TNSGF--------------------->>>>>>>>>>>
Dear TransGaming Shareholders,
This couldn’t be a more exciting time to be in the technology industry. Innovation is fueling profound and prolific change. As a result, companies are extending their capabilities to establish leadership positions in new sectors that once seemed outside the scope of their competencies. Nimble and entrepreneurial organizations are rising to become behemoths, while long-standing global brands are disappearing. Business models of yesterday are being shattered by new economic models. Disruption is the new continuity and those companies that exemplify this spirit are emerging as the leaders of tomorrow. We are immersed in change at all levels. Transformation is the paradigm shift of this era and such change brings with it unique opportunities. For those companies daring and entrepreneurial enough, embracing this change will allow them to define their future. Consumer behavior, consumption habits, technology and business models are undergoing massive upheaval and these shifts are creating unprecedented opportunities. At TransGaming we have always recognized that being adaptable was a key ingredient to success. As such, we commenced our most significant transformation process in fiscal 2010 and carried this vigor and sense of urgency into fiscal 2011. These changes are allowing us to capitalize on the trends in the market place and are positioning us to lead in the battle for the connected living room and the digital distribution of interactive entertainment content.
Fiscal 2011 – A Record Year
Fiscal 2011 was a year of much progress, many successes, and the forging of a path that will define our future. While investing heavily in our newest product, GameTree TV, the company experienced a 30% increase in revenues over the previous fiscal year with top-line revenue of $5.1 million and Q4 revenue of $1.9 million, our best fiscal year and quarter, respectively, to-date. Of note is the tremendous strength and momentum of our Cider licensing business, which generated annual revenue of $2.7 million. The back-end revenues from our Cider-enabled Mac products grew considerably,demonstrating the outstanding market traction our titles are finally enjoying. The shift from retail distribution to digital distribution has been a key driver for the increased traction of our video games with Apple’s Mac App Store, established in January 2011, a critical part of this success for TransGaming. Upon the launch of the Mac App Store TransGaming had a number of titles immediately available and we’ve been continually adding more with regularity. Not only does this provide our titles with immediate visibility and instant accessibility, but the Mac App Store also delivers a long-tail revenue opportunity that was never before realizable with retail distribution. In fact, Grand Theft Auto 3 (released on August 18th) became the top selling game on the Mac App Store and ranked in eighth position overall for all apps, with the top seven apps belonging to Apple. After enjoying this enviable position for a full week, Grand Theft Auto 3 was usurped by Grand Theft Auto: Vice City for both positions as soon as it launched. We expect continued success with Grand Theft Auto: San Andreas. TransGaming receives a back-end per unit royalty on the Grand Theft Auto series.
The Industry Is Changing
In addition to our games, our strategic associations with both Google and Adobe have continued to flourish with increased licensing activities with both companies. Relationships with companies such as Google provide us with strong ongoing revenues and also inroads to other possible areas of collaboration. With Google’s acquisition of Motorola, the transformation taking place in the mobile and connected living room sectors will be even further accelerated opening up interesting opportunities for those companies that can deliver essential components of next generation ecosystems that are yet to be created. This point is further accentuated by Google’s Chief Executive Officer, Larry Page, commenting on Google’s acquisition of Motorola in August 2011: “Motorola is also a market leader in the home devices and video solutions business. With the transition to Internet Protocol, we are excited to work together with Motorola and the industry to support our partners and cooperate with them to accelerate innovation in this space.” I’ve said through my many investor presentations, “the television will undergo greater transformation in the next five years than it has in the last 50 years” and this transformation will positively impact consumers in every way. The television is transitioning from a unidirectional viewing device to a fully connected interactive medium. This change is extraordinary because it delivers limitless content in an integrated fashion to the consumer, on-demand, in the comfort of their living room. Consumers will be able to access all forms of content at will and this accessibility is a powerful vehicle in the information age. TransGaming is satisfying the consumer appetite for quality video games through GameTree TV, our on-demand interactive entertainment platform for Smart TV. GameTree TV is delivering interactive entertainment as a complementary entertainment experience to television viewing and we are doing so through an innovative user experience with transaction models designed around the new era of consumer behavior and consumption habits.
Quantifying Our Progress
Our GameTree TV product is the embodiment of TransGaming’s key traits: entrepreneurialism, innovation, creativity, and agility. In December of 2009 we raised $9 million to invest in the development of our GameTree TV platform. By February of 2010, we established an operation in Atlanta and materially and tangibly commenced the development of GameTree TV as a commercial offering. By April of 2011, only 15 months later, we commercially released GameTree TV with our first managed service operator partner, Free, the second largest operator in France and respected globally as a pioneer and innovator. I cannot underscore this achievement enough: In just 15 months, we developed and commercially deployed a world-class, highly sophisticated, on-demand interactive entertainment platform for the next generation Smart TV. And we did this with $5.5 million in working capital still available to us at the end of our fiscal year. I’m extremely proud of this accomplishment and, while I acknowledge that our shareholders want and expect rapid progress, this is an incredible feat and a true demonstration of how rapidly and aggressively TransGaming is moving. Compare our progress to many of our competitors in the industry who have raised tens of millions of dollars in capital, if not hundreds of millions, yet have taken substantially longer to build their products, and in many cases have yet to release anything stable or commercially viable. We are at dawn in the battle for control of the living room and TransGaming has established an impressive early lead.
Establishing Dominance
Our expediency and assertiveness do not end here. Over the coming months and quarters, we expect to make further inroads that will demonstrate how TransGaming is moving forward towards achieving a dominant leadership position in servicing the connect living room. I am confident that we are well-equipped with the right vision, the ideal team, optimal expertise, and unrivaled passion to bring our vision to reality. We are certainly living in an era of transformation and change which makes this among the most exciting times to be in the technology industry. I’ve always said, “the best way to predict the future is to create it”, and I believe these words aptly epitomize the DNA of TransGaming as we deliver innovation to the consumer and value to our shareholders.
Sincerely,
Vikas Gupta
Chief Executive Officer & President
.
