10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from            to

Commission File Number 001-33368

Glu Mobile Inc.

(Exact name of the Registrant as Specified in its Charter)

Delaware	91-2143667
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

1800 Gateway Drive, Second Floor
San Mateo, California 94404
(Address of Principal Executive Offices, including Zip Code)

(650) 571-1550
(Registrant’s Telephone number, including Area Code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o      No þ*

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o       Accelerated Filer o       Non-accelerated filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

     Shares of Glu Mobile Inc. common stock, $0.0001 par value per share, outstanding as of May 10, 2007: 28,815,363 shares.

   *         The Registrant has not been subject to the filing requirements for the past 90 days as it commenced trading on March 22, 2007 pursuant to its initial public offering, but the Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 since such time.

GLU MOBILE INC.

FORM 10-Q

Quarterly Period Ended March 31, 2007

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		3
Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006		4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		37
ITEM 4. CONTROLS AND PROCEDURES		38
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		39
ITEM 1A. RISK FACTORS		39
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		58
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		58
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		59
ITEM 5. OTHER INFORMATION		60
ITEM 6. EXHIBITS		60
SIGNATURES		61
EXHIBIT 10.01
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GLU MOBILE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
(in thousands, except per share data)

	March 31,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	71,501		$	3,823
Short-term investments		5,500			8,750
Accounts receivable, net		15,524			14,448
Prepaid royalties		4,858			3,501
Prepaid expenses and other		596			853
Total current assets		97,979			31,375
Property and equipment, net		3,659			3,480
Prepaid royalties		2,549			1,417
Other long-term assets		994			1,826
Intangible assets, net		4,355			4,974
Goodwill		38,787			38,727
Total assets	$	148,323		$	81,799
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY/(DEFICIT)
Current liabilities:
Accounts payable	$	6,763		$	5,394
Accrued liabilities		240			1,048
Accrued compensation		1,627			2,013
Accrued royalties		9,221			7,030
Accrued restructuring		—			36
Deferred revenues		304			178
Current portion of long-term debt		13			4,339
Total current liabilities		18,168			20,038
Other long-term liabilities		2,259			1,343
Long-term debt, less current portion		—			7,245
Preferred stock warrant liability		—			1,995
Total liabilities		20,427			30,621
Commitments and contingencies (see note 5)
Redeemable convertible preferred stock, $0.0001 par value: 17,032 shares authorized; 0 and 15,680 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		—			76,363
Stockholders’ equity/(deficit):
Common stock, $0.0001 par value; 33,333 shares authorized, 28,537 and 5,457 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		3			1
Additional paid-in capital		176,734			19,894
Deferred stock-based compensation		(309	)		(388	)
Accumulated other comprehensive income		1,339			1,285
Accumulated deficit		(49,871	)		(45,977	)
Total stockholders’ equity/(deficit)		127,896			(25,185	)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity/(deficit)	$	148,323		$	81,799

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

3

GLU MOBILE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
(in thousands, except per share data)

	Three Months Ended
	March 31,
	2007			2006
Revenues	$	15,698		$	8,073
Cost of revenues:
Royalties		4,292			2,538
Impairment of prepaid royalties and guarantees		—			60
Amortization of intangible assets		552			118
Total cost of revenues		4,844			2,716
Gross profit		10,854			5,357
Operating expenses:
Research and development		4,713			3,189
Sales and marketing		3,075			2,202
General and administrative		4,009			1,852
Amortization of intangible assets		67			154
Acquired in-process research and development		—			1,500
Gain on sale of assets		(1,040	)		—
Total operating expenses		10,824			8,897
Income/(loss) from operations		30			(3,540	)
Interest and other income/(expense), net:
Interest income		166			195
Interest expense		(847	)		(2	)
Other income/(expense), net		159			(41	)
Interest and other income/(expense), net		(522	)		152
Loss before income taxes		(492	)		(3,388	)
Income tax provision		(272	)		(106	)
Net loss		(764	)		(3,494	)
Accretion to preferred stock		(17	)		(19	)
Deemed dividend		(3,130	)		—
Net loss attributable to common stockholders	$	(3,911	)	$	(3,513	)
Net loss per share attributable to common stockholders – basic and diluted:
Net loss	$	(0.12	)	$	(0.75	)
Accretion to preferred stock		—			(0.01	)
Deemed dividend		(0.47	)		—
Net loss per share attributable to common stockholders – basic and diluted	$	(0.59	)	$	(0.76	)
Weighted average common shares outstanding – basic and diluted		6,682			4,597
Stock-based compensation included in:
Research and development	$	95		$	33
Sales and marketing		97			27
General and administrative		416			207

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

4

GLU MOBILE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(in thousands, except per share data)

	Three Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net loss	$	(764	)	$	(3,494	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and accretion		454			336
Amortization of intangible assets		619			272
Stock-based compensation		608			267
Change in carrying value of preferred stock warrant liability		10			70
Amortization of value of warrants issued in connection with loan		477			—
Amortization of loan agreement costs		71			—
Non-cash foreign currency translation gain		(149	)		(29	)
Acquired in-process research and development		—			1,500
Impairment of prepaid royalties and guarantees		—			60
Gain on sale of assets		(1,040	)		—
Changes in allowance for doubtful accounts		(19	)		(12	)
Changes in operating assets and liabilities, net of effect of acquisitions:
(Increase)/decrease in accounts receivable		(907	)		416
Increase in prepaid royalties		(688	)		(694	)
(Increase)/decrease in prepaid expenses and other assets		(364	)		46
Increase in accounts payable		1,011			448
Decrease in other accrued liabilities		(808	)		(1,953	)
Increase/(decrease) in accrued compensation		(387	)		203
Increase/(decrease) in accrued royalties		1,169			(707	)
Increase in deferred revenues		104			—
Decrease in accrued restructuring		(36	)		(357	)
Increase in other long-term liabilities		111			139
Net cash used in operating activities		(528	)		(3,489	)
Cash flows from investing activities:
Purchase of short-term investments		(600	)		(6,557	)
Sale of short-term investments		3,850			20,357
Purchase of property and equipment		(623	)		(295	)
Proceeds from sale of assets, net of selling costs		1,040			—
Acquisition of iFone, net of cash acquired		—			(7,396	)
Net cash provided by investing activities		3,667			6,109
Cash flows from financing activities:
Proceeds from IPO shares, net of issuance costs		76,501			—
Proceeds from exercise of stock options		80			10
Debt payments		(12,047	)		(892	)
Net cash provided by (used in) financing activities		64,534			(882	)
Effect of exchange rate changes on cash		5			19
Net increase in cash and cash equivalents		67,678			1,757
Cash and cash equivalents at beginning of period		3,823			2,416
Cash and cash equivalents at end of period	$	71,501		$	4,173
Supplemental disclosure of non-cash information
Accrued IPO costs	$	1,757		$	—

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these financial statements.

5

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Note 1 – The Company, Basis of Presentation and Summary of Significant Accounting Policies

     Glu Mobile Inc. (the “Company” or “Glu”) was incorporated as Cyent Studios, Inc. in Nevada on May 16, 2001 and changed its name to Sorrent, Inc. On November 21, 2001, New Sorrent, Inc., a wholly owned subsidiary of the Company was incorporated in California. The Company and New Sorrent, Inc. merged on December 4, 2001 to form Sorrent, Inc., a California corporation. In June 2005, the Company changed its name to Glu Mobile Inc. Glu acquired Macrospace Limited (“Macrospace”) in December 2004 in efforts to develop and secure direct distribution relationships in Europe and Asia with leading wireless carriers, to deepen and broaden its game library (e.g., more titles and genre diversification), to acquire access and rights to leading licenses and franchises (including original intellectual property) and to augment its internal and external production and publishing capabilities. In March 2006, Glu acquired iFone Holdings Limited (“iFone”) in order to continue to broaden its game library and acquire access and rights to leading licenses.

     In March 2007, the Company completed its initial public offering (“IPO”) of common stock in which it sold and issued 7,300 at an issue price of $11.50 per share. The Company raised a total of $83,950 in gross proceeds from the IPO, or approximately $74,744 in net proceeds after deducting underwriting discounts and commissions of $5,877 and other offering costs of $3,329. Upon the closing of the IPO, all shares of redeemable convertible preferred stock outstanding automatically converted into 15,680 shares of common stock.

