INTERIM REPORT JANUARY – MARCH 2011

(For full interim report, including tables, see attached file)

JANUARY-MARCH 2011 IN SUMMARY

• The transaction volume for the first quarter was SEK 955,706 thousand (960,929), a decrease of 0.5 per cent compared to the same period of last year.
• Transaction-based revenue for the first quarter was SEK 7,284 thousand (7,182), up by 1 per cent compared to the first quarter of 2010.
• Profit/loss before amortization/depreciation increased by SEK 1,151 thousand to SEK 614 thousand (-537).
• Profit/loss after tax improved by SEK 671 thousand to SEK -1,249 thousand (-1,920) compared to the first quarter of 2010.
• Earnings per share were SEK -0.02 (-0.02).

SIGNIFICANT EVENTS IN THE FIRST QUARTER

• Paynova’s Board of Directors decided on and carried out a directed share issue for SEK 10 million in accordance with an authorization granted by the 2010 AGM.
• Paynova has paid the VAT liability finally approved by the Swedish Tax Agency for the period 2006 – September 2010. In connection with review and correction of the income tax returns, the company changed its allocation key for deductible and non-deductible VAT. The company and the Swedish Tax Agency no longer have different views on deduction rights.
• Paynova’s associated company Chinova and China UnionPay have together launched an e-commerce portal in China. The portal is intended to develop the fast-growing B2C market in China but will also offer a unique opportunity for Nordic and other online retailers who are not established in the country to sell directly to Chinese consumers.

COMMENTS FROM THE CEO

In the first quarter of 2010 Paynova’s services were deployed by several important new customers, Swedish, Nordic and International. Through my active role in the sales process I can see that Paynova’s reach and service level are stimulating demand and I feel secure that our offering attracts e-retailers because they are not currently able to obtain the same services from our competitors. The new payment methods, such as PayPal, are also having a positive impact on demand.

The transaction volume has decreased marginally compared to the preceding year and revenue for the first quarter fell short of the desired level. This is due partly to the fact that the previous year included substantial non-recurring revenue from account maintenance fees for Paynova’s e-account and partly to lower sales among a few key e-merchants in January and February. Revenue was relatively stable in spite of these factors, mainly due to a higher margin in continuing customer contracts.

In addition, we can see that our new customer contracts started to generate effects at the end of the first and beginning of the second quarter. Volumes for several of our existing customers have also grown significantly through the purchase of additional services from Paynova.

The partnership with Payzone is being accentuated and we are currently engaged in discussions with a number of major e-merchants regarding collaboration with Payzone.

As I have mentioned earlier, we are seeing several trends in the industry. Consolidation is underway, payment methods such as direct bank payments and invoices are gaining rapid popularity and the major e-merchants are placing higher demands on the diversity of their suppliers. Paynova is well positioned in this regard, but we will nonetheless review our product range strategy for coming years in order to offer the right breadth. Another interesting trend is that we are seeing ”fashions” in different countries. At the moment, many online retailers are interested in targeting Finnish consumers.

China UnionPay’s E-mall was formally launched in March and the level of activity is high. National ecommerce pavilions are now being contracted out to local operators. The first two pavilions are for products from USA and Japan. External events are having a tangible impact on our young industry. Among other things Sweden has passed a new law, the Payment Services Act (2010:751). Since parts of Paynova’s operations are subject to the new law, Paynova has submitted an application to the Swedish Financial Supervisory Authority (FI) for accreditation as a certified payment institution. In this respect, Paynova clearly stands out from several of the competitors in that few of them offer services that are regulated by the new law. The certification will give Paynova competitive advantages by assuring our partners and customers that we meet the FI’s requirements and thus have the necessary routines and processes.

A strong Paynova is now entering the second quarter. Many factors are in place but we need to achieve further growth in volumes and revenue before we can feel entirely satisfied. One example of Paynova’s development is that we will further enhance our offering of fraud prevention services later this spring, and I look forward to reporting more about this in the next report.

Simon Thaning

Stockholm 5 May 2011