January September 2011 - Summary Consolidated revenue for the period is 31 207 KSEK (12 065 KSEK in Q3, 9 594 KSEK in Q2, 9 548 KSEK in Q1), up 112% compared to 14 707 KSEK for the same period of 2010. This is in line with previously communicated forecast of 31.2 MSEK. Operating result for the period is 11 468 KSEK (3 706 KSEK in Q3, 3 841 KSEK in Q2, 3 921 KSEK in Q1), up 96% compared to 5 841 KSEK for the same period of 2010. This result is 4% above previously communicated forecast of 11 MSEK. Earnings per share for the period is 1.26 Kr, in line with the previously communicated forecast of 1.26 Kr. During the period, the group had positive cash flow of 15 506 KSEK. Cash reserves on September 30 th 2011 amounted to 20 398 KSEK. During the period of July-September, the group was actively investing for future growth, with the goal to achieve output of one game per week. As planned, the increased investment put pressure on the group s profit margin in the short term, but it is expected to rebound once the group releases multiple games currently in development. Going forward, the management is going to continue maintaining the balance between having sufficient cash reserves, profitability, and actively investing for future growth. Current assets of the group as of September 30 th 2011 were 25 958 KSEK. Current liabilities: 4 193 KSEK. Working capital (CA-CL): 21 765 KSEK. Current ratio (CA divided by CL): 6.2. The group does not have any long-term liabilities, and has strong liquidity position. For the period of January-December 2011, the management keeps the previously communicated forecast of 47 MSEK revenue, 16.5 MSEK operating result, and earnings per share of 1.9 Kr. This forecast corresponds to achieving 106% revenue growth and 88% operating result growth compared to the period January-December 2010. The management confirms the previously announced goal for the period January-December 2012 of 87 MKr revenue and 30 MKr operating result with EPS of 3.2 Kr. This is a forward-looking statement, and the actual result can be both above and below these numbers, depending on the performance of the group s games and certain risk factors detailed further in this report. The management will update the forecast for January- December 2011 during the first days of January 2012. Special Enquiry Detail: The Hand That Feeds for ios was released in July. The iphone version has quickly topped charts around the world and reached #1 Top Grossing App position in the UK and #2 Top Grossing Game in France, becoming Top 10 Grossing Game in over 30 countries and Top 100 Grossing Game in 72 countries. The game was downloaded more than 700 000 times in two weeks after the release. During Q3, G5 released a number of Android games, bringing the total number of G5 games on Android Market to twelve: Mahjong Artifacts 1 and 2, Success Story, Paranormal Agency, Supermarket Management, Stand O Food, Supermarket Mania, Virtual City, Stand O Food 3, Supermarket Mania 2, Special Enquiry Detail, The Mystery of the Crystal Portal. These games achieved top grossing chart positions around the world, and were downloaded over 7 million times in a few months. G5 has once again proven that the company knows how to monetize casual games on mobile platforms. In August, G5 released Virtual City Playground on ipad. Virtual City Playground is a new game in Virtual City franchise, in a so-called Freemium format. Such format has achieved outstanding popularity on social networks such as Facebook and is increasingly popular on smartphones and tablet computers. Virtual City Playground is a free download and allows players to play for free for unlimited time, while offering to purchase virtual goods that enhance game play experience. Through the purchase of additional energy and in-game currency packs the player can enjoy longer game play sessions, and unlock additional content, including unique landmark buildings. The game has achieved success on ipad, becoming App Store s #1 Top Grossing Game in 17 countries, Top 5 Grossing Game in 57 countries, and Top 10 Grossing Game more than 70 countries. 2