  Basis of Presentation

     The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Registration Statement on Form S-1, File Number 333-139493, filed with the Securities and Exchange Commission. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, which the Company believes are necessary for a fair statement of the Company’s financial position as of March 31, 2007 and its results of operations for the three months ended March 31, 2007 and 2006, respectively. These condensed consolidated financial statements are not necessarily indicative of the results to be expected for the entire year. The consolidated balance sheet presented as of December 31, 2006 has been derived from the audited consolidated financial statements as of that date.

  Basis of Consolidation

     The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.

  Use of Estimates

     The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and these differences may be material.

  Revenue Recognition

     The Company’s revenues are derived primarily by licensing software products in the form of mobile games. License arrangements with the end user can be on a perpetual or subscription basis. A perpetual license gives an end user the right to use the licensed game on the registered handset on a perpetual basis. A subscription license gives an end user the right to use

6

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

the licensed game on the registered handset for a limited period of time, ranging from a few days to as long as one month. The Company distributes its products primarily through mobile telecommunications service providers (“carriers”), which market the games to end users. License fees for perpetual and subscription licenses are usually billed by the carrier upon download of the game by the end user. In the case of subscriber licenses, many subscriber agreements provide for automatic renewal until the subscriber opts-out, while the others provide opt-in renewal. In either case, subsequent billings for subscription licenses are generally billed monthly. The Company applies the provisions of Statement of Position 97-2, Software Revenue Recognition, as amended by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, to all transactions.

     Revenues are recognized from our games when persuasive evidence of an arrangement exists, the game has been delivered, the fee is fixed or determinable, and the collection of the resulting receivable is probable. For both perpetual and subscription licenses, management considers a signed license agreement to be evidence of an arrangement with a carrier and a “clickwrap” agreement to be evidence of an arrangement with an end user. For these licenses, the Company defines delivery as the download of the game by the end user. The Company estimates revenues from carriers in the current period when reasonable estimates of these amounts can be made. Several carriers provide reliable interim preliminary reporting and others report sales data within a reasonable time frame following the end of each month, both of which allow the Company to make reasonable estimates of revenues and therefore to recognize revenues during the reporting period when the end user licenses the game. Determination of the appropriate amount of revenue recognized involves judgments and estimates that the Company believes are reasonable, but it is possible that actual results may differ from the Company’s estimates. The Company’s estimates for revenues include consideration of factors such as preliminary sales data, carrier-specific historical sales trends, the age of games and the expected impact of newly launched games, successful introduction of new handsets, promotions during the period and economic trends. When the Company receives the final carrier reports, to the extent not received within a reasonable time frame following the end of each month, the Company records any differences between estimated revenues and actual revenues in the reporting period when the Company determines the actual amounts. Historically, the revenues on the final revenue report have not differed by more than one half of 1% of the reported revenues for the period, which the Company deemed to be immaterial. Revenues earned from certain carriers may not be reasonably estimated. If the Company is unable to reasonably estimate the amount of revenues to be recognized in the current period, the Company recognizes revenues upon the receipt of a carrier revenue report and when the Company’s portion of a game’s licensed revenues are fixed or determinable and collection is probable. To monitor the reliability of the Company’s estimates, management, where possible, reviews the revenues by carrier and by game on a weekly basis to identify unusual trends such as differential adoption rates by carriers or the introduction of new handsets. If the Company deems a carrier not to be creditworthy, the Company defers all revenues from the arrangement until the Company receives payment and all other revenue recognition criteria have been met.

     In accordance with Emerging Issues Task Force, or EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, the Company recognizes as revenues the amount the carrier reports as payable upon the sale of the Company’s games. The Company has evaluated its carrier agreements and has determined that it is not the principal when selling its games through carriers. Key indicators that it evaluated to reach this determination include:

• wireless subscribers directly contract with the carriers, which have most of the service interaction and are generally viewed as the primary obligor by the subscribers;

• carriers generally have significant control over the types of games that they offer to their subscribers;

• carriers are directly responsible for billing and collecting fees from their subscribers, including the resolution of billing disputes;

• carriers generally pay the Company a fixed percentage of their revenues or a fixed fee for each game;

• carriers generally must approve the price of the Company’s games in advance of their sale to subscribers, and the Company’s more significant carriers generally have the ability to set the ultimate price charged to their subscribers; and

• the Company has limited risks, including no inventory risk and limited credit risk.

7

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

  Concentration of Credit Risk

     Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable.

     The Company derives its accounts receivable from revenues earned from customers located in the U.S. and other locations outside of the U.S. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company bases its allowance for doubtful accounts on management’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews past due balances over a specified amount individually for collectibility on a monthly basis. It reviews all other balances quarterly. The Company charges off accounts receivable balances against the allowance when it determines that the amount will not be recovered.

     The following table summarizes the revenues from customers in excess of 10% of the Company’s revenues:

	Three Months Ended
	March 31,
	2007			2006
Verizon Wireless		21.5	%		25.9	%
Sprint Nextel		*			15.8	%

* Revenues from the customer were less than 10% during the period.

     At March 31, 2007, Verizon Wireless accounted for 23% of total accounts receivable. At December 31, 2006, Verizon Wireless, Sprint Nextel and Vodafone accounted for 21%, 11% and 10% of total accounts receivable, respectively. No other customer represented greater than 10% of the Company’s revenues or accounts receivable in these periods or as of these dates.

     The following table summarizes the revenues from specific titles in excess of 10% of the Company’s revenues:

	Three Months Ended
	March 31,
	2007			2006
Monopoly Here & Now		13.2	%		*
Deer Hunter		*			11.5	%
Zuma		*			11.0	%

* Revenues from the title were less than 10% during the period.

  Freestanding Preferred Stock Warrants

     Freestanding warrants and other similar instruments related to shares that are redeemable are accounted for in accordance with Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS No. 150”). Under SFAS No. 150, the freestanding warrants that were related to the Company’s redeemable convertible preferred stock were recorded as liabilities on the consolidated balance sheet. The warrants were subject to re-measurement at each balance sheet date and any change in fair value was recognized as a component of other income (expense), net. Subsequent to the Company’s IPO and the associated conversion of the Company’s outstanding redeemable convertible preferred stock into common stock, the warrants to exercise the redeemable convertible preferred stock converted into common stock warrants; accordingly, the liability related to the redeemable convertible preferred stock warrants at the closing of the IPO of $1,985 was transferred to common stock and additional paid-in-capital and the common stock warrants are no longer subject to re-measurement.

  Prepaid or Guaranteed Licensor Royalties

     The Company’s royalty expenses consist of fees that it pays to branded content owners for the use of their intellectual property, including trademarks and copyrights, in the development of the Company’s games. Royalty-based obligations are

8

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

either paid in advance and capitalized on our balance sheet as prepaid royalties or accrued as incurred and subsequently paid. These royalty-based obligations are expensed to cost of revenues at the greater of the revenues derived from the relevant game multiplied by the applicable contractual rate or an effective royalty rate based on expected net product sales. Advanced license payments that are not recoupable against future royalties are capitalized and amortized over the lesser of the estimated life of the branded title or the term of the license agreement.

     The Company’s contracts with some licensors include minimum guaranteed royalty payments, which are payable regardless of the ultimate volume of sales to end users. Effective January 1, 2006, the Company adopted FSP FIN 45-3, Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners. The Company has recorded a minimum guaranteed liability of approximately $3,205 as of March 31, 2007. When no significant performance remains with the licensor, the Company initially records each of these guarantees as an asset and as a liability at the contractual amount. The Company believes that the contractual amount represents the fair value of the liability. When significant performance remains with the licensor, the Company records royalty payments as an asset when actually paid and as a liability when incurred, rather than upon execution of the contract. The Company classifies minimum royalty payment obligations as current liabilities to the extent they are contractually due within the next twelve months.

     Each quarter, the Company evaluates the realization of its royalties as well as any unrecognized guarantees not yet paid to determine amounts that it deems unlikely to be realized through product sales. The Company uses estimates of revenues, cash flows and net margins to evaluate the future realization of prepaid royalties and guarantees. This evaluation considers multiple factors, including the term of the agreement, forecasted demand, game life cycle status, game development plans, and current and anticipated sales levels, as well as other qualitative factors such as the success of similar games and similar genres on mobile devices for the Company and its competitors and/or other game platforms (e.g., consoles, personal computers and Internet) utilizing the intellectual property and whether there are any future planned theatrical releases or television series based on the intellectual property. To the extent that this evaluation indicates that the remaining prepaid and guaranteed royalty payments are not recoverable, the Company records an impairment charge to cost of revenues in the period that impairment is indicated. The Company recorded impairment charges to cost of revenues of $0 and $60 during the three months ended March 31, 2007 and 2006, respectively.

