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2016-05-18

Starbreeze AB: Starbreeze AB (publ) Q1 report January 1st 2016 - March 31st 2016

The full Q1 report is available atwww.starbreeze.com/investor-relations/.
Financial statements in English are attached to this release.

CHANGED FISCAL YEAR

Note that in accordance with the decision taken on the Annual General Meeting
in November 2015, this is the first quarterly report after changing the
company's fiscal year to calendar year. The comparative period Q1 2015
corresponds to January-March 2015, previously named Q3 2014/2015.

The next report to be issued will thus be Q2 2016 and will be released on
August 25 2016.

FIRST QUARTER (JANUARY - MARCH 2016)

* Net sales amounted to SEK 40.8 million, (SEK 47.7 million), a decrease of
-14.5%. Total revenue amounted to SEK 70.1 million (SEK 61.5 million), an
increase of 14% year on year.
* Operating income before depreciation, EBITDA, amounted to SEK -4.2 million
(SEK 14.0 million), implying a negative margin of -6.1 percent.
* Pretax income amounted to SEK -15.0 million (SEK 10.8 million).
* Net income amounted to SEK -14.8 million (8.1 million), impacted by foreign
exchange losses of -3.6 million (6.2 million foreign exchange gain) and by
a revaluation of the convertible loan of -5.0 MSEK (0.0 MSEK).
* Earnings per share before dilution were SEK -0.06 (SEK 0.04) and earnings
per share after dilution were SEK -0.06 (SEK 0.04).
* Cash flow from operating activities amounted to SEK 9.6 million (SEK -12.6
million).
* As of March 31 2016, the cash balance amounted to SEK 416.5 million (SEK
165.4 million).
* During the quarter, PAYDAY 2 net sales amounted to SEK 39.6 million (SEK
42.2 million).
* In January Starbreeze signed an agreement with the Korean gaming company
Smilegate. Smilgate invests 344 MSEK in Starbreeze who undertakes to
develop a game based on Smilegate's Crossfire franchise and adapt it for
the Western markets. Smilegate also becomes Starbreeze's distribution
partner for PAYDAY 2 and OVERKILL's The Walking Dead on the Asian markets.
* On the VRLA event in January the StarCade project was announced. It was
communicated that Starbreeze will open an arcade-like VR center in Los
Angeles later in the year.
* In February an extraordinary general meeting was held. At the meeting the
proposed targeted share issue for Smilegate Holdings Inc. was approved. The
meeting also decided to expand the Board by one member and to appoint Joon
Ho Sung, CIO at Smilegate, for the vacant seat.
* In February Dead by Daylight website was launched with an initial journal
from the developers. Visit the website at -www.deadbydaylight.com.
* Starbreeze signed its fourth publishing agreement in March. The agreement
was signed with the US-based game studio FreeForm Labs Inc and implies that
Starbreeze invests 750 000 USD in the upcoming virtual reality game
ElemenTerra.
* In March PAYDAY 2 was launched on Steam's operating system SteamOS. The
SteamOS-compatible version of the game supports SteamCloud and Steam
Controller.
* During the quarter two major updates were released to PAYDAY 2 in
collaboration with external partners. With our friends at Coffee Stain
Studios, PAYDAY 2 was combined with Goat Simulator in our so far funniest
collaboration. In cooperation with STX Entertainment, Starbreeze released a
couple of updates in connection with the release of their movie "Hardcore
Henry". The updates included, amongst other things, the character Jimmy and
two Hardcore heists.

AFTER THE PERIOD

* In April, Starbreeze share of the revenue for PAYDAY 2 sales via the PC
platform Steam amounted to SEK 2.0 million.
* In April Starbreeze, together with the Canadian studio Behaviour, announced
that the highly anticipated asymmetrical horror game Dead by Daylight will
be released on June 14th and that pre-orders will be available on Steam
from the day of the announcement. The game will be sold in two versions, a
standard version for $19.99/€19.99 and a deluxe version for $29.99/€29.99.
* In May, at the film festival in Cannes, Starbreeze announced its first
internally produced cinematic Virtual Reality experience titled "Cockatoo
Spritz" directed by Stephane Barbato. Cockatoo Spritz dives into the film
world and presents the new medium from a cinematic perspective. It is a VR
experience designed to inspire creative filmmakers to create VR content.
* In connection with the Cannes Film Festival Starbreeze and Acer signed a
letter of intent to form a joint venture for the StarVR Virtual Reality
(VR) Head-Mounted Display (HMD). The two companies aim to cooperate on the
design, manufacturing, promotion, marketing and sales of the StarVR HMD to
the professional- and location-based entertainment market.

CEO BO ANDERSSON KLINT GIVES HIS COMMENT

INVESTING IN OUR FUTURE

With a running start of 2016 we have now closed the first quarter of a year
that will truly put Starbreeze on the map as a key player on the market for
digital entertainment.