During Q3, the group has also released a number of other games for Mac App Store, iphone, and ipad, including Jack of All Tribes for Mac, Jane s Hotel 2: Family Hero for iphone, and Fix-it-up: Kate s Adventure for iphone and ipad. On July 28 th, the extraordinary general meeting of shareholders has added two more board members: Peter Benson and Jeffrey Rose. The board of directors of G5 Entertainment AB consists of 5 people since then. More information about the board can be found at: www.g5e.com/corporate/management. On 19 th August, G5 Entertainment announced the closing of the transaction with the investment company Traction. In accordance with the investment agreement signed earlier in July 2011, G5 Entertainment AB issued 580 426 new shares, and Traction purchased these shares from the company at the price of 21,5 Kr per share, for a total amount of 12.5 MKr. The total number of shares in G5 Entertainment AB became 8 000 000. Traction therefore has acquired 7.26% of the outstanding shares in this transaction. This interim report has not been reviewed by company s auditor. Important Events After the End of The Period G5 released Games Navigator by G5 Games on Android and ios. This application, available as free download on Apple App Store and Android Market, allows the players to stay up to date on G5 s latest game releases, news, discounts, and giveaways. Virtual City 2, the sequel to G5 s best-selling Virtual City simulation game, was released on Mac App Store in October, quickly rising to the Top Grossing charts of the Mac App Store around the world. In October, G5 released Virtual City Playground, its successful freemium/social debut game, on iphone and Android Market. Virtual City Playground for Android quickly gained traction and climbed top charts worldwide, by 15 th November achieving #5 Top Grossing App in Sweden, #4 Top Grossing App in France, #1 Top Grossing Game in Italy, #6 Top Grossing Game in Germany, #9 Top Grossing App in UK, #19 Top Grossing Game in USA, #2 Top Grossing App in Singapore, and top grossing positions in multiple other countries around the world. G5 will continue developing the Playground concept of freemium/social games further and plans to support the game with regular updates and launch more game in this format. G5 is preparing the initial 12 games to release on Amazon Appstore starting 15 th November, when Kindle Fire from Amazon goes on sale in USA. Once approved and released on Amazon Appstore, G5 s games are going to be available to purchase and download by all Kindle Fire users. The total number of downloads of G5 games on ios and Android (not counting update downloads) surpassed 28 million. To explain the dynamic of this number over time, it took G5 twelve months to achieve the first 3 million of downloads between Feb 2009 and Feb 2010, and it only took 1 month of October 2011 to achieve the last 3 million of downloads. 3
The Company G5 Entertainment AB (publ) unites a group of companies: G5 Holdings Limited (Malta), G5 UA Holdings Limited (Malta), G5 Entertainment, Inc. (USA), and G5 Holding RUS LLC (Russia), all of which are wholly owned subsidiaries of G5 Entertainment AB (publ). 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 iphone, ipad, Mac, Android, PC, portable game consoles. G5 Entertainment started as one of the world s leading mobile game development studios, developing games based on popular licenses for the largest mobile game publishers. Since 2009, G5 is developing and publishing downloadable games for iphone, ipad, Mac, Android, PC, and portable game consoles. G5 s portfolio includes popular casual games like Supermarket Mania, Virtual City, 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 development studio has extensive experience of development for mobile devices, Mac, PC, and game consoles. One of the group s main competitive advantages is its proprietary Talisman cross-platform technology, which allows effective development and deployment of games across numerous platforms and devices, including iphone, ipad, Android, Blackberry, Windows Mobile, PC, Mac OS, Nintendo DSi, Sony PlayStation. Talisman technology, in combination with G5 s established processes for the development, porting, adaptation, and quality assurance of games, allows G5 to deploy high quality games to multiple platforms in reduced time. The creative and development teams at G5 are also capable of producing original intellectual property and best-selling casual and social games like Supermarket Mania 2, Stand O Food 3, Virtual City, and Virtual City Playground. Additional Information 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. 4
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, intragroup sales are eliminated. 5
Consolidated Group Income Statement January-September 2011 GROUP INCOME STATEMENT 2011-01-01 2011-09-30 2010-01-01 2010-09-30 Net turnover (revenue) 31 207 14 707 Production cost * -15 143-5 796 Gross Profit 16 064 8 911 General and administrative expenses -5 038-2 416 Other operating losses 0-643 Operating Result before financial items 11 026 5 852 Financial income 442 178 Financial expenses 0-189 Operating Result after financial items 11 468 5 841 Taxes -2 072-1 600 NET RESULT FOR THE PERIOD 9 396 4 241 Attributed to: Minority interest - 157 Parent Company's shareholders 9 396 4 084 * Production cost consists of: Production expenses -12 687-5 868 Royalty to developers -7 975-2 258 Capitalized development costs 9 