  Research and Development Costs

     The Company charges costs related to research, design and development of products to research and development expense as incurred. The types of costs included in research and development expenses include salaries, contractor fees and allocated facilities costs.

  Software Development Costs

     The Company applies the principles of Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (“SFAS No. 86”). SFAS No. 86 requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company has adopted the “tested working model” approach to establishing technological feasibility for its games. Under this approach, the Company does not consider a game in development to have passed the technological feasibility milestone until the Company has completed a model of the game that contains essentially all the functionality and features of the final game and has tested the model to ensure that it works as expected. To date, the Company has not incurred significant costs between the establishment of technological feasibility and the release of a game for sale; thus, the Company has expensed all software development costs as incurred. The Company considers the following factors in determining whether costs can be capitalized: the emerging nature of the mobile game market; the gradual evolution of the wireless carrier platforms and mobile phones for which it develops games; the lack of pre-orders or sales history for its games; the uncertainty regarding a game’s revenue-generating potential; its lack of control over the carrier distribution channel resulting in uncertainty as to when, if ever, a game will be available for sale; and its historical practice of canceling games at any stage of the development process.

  Internal Use Software

     The Company recognizes internal use software development costs in accordance with the Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Thus, the Company

9

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

capitalizes software development costs, including costs incurred to purchase third-party software, beginning when it determines certain factors are present including, among others, that technology exists to achieve the performance requirements and/or buy versus internal development decisions have been made. The Company has capitalized certain internal use software costs totaling approximately $345 and $120 during the three months ended March 31, 2007 and 2006, respectively. The estimated useful life of costs capitalized is generally three years. During the three months ended March 31, 2007 and 2006, the amortization of capitalized costs totaled approximately $140 and $97, respectively. Capitalized internal use software development costs are included in property and equipment, net.

Income Taxes

     The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. Under SFAS No. 109, the Company determines deferred tax assets and liabilities based on the temporary difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which it expects the differences to reverse. The Company establishes valuation allowances when necessary to reduce deferred tax assets to the amount it expects to realize.

     On January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which supplements SFAS No. 109 by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

     With the adoption of FIN 48, companies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Any necessary adjustment would be recorded directly to retained earnings and reported as a change in accounting principle as of the date of adoption. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. See Note 10 for additional information, including the effects of adoption on the Company’s consolidated financial position, results of operations and cash flows.

  Stock-Based Compensation

     Prior to January 1, 2006, the Company accounted for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations, and followed the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). Under APB No. 25, compensation expense for an option is based on the difference, if any, on the date of the grant, between the fair value of a company’s common stock and the exercise price of the option. Employee stock-based compensation determined under APB No. 25 is recognized using the multiple option method prescribed by the Financial Accounting Standards Board Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (“FIN 28”), over the option vesting period.

     Effective January 1, 2006, the Company adopted the fair value provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS No. 123R”), which supersedes its previous accounting under APB No. 25. SFAS No. 123R requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. SFAS No. 123R requires companies to estimate the fair value of share-based payment awards on the grant date using an option pricing model. The Company adopted SFAS No. 123R using the prospective transition method, which requires, that for nonpublic entities that used the minimum value method for either pro forma or financial statement recognition purposes, SFAS No. 123R shall be applied to option grants on and after the required effective date. For options granted prior to the SFAS No. 123R effective date that remain unvested on that date, the Company continues to recognize compensation expense under the intrinsic value method of APB No. 25. In addition, the Company continues to amortize those awards valued prior to January 1, 2006 utilizing an accelerated amortization schedule, while it expenses all options granted or modified after January 1, 2006 on a straight-line basis.

10

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

     The Company has elected to use the “with and without” approach as described in EITF Topic No. D-32 in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through its statement of operations.

     The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123, EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, and FIN 28.

     Net Loss Per Share

     The Company computes basic net income/(loss) per share attributable to common stockholders by dividing its net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period less the weighted average unvested common shares subject to repurchase by the Company. Net loss attributable to common stockholders is calculated using the two-class method; however, preferred stock dividends were not included in the Company’s diluted net loss per share calculations because to do so would be anti-dilutive for all periods presented.

	Three Months Ended March 31,
	2007			2006
Net loss attributable to common stockholders	$	(3,911	)	$	(3,513	)
Basic and diluted shares:
Weighted average common shares outstanding		6,785			5,107
Weighted average unvested common shares subject to repurchase		(103	)		(510	)
Weighted average shares used to compute basic and diluted net loss per share		6,682			4,597
Net loss per share attributable to common stockholders — basic and diluted	$	(0.59	)	$	(0.76	)

     The following weighted average options, warrants to purchase common stock and unvested shares of common stock subject to repurchase have been excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have had an anti-dilutive effect:

	Three Months Ended
	March 31,
	2007		2006
Convertible preferred stock		—		12,372
Warrants to purchase convertible preferred stock		—		123
Warrants to purchase common stock		229		20
Unvested common shares subject to repurchase		103		510
Options to purchase common stock		2,964		2,192
		3,296		15,217

  Recent Accounting Pronouncements

     In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This Interpretation prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financials statements uncertain tax positions that it has taken or expects to take on a tax return, including a decision whether to file or not to file a return in a particular jurisdiction. Under the Interpretation, the financial statements must reflect expected future tax consequences of these positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. The

11

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

Interpretation also revises disclosure requirements and introduces a prescriptive, annual, tabular roll-forward of the unrecognized tax benefits. This Interpretation is effective for fiscal years beginning after December 15, 2006. See Note 10 for additional information, including the effects of adoption on the Company’s consolidated financial position, results of operations and cash flows.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company is currently evaluating the impact of adopting SFAS No. 157 on the Company’s consolidated financial statements.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure at fair value, on an instrument-by-instrument basis, many financial instruments and certain other assets and liabilities that are not currently required to be measured at fair value. SFAS No. 159 is effective as of the beginning of a fiscal year that begins after November 15, 2007. The Company is currently in the process of evaluating the impact that the adoption of SFAS No. 159 on its financial position, results of operations and cash flows.

Note 2 – Acquisitions

  Acquisition of iFone Holdings Limited

     On March 29, 2006, the Company acquired the net assets of iFone in order to continue to deepen and broaden its game library, to acquire access and rights to leading licenses and franchises and to augment its external production resources. These factors contributed to a purchase price in excess of the fair value of net tangible and intangible assets acquired, and, as a result, the Company recorded goodwill in connection with this transaction.

     The Company purchased all of the issued and outstanding shares of iFone in exchange for the issuance of 3,423 shares of Special Junior Preferred Stock of the Company and $3,500 in cash. In addition, subject to the completion of specified milestones, the Company committed to issue a total of 871 shares of Special Junior Preferred Stock of the Company and $4,500 in subordinated unsecured promissory notes to the iFone shareholders. In conjunction with this transaction, the Company’s Board of Directors approved an increase in the number of authorized shares of preferred stock of Glu to 17,031 shares. The milestones outlined in the purchase agreement for which contingent consideration was agreed to be issued were not achieved during the period to earn this additional consideration. As the milestone consideration was not earned, these amounts have not been reflected in these financial statements.

     The total purchase price of approximately $23,502 consisted of the following: 3,423 shares of Special Junior Preferred Stock of the Company (valued at $19,098 based on an independent valuation of the preferred stock issued using a weighted income and market comparable approach), $3,500 of cash and transaction costs of $904.

     The Company’s consolidated financial statements include the results of operations of iFone from the date of acquisition. Under the purchase method of accounting, the Company allocated the total purchase price of $23,502 to the net tangible and intangible assets acquired and liabilities assumed based upon their respective estimated fair values as of the acquisition date.

Assets acquired:
Accounts receivable	$	2,518
Prepaid and other current assets		2,271
Property and equipment		89
Intangible assets (see Note 6):
Titles, content and technology		2,700
Carrier contracts and relationships		1,300
Existing license agreements		400
Trademarks		100
In-process research and development		1,500

12

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

Goodwill (see Note 6)		22,828
Total assets acquired		33,706
Liabilities assumed:
Accounts payable		(4,247	)
Accrued liabilities		(4,777	)
Restructuring liabilities		(1,180	)
Total liabilities acquired		(10,204	)
Net acquired assets	$	23,502

     The above table includes reductions to acquired goodwill to reflect adjustments to certain assumed liabilities upon completion of the purchase price allocation.