First of all, we have Acer as our VR partner. This is an incredible
collaboration that empowers StarVR and Starbreeze leading position as a
developer and publisher in the VR eco system. We invested both time and
resources this quarter to get here.

These aggressive investments in a brilliant future has made Starbreeze a red
first quarter as costs have risen. This as we gear up to build the next
generation of a digital studio with multiple IP's and products for years to
come. The continued sales of PAYDAY 2 still prove our ability to monetize IP
years after release.

Net sales amount to 40.8 MSEK which is 15 per cent below the corresponding
quarter 2015 which was the quarter we sold 'Brothers - A Tale of two Sons'
and held PAYDAY 2 campaigns such as Hypetrain. In addition, the dollar rate
has been favorable for us for a long period but this quarter there is an
adverse FX effect due to the weakening Dollar vs. the Swedish Krona effecting
the growth rate negatively.

Considering the one-off items, we can again conclude that the underlying
financial strength of PAYDAY 2 is keeping its momentum without material
disruption which creates a great fundament for Starbreeze aggressive plan for
future growth.

Talking about aggressive growth, after several quarters of reduced spend
Starbreeze has during the quarter accelerated its activities within our three
core areas; game development, publishing and StarVR. As a result, operating
expenses have increased by 12.8 MSEK compared to the previous quarter and we
anticipate this higher level to maintain the following quarters. We are
confident that the accelerated investments will create great value.

EBITDA for the quarter is negative with -4.2 MSEK. This is according to plan
and we know that future launches will drive our topline and profitability.

Our cash balance when exiting the quarter amounts to all-time-high 416.5 MSEK
with a positive contribution from operations.
Together with Canadian studio Behaviour Digital Inc, we will release the
highly anticipated asymmetrical horror game Dead by Daylight on Steam June
14. Apart from the whole team looking forward to scare gamers by enticing the
to hunt for survivors, it will add another revenue stream for us, built on
the same principles that we applied on PAYDAY 2.

The quarter also saw a 750,000 USD funding of US based studio Freeform Labs
and the upcoming VR game ElemenTerra, a social world-building puzzle game in
a cosmic cataclysmic setting. Starbreeze will receive 50% of royalties and
own 50% of the IP.

BUILDING THE NEXT GENERATION DIGITAL STUDIO

2016 is an exciting year in which we execute further on our plans, making sure
we release more products that generate revenue so we can further expand our
offering to partners and customers alike.
Our Smilegate collaboration is in full swing with their 344 MSEK investment,
and the two companies have been working hard on our Crossfire design and our
PAYDAY 2 Asia project. We are really excited to have such an efficient
partner and are actively recruiting more competent developers to Stockholm
for the future full production team of Crossfire.

Geminose has been silently built into a nice game and has progressed well. We
are now discussing our toy manufacturing approach with potential partners
which has taken longer than anticipated when we last communicated around the
title. We are still balancing our release between digital and retail
depending on our future partners. Once a partner is locked down, Starbreeze
will start showing the game to the public to maximize the marketing impact.

For John Wick: The Impossible Task we're making sure the product's release
window is aligned with Lionsgate and the uptake of the movie John Wick 2
somewhere later this year. It's a great game already shown to the public and
we are looking for a release between the online distribution and in our
location based StarCade that is optimal.

IMMERSING OURSELVES INTO VR

A lot has happened with StarVR since the launch at the Electronic
Entertainment Expo (E3) in June 2015, less than a year ago. In the past few
days, we have presented a major collaboration with a top-tier player. Let me
recap and bring you up to speed with our plans.
StarVR kicked-off with the acquisition of French company InfiniteEye, that
brought the StarVR HMD technology and an outstanding and agile engineering
team into Starbreeze. We knew and had been talking with the team for some
time and saw great potential and synergies in bringing them in-house. The
unique technology with a 210-degree HMD field of view is unrivalled,
positioning the StarVR at the very top end of the VR initiatives now entering
the market.

After the launch at E3, we brought StarVR on the road entertaining thousands
of consumers across the USA with OVERKILL's the Walking Dead VR Experience.
With the initiative we confirmed the great potential of monetizeable
location-based VR. In January 2016, we unveiled the location based StarCade
initiative, introducing VR centers where customers are invited to immerse
themselves into premium VR experiences.

Last week we premiered our first cinematic VR experience "Cockatoo Spritz" at
the Cannes film festival. Directed by Stephane Barbato, the film aims at
creatively pushing the movie industry into the VR space, leveraging the
artistic heritage of French film making. Our feedback so far has been
excellent. We've amazed, entertained and spread our VR message as well as
built a foundation of connections in the movie industry to ensure a healthy
ecosystem for VR in the near future.

To date, we've had an awesome start for StarVR, but nothing compared to what's
to come. We've been working with a clear roadmap for our VR strategy from day
one, and are now about to realize one of the first major collaborations we
set out to achieve in...

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