107 5 002 Depreciation of Capitalized development costs ** -3 588-2 672 Total production cost -15 143-5 796 ** 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 2011 GROUP BALANCE SHEET 2011-09-30 2010-09-30 ASSETS Fixed Assets Intangible fixed assets Capitalized development costs 14 247 7 792 Goodwill 2 272 2 272 16 519 10 064 Tangible fixed assets Equipment 1 277 780 1 277 780 Total fixed assets 17 796 10 844 Current assets Account receivable 2 951 2 995 Developer Royalty Advance 1 777 - Other receivables 832 1 099 Cash at bank 20 398 2 421 Total Current assets 25 958 6 515 TOTAL ASSETS 43 754 17 359 Equity Share capital 800 742 Other capital contribution 19 930 7 451 Other reserves 14-46 Profit\Loss Brought Forward 18 817 6 938 Total shareholders equity 39 561 15 085 Minority - 321 Total equity 39 561 15 406 Current liabilities Account payable 634 97 Other liabilities 121 349 Tax liabilities 3 421 1 433 Accrued expenses 17 74 Total current liabilities 4 193 1 953 TOTAL EQUITY AND LIABILITIES 43 754 17 359 7
Consolidated Group Cash Flow Statement January-September 2011 GROUP CASH FLOW 2011-01-01 2011-09-30 2010-01-01 2010-09-30 Operating activities Profit after financial items 11 468 5 841 Adjusting items not included in cash flow 3 648 3 139 15 116 8 980 Taxes paid -771-175 Cash flow before changes in working capital 14 345 8 805 Cash flow from changes in working capital Decrease in operating receivables 2 225-2 099 Increase in operating liabilities -2 174-807 Developer Royalty Advance -1 777 - Cash flow from operating activities 12 619 5 899 Investing activities Purchase of property and equipment -568-270 Capitalized development costs -9 107-5 002 Purchase \ Sale of subsidiary - -151 Cash flow from investing activities -9 675-5 423 Financial activities New share issue 12 479 - Cash flow from financial activities 12 479 - CASH FLOW 15 423 476 Cash at the beginning of the year 4 892 1 962 Cash flow 15 423 476 Exchange Rate diff 83-17 CASH AT THE END OF THE PERIOD 20 398 2 421 8
Consolidated Group Changes in Equity Statement January-September 2011 GROUP CHANGES IN EQUITY Share Capital Other Capital Contribution Other Reserves Proft/loss brought forward Shareholders equity Minority interest Total Equity Shareholder s Equity as of 2011-01-01 742 7 451-283 9 761 17 671 0 17 671 Net result for the period 9 396 9 396 9 396 Exchange difference 297-340 -43-43 New issue 58 12 479 12 537 12 537 Shareholder's Equity as of 2011-09-30 800 19 930 14 18 817 39 561 0 39 561 The Shares The number of outstanding shares at the end of the period: 8 000 000 shares. The average number of outstanding shares during the period: 7 484 066 shares. There are no outstanding convertibles or options in G5 Entertainment AB (publ). On 19 th August, G5 Entertainment AB announced the closing of the transaction with the investment company Traction. In accordance with the investment agreement signed earlier in July 2011, G5 Entertainment AB issued 580 426 new shares, and Traction purchased these shares from the company at the price of 21.5 Kr per share, for a total amount of 12.5 MKr. The total number of shares in G5 Entertainment AB became 8 000 000. Traction therefore has acquired 7.26% of the outstanding shares in this transaction. This interim report has not been reviewed by company's auditor. Insiders Name Shares VLADISLAV SUGLOBOV (through company) 721 000 SERGEY SHULTS 673 000 ALEXANDER TABUNOV 660 000 EIN STADALNINKAS 0 JOHAN WRANG 0 ÅSA ANDERSSON ENEBERG 0 PETER BENSON 7 000 JEFFREY ROSE 0 9
Stockholm 15 November 2011 G5 Entertainment AB (publ) With the questions regarding this report please make contact by email at investors@g5e.se G5 Entertainment will be publishing Q4 2011 report on 24 th February 2012. 10
G5 Entertainment AB (publ) unites a group of companies: G5 Holdings Limited (Malta), G5 UA Holdings Limited (Malta), G5 Entertainment, Inc. (USA), G5 Holding RUS LLC (Russia). G5 Entertainment Group is a developer and publisher of high quality downloadable casual games for iphone, ipad, Mac, Android, PC, portable game consoles. G5 Entertainment started as one of the world s leading mobile game development studios, developing games based on popular licenses for the largest mobile game publishers. Since 2009, G5 is developing and publishing downloadable games for iphone, ipad, Mac, Android, PC, and portable game consoles. G5 s portfolio includes popular casual games like Supermarket Mania, Virtual City, Stand O Food, and Mahjongg Artifacts. G5 also develops games based on third party licenses, and publishes games developed by third party developers. G5 ENTERTAINMENT AB (publ) BOX 5339, 102 47 STOCKHOLM SWEDEN PHONE: +7 495 210 97 94 FAX: +46-8 545 075 49, +7 495 637 62 98 E-MAIL: CONTACT@G5E.SE ORG.NR. 556680-8878 HTTP://WWW.G5E.SE