     The Company has recorded an estimate for costs to terminate certain activities associated with the iFone operations in accordance with the guidance of Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. This restructuring accrual of $1,180 principally related to the termination of 41 iFone employees. At March 31, 2007, no restructuring liabilities related to iFone employees remained accrued.

     Of the total purchase price, $4,500 was allocated to amortizable intangible assets. The amortizable intangible assets are being amortized using a straight-line method over the respective estimated useful life of two to five years.

     In conjunction with the acquisition of iFone, the Company recorded a $1,500 expense for acquired in-process research and development (“IPR&D”) during the first quarter of 2006 because feasibility of the acquired technology had not been established and no future alternative uses existed. The IPR&D expense is included in operating expenses in its consolidated statements of operation in the year ended December 31, 2006.

     The IPR&D is related to the development of new game titles. The Company determined the value of acquired IPR&D using the discounted cash flow approach. The Company calculated the present value of the expected future cash flows attributable to the in-process technology using a 21% discount rate. This rate takes into account the percentage of completion of the development effort of approximately 20% and the risks associated with the Company’s developing this technology given changes in trends and technology in the industry. As of December 31, 2006, these acquired IPR&D projects had been completed at costs similar to the original projections.

     The Company based the valuation of identifiable intangible assets and IPR&D acquired on management’s estimates, currently available information and reasonable and supportable assumptions. The Company based the allocation of the purchase price on the fair value of these net assets acquired determined using the income and market valuation approaches.

     The Company allocated the residual value of $22,828 to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In accordance with SFAS No. 142, goodwill will not be amortized but will be tested for impairment at least annually. Goodwill is not deductible for tax purposes.

     The Company has included the results of operations of iFone in its consolidated financial statements subsequent to the date of the acquisition. The unaudited financial information in the table below summarizes the combined results of operations of the Company and iFone, on a pro forma basis, as though the companies had been combined as of the beginning of the period presented:

	Three
	Months
	Ended
	March 31,
	2006
Total pro forma revenues	$	10,495
Gross profit		7,173
Pro forma net loss		(7,728	)
Pro forma net loss per share — basic and diluted		(1.68	)

13

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

     The Company is presenting pro forma financial information for informational purposes only, and this information is not intended to be indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of 2006. The pro forma financial information above includes a charge of $1,500 for IPR&D.

Note 3 – Balance Sheet Components

  Property and Equipment

	March 31,			December 31,
	2007			2006
Computer equipment	$	2,179		$	1,856
Furniture and fixtures		1,366			1,260
Software		2,060			1,714
Leasehold improvements		984			1,129
		6,589			5,959
Less: Accumulated depreciation and amortization		(2,930	)		(2,479	)
	$	3,659		$	3,480

     Depreciation and amortization for the three months ended March 31, 2007 and 2006 were $447 and $336, respectively.

  Accounts Receivable

	March 31,			December 31,
	2007			2006
Accounts receivable	$	15,967		$	14,914
Less: Allowance for doubtful accounts		(443	)		(466	)
	$	15,524		$	14,448

     Accounts receivable includes amounts billed and unbilled as of the respective balance sheet dates. The Company had no significant write-offs or recoveries during the three months ended March 31, 2007 and 2006.

Note 4 – Goodwill and Intangible Assets

     The Company’s intangible assets were acquired in connection with the acquisitions of Macrospace and iFone. The carrying amounts and accumulated amortization expense of the acquired intangible assets at March 31, 2007 and December 31, 2006 were as follows:

	Estimated						Accumulated			Balance at							Accumulated			Balance at
	Useful	Acquisition					Amortization			December 31,		Acquisition					Amortization			March 31,
	Life	Amount		Impairment			Expense			2006		Amount		Impairment			Expense			2007
Intangible assets amortized to cost of revenues:
Titles, context and technology	2.5 yrs	$	5,300	$	(1,103	)	$	(2,373	)	$	1,824	$	5,300	$	(1,103	)	$	(2,779	)	$	1,418
Catalogs	1 yr		1,500		—			(1,500	)		—		1,500		—			(1,500	)		—
Provision X Technology	6 yrs		247		—			(192	)		55		247		—			(196	)		51
Carrier contract and related relationships	5 yrs		2,200		—			(563	)		1,637		2,200		—			(673	)		1,527
Licensed content	5 yrs		400		—			(60	)		340		400		—			(80	)		320
Trademarks	3 yrs		100		—			(37	)		63		100		—			(50	)		50
			9,747		(1,103	)		(4,725	)		3,919		9,747		(1,103	)		(5,278	)		3,366
Other intangible assets amortized to operating expenses:
Emux Technology	6 yrs		1,600		—			(545	)		1,055		1,600		—			(611	)		989
Non-compete agreement	2 yrs		700		—			(700	)		—		700		—			(700	)		—
			2,300		—			(1,245	)		1,055		2,300		—			(1,311	)		989
Total intangible assets		$	12,047	$	(1,103	)	$	(5,970	)	$	4,974	$	12,047	$	(1,103	)	$	(6,589	)	$	4,355

14

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

     The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenues. The Company has included amortization of acquired intangible assets not directly attributable to revenue-generating activities in operating expenses. During the three months ended March 31, 2007 and 2006, the Company recorded amortization expense in the amounts of $552 and $118, respectively, in cost of revenues. During the three months ended March 31, 2007 and 2006, the Company recorded amortization expense in the amounts of $67 and $154, respectively, in operating expenses.

     As of March 31, 2007, the total expected future amortization related to intangible assets was as follows:

	Amortization		Amortization
	Included in		Included in		Total
	Cost of		Operating		Amortization
Fiscal Years:	Revenues		Expenses		Expense
2007 (remaining nine months)		1,519		200		1,719
2008		883		267		1,150
2009		526		267		793
2010		354		255		609
2011 and thereafter		84		—		84
	$	3,366	$	989	$	4,355

     The Company attributes all of the goodwill resulting from the Macrospace acquisition to its EMEA reporting unit. The goodwill resulting from the iFone acquisition is evenly attributed to its Americas and EMEA reporting units. The goodwill allocated to the Americas reporting unit is denominated in United States Dollars, and the goodwill allocated to the EMEA reporting unit is denominated in pounds sterling. As a result, the goodwill attributed to the EMEA reporting unit is subject to foreign currency fluctuations. During the three months ended March 31, 2007, goodwill increased by $60 due to the United States Dollar weakening against the pound sterling. During the year ended December 31, 2006, goodwill increased by $3,081 due to the United States Dollar weakening against the pound sterling. Goodwill at March 31, 2007 and December 31, 2006 was $38,787 and $38,727, respectively.

Note 5 – Commitments and Contingencies

  Leases

     The Company leases office space under noncancelable operating facility leases with various expiration dates through December 2011. Rent expense for the three months ended March 31, 2007 and 2006 was $410 and $336, respectively. The terms of the facility leases provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. The deferred rent balance was $296 and $225 at March 31, 2007 and December 31, 2006, respectively, and was included within other long-term liabilities.

     At March 31, 2007, future minimum lease payments under noncancelable operating leases were as follows:

	Minimum
	Operating
	Lease
Fiscal Years:	Payments
2007 (remaining nine months)	$	1,246
2008		1,087
2009		750
2010		750
2011		470
2012 and thereafter		—
	$	4,303

15

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

  Capital Lease

     The Company has one lease that it accounts for as a capital lease. It capitalized a total of $114 as computer equipment under this lease during the year ended December 31, 2005. The Company recorded no capital lease obligations during the year ended December 31, 2006 or during the three months ended March 31, 2007. Accumulated depreciation associated with this capital lease was $57 and $47 at March 31, 2007 and December 31, 2006, respectively. The Company has a commitment to pay $13 under this lease for the remaining nine months of 2007.

  Minimum Guaranteed Royalties

     The Company has entered into license and development agreements with various owners of brands and other intellectual property so that it could develop and publish games for mobile handsets. Pursuant to some of these agreements, the Company is required to pay minimal royalties over the term of the agreements regardless of actual game sales. Future minimum royalty payments for those agreements as of March 31, 2007 were as follows:

	Minimum
	Guaranteed
Fiscal Year:	Royalties
2007 (remaining nine months)	$	1,525
2008		1,660
2009		1,065
2010		1,005
2011		350
2012 and thereafter		375
	$	5,980

     Commitments in the above table include $3,205 of guaranteed royalties to licensors that are included in the Company’s consolidated balance sheet as of March 31, 2007 because the licensors do not have any significant performance obligations. These commitments are included in both current and long-term prepaid and accrued royalties.

