 637 62 98 E-MAIL: CONTACT@G5E.SE ORG.NR. 556680-8878 HTTP://WWW.G5E.SE