Year-end Report 2001

Year-end Report 2001 Boss Media AB (publ) · Net sales decreased by 7 percent to SEK 173.1 (185.5) million. Net sales for the fourth quarter amounted to SEK 32.2 (56.7) million. · Profit after financial items amounted to SEK 9.0 (74.7) million. The profit margin was 5.2 (40.3) percent. The result for the fourth quarter was SEK -26.0 (20.8) million. One-time expenses amounted to SEK 18.5 million in the fourth quarter. Changes in accounting principles have affected the profit for the year by SEK 9.7 million and the profit for the fourth quarter by SEK 1.2 million. · Major developmental initiatives during 2001 are now beginning to pay off in the form of surging demand from leading gaming operators. · The company expects to sell at least seven new licenses during 2002 and to report significantly better results. · The Board will propose to the Annual General Meeting that no dividends be paid for the financial year 2001. The Group Boss Media AB (publ) is one of the leading providers of turnkey solutions for casino operations on the Internet. Potential licensees are offered a customized client-server system, an integrated payment system and the maintenance and administration services necessary for the daily operation of an Internet casino. The Boss Media-share is listed on the OM Stockholm Exchange's O-list (Attract 40). More information about Boss Media can be viewed on the company's website http://www.bossmedia.se. Unless otherwise stated, the following information is for the group as a whole. Market conditions In less than six years, the online gaming industry has experienced robust growth, with small-scale entrepreneurial operations developing on what is now a highly competitive market. The number of online betting products has increased as a result of the industry's historical characteristics: low barriers for entry on the market and minimal legal regulation. As a trendsetter and pioneer in online casino games, Boss Media has been active on a market historically characterized by small specialized players. Internet use and betting have each experienced strong expansion; together, this successful combination has resulted in explosive growth in the number of betting products on the Internet in general, and casino games in particular. Boss Media believes the final phase of this trend is now in sight. As the economy has taken a downturn, and the market has become increasingly saturated, growth in the numbers of specialized Internet casinos will stagnate. Instead, a small number of high quality products offered on an increasingly regulated and controlled market will benefit. Recommendations and studies from most jurisdictions during the year have confirmed that there is vast development potential for serious players, who give priority to quality and security, to operate under a controlled format. Moreover, a growing number of land-based betting players consider the Internet as a natural complement to their products, resulting in greater potential for the industry as a whole. According to independent consulting firms, the online gaming industry will continue to show rapid growth. Datamonitor* (Global online gambling, September 2001) believes there will be some fifteen million players on the Internet in 2005, compared with seven million in 2001. The River City Group** (Wagering on the Internet, December 2000) forecasts that by 2004, the number of online players will amount to fifteen million. Though Datamonitor's and The River City Group's sales forecasts differ, both show an annual growth rate of 30% - 50% for the industry as a whole between 2001 and 2004. According to The River City Group (The Gambler Monitor, October 2001), about 90% of current and future Internet players will play on lotteries on the Internet - more than twice as many compared with those who will play at Internet casinos. As new markets for regulated Internet gaming open up in recognized, first class jurisdictions such as the Isle of Man and Alderney, these jurisdictions will increase demands on the company to fulfill rules and regulations placed on suppliers. Boss Media is well prepared in this regard; for example, the company is the first in the world to have fully certified software. Currently, the company meets essentially all requirements set by these jurisdictions, giving a competitive advantage in negotiations with larger land-based gaming operators active in this environment. Boss Media welcomes legal initiatives for regulation and certification that will raise barriers for entry on the market and tighten product requirements. Today Boss Media provides a market-leading product that meets the highest standards of quality and security, which in combination with the company's uncompromising approach to compliance with all regulations, serves as the foundation of its excellent reputation. Indeed, current legal developments appear to be moving toward regulation rather than prohibition. Although more and more jurisdictions are opening up, individual countries are also starting to issue national gaming permits for online gaming. In addition to tax-related reasons, these countries also want to gain control over gaming within the country. Today the Internet can offer far greater security and control than can be offered by the physical world. The demand from large land-based gaming companies continues to rise. Alongside traditional land-based casino companies, more and more inquiries are coming from major lottery and betting companies world- wide, though mainly from Europe. To meet this demand, the company is broadening its selection of product verticals, while continuing to develop existing products with an emphasis on consumer-oriented product development and localization of games, languages, and currencies. * Datamonitor is a premium business information company helping 5000 of the world's leading companies across the Automotive, Consumer Markets, Energy, Financial Services, Healthcare & Technology sectors. ** The River City Group (www.rivercitygroup.com) is an independent US company that provides information and analyses on gaming, especially to gaming operators and development companies. Net sales and result The Group's net sales decreased by 7 percent to SEK 173.1 (185.5) million. Net sales for the fourth quarter amounted to SEK 32.2 (56.7) million. The decline is mainly the result of credit card problems in the United States. At the end of the third quarter a large number of card- issuing banks in the US began declining credit card payments to Internet casinos, which decreased sales considerably since most players in licensees' casinos come from the US. Card schemes today require special coding for all gaming-related transactions, and the local card-issuing bank decides whether or not it will approve these transactions. Many American card-issuing banks today decline all gaming transactions. Fourth quarter gaming-related sales remained at about the same level as at the end of the third quarter. Late in the fourth quarter gaming- related sales began climbing again. The total number of licenses at the end of the period was 39 (34). At the end of the period, 35 (25) licensed casinos were in operation. Four licenses, which has not been delivered on December 31, 2001, has been taken up as income by approximately 30 percent according to the percentage of completion method, based on the degree of completion on the closing day. Income from the sale of licenses amounted to SEK 23.3 (46.9) million. The total number of profit-generating licenses amounted to 9.2 (17.3). License sales for the fourth quarter amounted to SEK 0.8 (12.8) million. Write-downs during the fourth quarter have affected the license sales by SEK 1.9 million. Royalty income increased by 2 percent and amounted to SEK 62.4 (60.9) million. Royalty income for the fourth quarter amounted to SEK 11.8 (19.1) million. Income from Service & support amounted to SEK 40.4 (22.4) million. The net gaming in Gold Club Casino amounted to SEK 41.3 (54.7) million. Net gaming for the fourth quarter amounted to SEK 7.6 (16.9) million. The distribution and change in net sales per division is shown below. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/02/12/20020212BIT00030/bit0002.doc The full year-end report http://www.waymaker.net/bitonline/2002/02/12/20020212BIT00030/bit0002.pdf The full year-end report