  Indemnification Arrangements

     The Company has entered into agreements under which it indemnifies each of its officers and directors during his or her lifetime for certain events or occurrences while the officer or director is or was serving at the Company’s request in that capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company had recorded no liabilities for these agreements as of March 31, 2007 or December 31, 2006.

     In the ordinary course of its business, the Company includes standard indemnification provisions in most of its license agreements with carriers and other distributors. Pursuant to these provisions, the Company indemnifies these parties for losses suffered or incurred in connection with its games, including as a result of intellectual property infringement and viruses, worms and other malicious software. The term of these indemnity provisions is generally perpetual after execution of the corresponding license agreement, and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions is generally unlimited. The Company has never incurred costs to defend lawsuits or settle indemnified claims of these types. As a result, the Company believes the estimated fair value of these indemnity provisions is minimal. Accordingly, the Company had recorded no liabilities for these provisions as of March 31, 2007 or December 31, 2006.

  Contingencies

     The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any of these matters, individually or in the aggregate, will have a materially adverse effect on the Company’s business, financial condition or results of operation, and thus no amounts were accrued for these exposures at March 31, 2007.

16

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

Note 6 – Debt

  Loan Agreement

     In May 2006, the Company entered into a loan agreement (the “Loan”) with a principal in the amount of $12,000. The Loan had an interest rate of 11%. The Company was obligated to pay only interest through December 31, 2006. Beginning January 1, 2007, the Company became obligated to pay 30 equal payments of principal and accrued interest until the entire principal is paid. As of March 31, 2007, all borrowings were repaid in full. As a result of the repayment, the remaining unamortized debt issuance costs of $66 were amortized to interest expense during the first quarter of 2007.

     In conjunction with the Loan, the Company issued to entities affiliated with the lender warrants to purchase 106 shares of Series D Preferred Stock with an exercise price of $9.03 per share and a contractual life of seven years. The Company calculated the fair value of each warrant using the Black-Scholes option pricing model with the following assumptions: volatility of 73%, term of seven years, risk-free interest rate of 5.1% and dividend yield of 0%. The Company recorded the fair value of the warrants of $607 as a discount to the carrying value of the Loan. Upon repayment of the Loan in March 2007, the remaining unamortized debt discount of $477 was amortized in full to interest expense. These warrants converted into warrants to purchase an equal number of shares of common stock upon the closing of the IPO and remained outstanding at March 31, 2007.

  Line of Credit Facility

     In February 2007, the Company entered into an agreement to secure a revolving line of credit that allows the Company to borrow up to $8,000. The facility is restricted to 80% of the Company’s eligible domestic accounts receivable. The line carries an interest rate equal to the prime rate plus 1% and matures in 24 months. Payments on any borrowings would be interest only with any remaining borrowings due at maturity. The line is collateralized by all of the assets of the Company, including intellectual property. The Company is required to maintain a minimum tangible net worth of $3,000. Also, if the Company’s net cash balance, excluding any borrowings under this line of credit, declines below $3,500, then the Company’s accounts receivable must be collected by means of a lock box, the interest rate on any borrowings would be increased to the prime rate plus 2% and the Company would have to pay a one-time fee to the lender of $50. To date, there have been no borrowings under this facility. The Company was in compliance with all covenants as of March 31, 2007.

Note 7 – Sale of ProvisionX Software

     In January 2007, the Company signed an agreement with a third party for the sale of its ProvisionX software for $1.1 million. Under the terms of the agreement, the Company will co-own the intellectual property rights to the ProvisionX software, excluding any alterations or modifications following completion of the sale, by the third party. The Company recognized a net gain on the sale of assets of $1,040 which includes approximately $60 of selling costs incurred during the transition.

Note 8 – Stockholders’ Equity/(Deficit)

  Common Stock

     In March 2007, the Company completed its IPO of common stock in which it sold and issued 7,300 shares of common stock at an issue price of $11.50 per share. The Company raised a total of $83,950 in gross proceeds from the IPO, or approximately $74,744 in net proceeds after deducting underwriting discounts and commissions of $5,877 and other offering costs of $3,329. Upon the closing of the IPO, all shares of redeemable convertible preferred stock outstanding automatically converted into 15,680 shares of common stock.

     In April 2007, the underwriters exercised a portion of the over-allotment option as to 199 shares, all of which were sold by stockholders and not by the Company.

  Early Exercise of Employee Options

     Stock options granted under the Company’s stock option plan provide certain employee option holders the right to elect to exercise unvested options in exchange for shares of restricted common stock. Unvested shares, in the amounts of 94 and 108 at

17

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

March 31, 2007 and December 31, 2006, respectively, were subject to a repurchase right held by the Company at the original issuance price in the event the optionees’ employment is terminated either voluntarily or involuntarily. For exercises of employee options, this right generally lapses as to 25% of the shares subject to the option on the first anniversary of the vesting start date and as to 1/48th of the shares monthly thereafter. These repurchase terms are considered to be a forfeiture provision and do not result in variable accounting. The restricted shares issued upon early exercise of stock options are legally issued and outstanding and have been reflected in stockholders’ equity/(deficit). The Company treats cash received from employees for exercise of unvested options as a refundable deposit shown as a liability in its consolidated financial statements. As of March 31, 2007 and December 31, 2006, the Company included cash received for early exercise of options of $81 and $92, respectively, in accrued liabilities. Amounts from accrued liabilities are transferred into common stock and additional paid-in capital as the shares vest.

  Warrants to Purchase Common Stock

     In connection with the issuance of its Series A Preferred Stock, the Company issued warrants to purchase 20 shares of common stock. These warrants had an exercise price of $0.36 per share and an expiration date of December 31, 2007. During the year ended December 31, 2006, these warrants were exercised for gross proceeds of $7.

     Upon the effective date of the IPO, warrants to purchase 229 shares of redeemable convertible preferred stock converted into warrants to purchase 229 shares of common stock. As discussed in Note 1, the Company classified the freestanding redeemable convertible preferred stock warrants as a liability and adjusted the warrants to fair value at each reporting period until the completion of the IPO. Upon closing of the IPO, the preferred stock warrant liability of $1,985 was reclassed to additional paid-in capital.

     In February 2007, the Company issued warrants to purchase an aggregate of 272 shares of common stock with an exercise price of $0.0003 per share to certain holders of Series D or D-1 redeemable convertible preferred stock as an inducement for these holders to convert their preferred stock into common stock upon the consummation of the Company’s IPO. These warrants expire 30 days following the completion of the Company’s IPO, provided that, if the date of effectiveness of that offering was not March 31, 2007 or earlier, the warrants would expire. In connection with the issuance of the warrants, the Company received an agreement to convert all shares of preferred stock to common stock upon completion of the Company’s IPO from holders of the requisite number of shares to cause that conversion, provided that the registration statement for the initial public offering was effective on or before March 31, 2007. The Company recorded a deemed dividend of $3.1 million in connection with the issuance of the warrants during the three months ending March 31, 2007. The deemed dividend represented the fair value of the warrants and was calculated using the share price at the date of the IPO closing of $11.50 per share and the strike price of the warrants of $0.0003 per share. These warrants were exercised in April 2007.

     As of March 31, 2007, 501 warrants to purchase common stock remained outstanding, including the warrants issued in connection with the Loan.

Note 9 – Stock Option Plans and Stock Purchase Plan

  2001 Stock Plan

     In December 2001, the Company adopted the 2001 Stock Option Plan (the “2001 Plan”). The 2001 Plan provides for the granting of stock options to employees, directors, consultants, independent contractors and advisors of the Company. Options granted under the 2001 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (“ISO”) may be granted only to Company employees (including officers and directors who are also employees). Nonqualified stock options (“NSO”) may be granted to Company employees, directors, consultants, independent contractors and advisors. As of March 31, 2007, the Company had authorized 4,498 shares of common stock for issuance under the 2001 Plan.

  2007 Equity Incentive Plan

     In January 2007, the Company’s Board of Directors adopted, and in March 2007 the stockholders approved, the 2007 Equity Incentive Plan (the “2007 Plan”). The Company has reserved 1,766 shares of its common stock for grant and issuance under the 2007 Plan. In addition, shares not issued or subject to outstanding grants under the 2001 Plan on the date of adoption of the 2007 Plan and any shares issued under the 2001 Plan that are forfeited or repurchased by the Company or that are issuable upon exercise of options that expire or become unexercisable for any reason without having been exercised in full, will be available

18

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

for grant and issuance under the 2007 Plan. At the time of adoption, there were 1,766 shares of common stock authorized for issuance under the 2007 Plan plus 195 shares of common stock from the 2001 Plan that were unissued. The number of shares available for grant and issuance under the 2007 Plan will be increased on January 1 of each of 2008 through 2011, by the lesser of (i) 3% of the number of shares of the Company’s common stock issued and outstanding on each December 31 immediately prior to the date of increase or (ii) such number of shares determined by the Board of Directors.

     The Company may grant options under the 2007 Plan at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by its Board of Directors, provided, however, that (i) the exercise price of an ISO or NSO may not be less than 100% or 85%, respectively, of the estimated fair value of the underlying shares of common stock on the grant date, and (ii) the exercise price of an ISO or NSO granted to a 10% stockholder may not be less than 110% of the estimated fair value of the shares on the grant date.

     Generally, options granted under the 2007 Plan are exercisable for a period of five or ten years after the date of grant, and the shares of common stock subject to the option vest at a rate of ¹/4 of the shares on the first anniversary of the grant date of the option and an additional 1/48 of the shares upon completion of each succeeding full month of continuous employment thereafter. The Board of Directors may terminate the 2007 Plan at any time at its discretion.

  2007 Employee Stock Purchase Plan

     In January 2007, the Company’s Board of Directors adopted, and in March 2007 the stockholders approved, the 2007 Employee Stock Purchase Plan (the “2007 Purchase Plan). The Company has reserved 667 shares of its common stock for issuance under the 2007 Purchase Plan. On each January 1 for the first eight calendar years after the first offering date, the aggregate number of shares of the Company’s common stock reserved for issuance under the 2007 Purchase Plan will be increased automatically by the number of shares equal to 1% of the total number of outstanding shares of the Company’s common stock on the immediately preceding December 31, provided that the Board of Directors may reduce the amount of the increase in any particular year and provided further that the aggregate number of shares issued over the term of the 2007 Purchase Plan may not exceed 5,333.

  Stock Option Activity

     The following table summarizes the Company’s stock option activity for the three months ended March 31, 2007:

	Shares						Weighted		Weighted
	Available			Number of			Average		Average		Aggregate
	for			Options			Exercise		Contractual		Intrinsic
	Grant			Outstanding			Price		Term (Years)		Value
Balances, December 31, 2006		476			2,882		$	5.03
Additional Authorized		1,766			—			—
Granted		(468	)		468			11.28
Exercised		—			(99	)		0.84
Forfeited, cancelled or expired		20			(20	)		6.07
Balances, March 31, 2007		1,794			3,231		$	6.04		7.09	$	13,843
Options vested and expected to vest at March 31, 2007					2,742		$	5.70		6.83	$	12,612
Options exercisable at March 31, 2007					947		$	2.41		4.68	$	7,189

     The aggregate intrinsic value in the preceding table is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of the Company’s common stock of $10.00 per share as of March 31, 2007. During the three months ended March 31, 2007, the aggregate intrinsic value of options exercised under the Company’s stock option plans was $134. As of March 31, 2007, the Company had $7,218 of total unrecognized compensation expense under SFAS No. 123R, net of estimated forfeitures, that will be recognized over a weighted average period of 2.77 years. As permitted by SFAS No. 123R, the Company has deferred the recognition of its excess tax benefit from non-qualified stock option exercises.

     Included in the above table are 4 non-employee stock options granted. The non-employee options outstanding had an exercise price of $11.00 per share, a remaining contractual term of 1 year and no intrinsic value at March 31, 2007.

19

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

     The Company adopted SFAS No. 123R on January 1, 2006. Under SFAS No. 123R, the Company estimated the fair value of each option award on the grant date using the Black-Scholes option valuation model and the weighted average assumptions noted in the following table.

	Three Months
	Ended March 31,
	2007			2006
Dividend yield		0	%		0	%
Risk-free interest rate		4.65	%		4.52	%
Expected term (years)		6.08			6.08
Expected volatility		59.2	%		88.0	%

     The Company based expected volatility on the historical volatility of a peer group of publicly traded entities. The expected term of options gave consideration to early exercises, post-vesting cancellations and the options’ contractual term, which was extended for all options granted subsequent to September 12, 2005 from five to ten years. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury Constant Maturity Rate as of the date of grant.

     SFAS No. 123R requires nonpublic companies that used the minimum value method under SFAS No. 123 to apply the prospective transition method of SFAS No. 123R. Prior to adoption of SFAS No. 123R, the Company used the minimum value method, and it therefore has not restated its financial results for prior periods. Under the prospective method, stock-based compensation expense for the year ended December 31, 2006 and the three months ended March 31, 2007 includes compensation expense for (i) all new stock-based compensation awards granted after January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R, (ii) unmodified awards granted prior to but not vested as of December 31, 2005 accounted for under APB No. 25 and (iii) awards outstanding as of December 31, 2005 that were modified after the adoption of SFAS No. 123R.

     The Company calculated employee stock-based compensation expense recognized in the three months ended March 31, 2007 based on awards ultimately expected to vest and reduced it for estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

     The following table summarizes the consolidated stock-based compensation expense by line items in the consolidated statement of operations:

	Three Months Ended March 31,
	2007		2006
Research and development	$	95	$	33
Sales and marketing		97		27
General and administrative		416		207
Total stock-based compensation expense	$	608	$	267

     Consolidated net cash proceeds from option exercises were $80 and $10 for the three months ended March 31, 2007 and 2006, respectively. The Company realized no income tax benefit from stock option exercises during the three months ended March 31, 2007 or 2006. As required, the Company presents excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows.

     During the three months ended March 31, 2007, the Company modified one option agreement. The modifications involved the acceleration of the vesting of one grant totaling 1 share of common stock. The Company recorded a charge of $5 in connection with this modification for the three months ended March 31, 2007. During the three months ended March 31, 2006, the Company modified two option agreements of two members of the Company’s Board of Directors. The modifications included the repricing of one option for 50 shares of common stock from $4.80 to $3.57 per share and accelerating the vesting of the other option totaling 15 shares of common stock. The Company recorded a charge of $44 in connection with these modifications.

20

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

  Restricted Stock

     During the three months ended March 31, 2007, the Company granted 4 shares of restricted stock to a director of the Company who had elected to receive restricted stock in lieu of an option grant. The restricted stock vest as to 50% of the shares after six months and thereafter will vest pro rata monthly for the next six months. The Company did not grant any restricted stock during the three months ended March 31, 2006.

Note 10 – Income Taxes

     The company recorded an income tax provision of $272 and $106 for the three months ended March 31, 2007 and 2006, respectively. The income tax rates vary from the Federal and State statutory rates due to the valuation allowances on our net operating losses, foreign tax rate differences, and withholding taxes.

     The Company adopted the provisions of FIN 48 on January 1, 2007. The total amount of unrecognized tax benefits as of the date of adoption was $575. As of March 31, 2007, the recognition of the uncertain tax benefits above would not have an impact to our effective tax rate. In the absence of a valuation allowance on our deferred tax assets the recognition of these uncertain tax benefits would have an impact to our effective tax rate.

     The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. The Company does not have any uncertain tax positions that would result in a payment of cash taxes, and as such, the Company does not have any interest accrued on uncertain tax positions as of the reporting date. As of March 31, 2007, the Company did not have any penalties accrued for uncertain tax positions.

     The Company is subject to taxation in the U.S. and various foreign jurisdictions. The material jurisdictions subject to examination by tax authorities are primarily the U.S., California and United Kingdom. The Company’s Federal tax return is open by statute for tax years 2003 and forward and could be subject to examination by the tax authorities. The Company’s California income tax returns are open by statute for tax years 2002 and forward. The statute of limitations for the Company’s 2005 tax return in the United Kingdom will close in 2008.

Note 11 – Segment Reporting

     Statement of Financial Accounting Statements No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. It defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-maker is its Chief Executive Officer. The Company’s Chief Executive Officer reviews financial information on a geographic basis, however these aggregate into one operating segment for purposes of allocating resources and evaluating financial performance. Accordingly, the Company reports as a single operating segment — mobile games. It attributes revenues to geographic areas based on the country in which the carrier’s principal operations are located.

     The Company generates its revenues in the following geographic regions:

	Three Months
	Ended March 31,
	2007		2006
United States of America	$	8,438	$	4,576
United Kingdom		1,684		533
Americas, excluding the USA		1,044		509
EMEA, excluding the United Kingdom		3,451		2,008
Other		1,081		447
	$	15,698	$	8,073

21

GLU MOBILE INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data) — (Continued)

     The company attributes its long-lived assets, which primarily consist of property and equipment, to a country primarily based on the physical location of the assets. Property and equipment, net of accumulated depreciation and amortization, summarized by geographic location was as follows:

	March 31,		December 31,
	2007		2006
Americas	$	2,177	$	1,956
EMEA		1,381		1,407
Other		101		117
	$	3,659	$	3,480

Note 12 – Subsequent Events

     In April 2007, the underwriters of the Company’s IPO exercised a portion of the over-allotment option as to 199 shares, all of which were sold by stockholders and not by the Company.

     In April 2007, Granite Global Ventures II, L.P. and TWI Glu Mobile Holdings Inc. exercised their warrants to purchase an aggregate of 272 shares of our common stock at an exercise price of $0.0003 per share.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Factors That May Affect Future Results

The following discussion an analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2006 included in the final prospectus for our IPO dated March 21, 2007, filed with the Securities and Exchange Commission, or SEC, on March 22, 2007. This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Form 10-Q and in our other SEC filings, including our final prospectus dated March 21, 2007, which we filed in connection with our initial public offering. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

     Glu Mobile is a leading global publisher of mobile games. We have developed and published a portfolio of more than 100 casual and traditional games to appeal to a broad cross section of the over one billion subscribers served by our more than 150 wireless carriers and other distributors. We create games and related applications based on third-party licensed brands and other intellectual property, as well as on our own original brands and intellectual property. Our games based on licensed intellectual property include Deer Hunter, Diner Dash, Monopoly, Sonic the Hedgehog, World Series of Poker and Zuma. Our original games based on our own intellectual property include Alpha Wing, Ancient Empires, Blackjack Hustler, Brain Genius, Stranded and Super K.O. Boxing.

     We seek to attract end users by developing engaging content that is designed specifically to take advantage of the portability and networked nature of mobile handsets. We leverage the marketing resources and distribution infrastructures of wireless carriers and the brands and other intellectual property of third-party content owners, which allows us to focus our efforts on developing and publishing high-quality mobile games.

     We believe that improving quality and greater availability of mobile games are increasing end-user awareness of and demand for mobile games. At the same time, carriers and branded content owners are focusing on a small group of publishers that have the ability to produce high-quality mobile games consistently and port them rapidly and cost effectively to a wide variety of handsets. Additionally, branded content owners are seeking publishers that have the ability to distribute games globally through relationships with most or all of the major carriers. We believe we have created the requisite development and porting technology and have achieved the requisite scale to be in this group. We also believe that leveraging our carrier and content owner relationships will allow us to grow our revenues without corresponding percentage growth in our infrastructure and operating costs.

     Our revenue growth rate will depend significantly on continued growth in the mobile game market and our ability to continue to attract new end users in that market. Our ability to attain profitability will be affected by the extent to which we must incur additional expenses to expand our sales, marketing, development, and general and administrative capabilities to grow our business. The largest component of our expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation, including bonuses and stock-based compensation, for our employees. Our operating expenses will continue to grow in absolute dollars, assuming our revenues continue to grow. As a percentage of revenues, we expect these expenses to decrease.

     We were incorporated in May 2001 and introduced our first mobile games to the market in July 2002. In December 2004 and in March 2006, we acquired Macrospace and iFone, respectively, each a mobile game developer and publisher based in the United Kingdom. In the third quarter of 2005, we opened a Hong Kong office; in the third quarter of 2006, we opened an office

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in France; in the fourth quarter of 2006, we opened additional offices in Brazil and Germany; and in the second quarter of 2007, we opened an office in Spain.

     We acquired Macrospace to continue to develop and secure direct distribution relationships with the leading wireless carriers, to deepen and broaden our game library, to acquire access and rights to leading licenses and franchises (including original intellectual property) and to augment our internal production and publishing resources. We acquired iFone to continue to deepen and broaden our game library, to acquire access and rights to leading licenses and franchises and to augment our external production resources. These acquisitions were part of our strategy of expanding into Europe to address the desire of wireless carriers to work with publishers that have large and diverse portfolios of high-quality games based on well-known brands and of branded content owners to work with publishers that have global distribution capabilities. These acquisitions:

• enabled us to port the acquired companies’ games to additional handsets and distribute them in other geographies;

• enabled us to distribute our original and licensed intellectual property in the geographies where these companies had distribution relationships;

• provided complementary technical production capabilities that enabled the combined companies to create products superior to those developed by either separately;

• enabled us to develop games targeted to the European market, and localize our existing games;

• expanded and deepened our management capacity and capability to conduct business globally; and

• enabled us to compete for licenses on a broader scale because of enhanced distribution and production capabilities.

     In March 2007, we completed our initial public offering, or IPO, of common stock in which we sold and issued 7,300,000 shares of common stock at a price of $11.50 per share to the public. We raised a total of $83,950,000 in gross proceeds from the IPO, or approximately $74,744,000 in net proceeds after deducting underwriting discounts and commissions of $5,877,000 and other offering costs of $3,329,000. Upon the closing of the IPO, all shares of redeemable convertible preferred stock outstanding automatically converted into 15,680,292 shares of common stock.

     We believe that the acquisitions and the IPO, together with our internal growth, have significantly enhanced our attractiveness to wireless carriers and branded content owners, allowing us to pursue our ongoing strategy.

  Revenues

     We generate the vast majority of our revenues from wireless carriers that market and distribute our games. These carriers generally charge a one-time purchase fee or a monthly subscription fee on their subscribers’ phone bills when the subscribers download our games to their mobile phones. The carriers perform the billing and collection functions and generally remit to us a contractual fee or a contractual percentage of their collected fee for each game. We recognize as revenues the percentage of the fees due to us from the carrier (see “— Critical Accounting Policies and Estimates — Revenue Recognition” below). End users may also initiate the purchase of our games through various Internet portal sites or through other delivery mechanisms, with carriers generally continuing to be responsible for billing, collecting and remitting to us a portion of their fees. To date, eliminating the impact of our acquisitions, our domestic revenues have grown more rapidly than our international revenues, and this trend may continue.

  Cost of Revenues

     Our cost of revenues consists primarily of royalties that we pay to content owners from which we license brands and other intellectual property and, to a limited extent, to certain external developers. Our cost of revenues also includes non-cash expenses — amortization of certain acquired intangible assets, any impairment of those intangible assets, and any impairment of prepaid royalties and guarantees. We record advance royalty payments made to content licensors as prepaid royalties on our balance sheet when payment is made to the licensor. We recognize royalties in cost of revenues based upon the revenues derived from the relevant game multiplied by the applicable royalty rate. If our licensors earn royalties in excess of their advance royalties, we also recognize these excess royalties as cost of revenues in the period they are earned by the licensor. If applicable, we will record an impairment of prepaid royalties or accrue for future guaranteed royalties that are in excess of

24

anticipated demand or net realizable value. At each balance sheet date, we perform a detailed review of prepaid royalties and guarantees that considers multiple factors, including forecasted demand, game life cycle status, game development plans, and current and anticipated sales levels.

     We pay some of our external developers, especially in Europe, royalties in addition to payments for game development costs. We recognize these royalties as cost of revenues in the period the developer earns the royalties based upon the revenues derived from the relevant game multiplied by the applicable royalty rate. We expense the costs for development of our games prior to technological feasibility as we incur them throughout the development process, and we include these costs in research and development expenses (see “— Critical Accounting Policies and Estimates — Software Development Costs” below). To date, royalties paid to developers have not been significant, but we expect them to increase in aggregate amount based on our existing contracts with developers.

     Absent further impairments of existing intangible assets, we expect amortization of intangible assets included in cost of revenues to be $1,519,000 for the remaining nine months of 2007, $883,000 in 2008, $526,000 in 2009, $354,000 in 2010 and $84,000 in 2011. These amounts would likely increase if we make future acquisitions.

  Gross Margin

     Our gross margin is determined principally by the mix of games that we license. Our games based on licensed intellectual property require us to pay royalties to the licensor and the royalty rates in our licenses vary significantly; our original Glu-branded games, which are based on our own intellectual property, require no royalty payments to licensors. There are multiple internal and external factors that affect the mix of revenues from licensed games and Glu-branded games, including the overall number of licensed games and Glu-branded games available for sale during a particular period, the extent of our and our carriers’ marketing efforts for each game, and the deck placement of each game on our carriers’ mobile handsets. We believe the success of any individual game during a particular period is affected by its quality and third-party ratings, its marketing and media exposure, its consumer recognizability, its overall acceptance by end users and the availability of competitive games. If our product mix shifts more to licensed games or games with higher royalty rates, our gross margin would decline. Our gross margin is also adversely affected by ongoing amortization of acquired intangible assets, such as licensed content, games, trademarks and carrier contracts, that are directly related to revenue-generating activities and by periodic charges for impairment of these assets and of prepaid royalties and guarantees. These charges can cause gross margin variations, particularly from quarter to quarter.

  Operating Expenses

     Our operating expenses primarily include research and development expenses, sales and marketing expenses and general and administrative expenses. They have in the past also included amortization of acquired intangible assets not directly related to revenue-generating activities and, in one period, a restructuring charge and a charge for acquired in-process research and development.

     Research and Development. Our research and development expenses consist primarily of salaries and benefits for employees working on creating, developing, porting, quality assurance, carrier certification and deployment of our games, on technologies related to interoperating with our various wireless carriers and on our internal platforms, payments to third parties for developing and porting of our games, and allocated facilities costs.

     We devote substantial resources to the development, porting and quality assurance of our games and expect this to continue in the future. We believe that developing games internally through our own development studios allows us to increase operating margins, leverage the technology we have developed and better control game delivery. During 2006, as a result of our acquisition of iFone, we substantially increased our use of external development resources, but we currently do not expect further significant increases in expenses for external development. Our games generally require six months to one year to produce, based on the complexity and feature set of the game developed, the number of carrier wireless platforms and mobile handsets covered, and the experience of the internal or external developer. We expect our research and development expenses will increase in absolute terms as we continue to create new games and technologies, but that these expenses will continue to decline as a percentage of revenues.

     Sales and Marketing. Our sales and marketing expenses consist primarily of salaries, benefits and incentive compensation for sales and marketing personnel, expenses for advertising, trade shows, public relations and other promotional and marketing

25

activities, expenses for general business development activities, travel and entertainment expenses and allocated facilities costs. We expect sales and marketing expenses to increase in absolute terms with the growth of our business and as we further promote our games and the Glu brand. Although we expect our variable marketing expenses to increase at least as rapidly as our revenues, we expect that our sales and marketing headcount will not increase as rapidly as revenues and that therefore sales and marketing expenses will continue to decrease as a percentage of revenues.

     General and Administrative. Our general and administrative expenses consist primarily of salaries and benefits for general and administrative personnel, consulting fees, legal, accounting and other professional fees, information technology costs and allocated facilities costs. We expect that general and administrative expenses will increase in absolute terms as we hire additional personnel and incur costs related to the anticipated growth of our business and our operation as a public company. We also expect that these expenses will increase because of the additional costs to comply with the Sarbanes-Oxley Act and related regulation, our efforts to expand our international operations and, in the near term, additional accounting costs related to the public offering of our common stock. However, we expect these expenses to continue to decrease as a percentage of revenues.

     Based on our current revenue and expense projections, we expect that our various operating expense categories will decline as a percentage of revenues. We could fail to increase our revenues as anticipated, and we could decide to increase expenses in one or more categories to respond to competitive pressures or for other reasons. In these cases and others, it is possible that one or more of our operating expense categories would not decline as a percentage of revenues.

     Amortization of Intangible Assets. We record amortization of acquired intangible assets that are directly related to revenue-generating activities as part of our cost of revenues and amortization of the remaining acquired intangible assets, such as non-compete agreements, as part of our operating expenses. We record intangible assets on our balance sheet based upon their fair value at the time they are acquired. We determine the fair value of the intangible assets using a discounted cash flows approach. We amortize the amortizable intangible assets using the straight-line method over their estimated useful lives of two to six years. Absent impairments of existing intangible assets, we expect amortization of existing intangible assets to be $200,000 for the remaining nine months of 2007, $267,000 in 2008, $267,000 in 2009 and $255,000 in 2010. These amounts would likely increase if we make future acquisitions.

     Acquired In-Process Research and Development. We classify all development projects acquired in business combinations as acquired in-process research and development, or IPR&D, if the feasibility of the acquired technology has not been established and no future alternative uses exist. We expense the fair value of IPR&D at the time it is acquired. We determine the fair value of the IPR&D using a discounted cash flows approach. In estimating the appropriate discount rate, we consider, among other things, the risks to developing technology given changes in trends and technology in our industry. In 2006, we expensed the fair value of IPR&D acquired in the iFone transaction.

     Gain on Sale of Assets. Our gain on sale of assets relates entirely to the net proceeds from the sale of our ProvisionX software to a third party. We do not anticipate additional gains on asset sales in the future.

  Interest and Other Income (Expense), Net

     Interest and other income (expense), net, includes interest income, interest expense, accretion of the debt discount related to the warrants issued to the lender in conjunction with its March 2006 loan to us, changes in our preferred stock warrant liability and foreign currency transaction gains and losses. Following the completion of the IPO our outstanding warrants to purchase redeemable convertible preferred stock converted into warrants to purchase common stock, and we are no longer required to record changes in our preferred stock warrant liability under Staff Position No. 150-5, Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable, or FSP 150-5, or accretion in the debt discount related to the the lender’s warrants. Following the IPO, we had additional cash, cash equivalents and short-term investments of approximately $76.5 million resulting from the net proceeds of the IPO, based on the price to the public of $11.50 per share and after deducting the underwriting discounts and estimated offering expenses. This will likely cause a substantial increase in our interest income.

  Accounting for Income Taxes

     We are subject to tax in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current United States

26

income tax depending on whether these earnings are subject to U.S. income tax based upon U.S. anti-deferral rules, such as Subpart F of the Internal Revenue Code of 1986, as amended, or the Code. In addition, some revenues generated outside of the United States and the United Kingdom may be subject to withholding taxes. In some cases, these withholding taxes may be deductible on a current basis or may be available as a credit to offset future income taxes depending on a variety of factors.

     We record a valuation allowance to reduce any deferred tax asset to the amount that is more likely than not to be realized. We consider historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we were to determine that we would be able to realize deferred tax assets in the future in excess of the net recorded amount, we would record an adjustment to the deferred tax asset valuation allowance. Such an adjustment would increase our income in the period the determination is made. Historically, we have incurred operating losses and have generated significant net operating loss carryforwards. At December 31, 2006, we had net operating loss carryforwards of approximately $28.5 million and $28.7 million for federal and state tax purposes, respectively. These carryforwards will expire from 2011 to 2026. Our ability to use our net operating loss carryforwards to offset any future taxable income may be subject to restrictions attributable to equity transactions that result in changes of ownership as defined by section 382 of the Code.

     On January 1, 2007 we adopted the provisions of FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

  Accretion of Preferred Stock and Deemed Dividend

     Our Series A, B, C, D and D-1 mandatorily redeemable convertible preferred stock, which were converted into common stock in connection with our IPO, had a mandatory redemption provision. In each quarterly and annual period, we accreted the amount that is necessary to adjust the recorded balance of this preferred stock to an amount equal to its estimated redemption value at its redemption date using the effective interest method. The redemption value is the par value of the preferred stock plus any dividends declared and unpaid. Each share of our outstanding preferred stock was converted into common stock upon completion of the IPO, and we ceased accreting upon this conversion. In February 2007, the requisite holders of our preferred stock agreed to convert all shares of our preferred stock into common stock upon completion of our IPO as long as the registration statement was effective on or prior to March 31, 2007. In connection with this agreement, we issued warrants to purchase an aggregate of 272,204 shares of common stock at an exercise price of $0.0003 per share exercisable for a period of 30 days following completion of our IPO, provided that the registration statement was effective on or prior to March 31, 2007. We recorded a deemed dividend related to these warrants in the three months ending March 31, 2007 of $3.1 million as a charge to net loss attributable to common stockholders. The deemed dividend represented the fair value of the warrants and was calculated using the share price at the date of the IPO closing of $11.50 per share and the strike price of the warrants of $0.0003 per share.

Critical Accounting Policies and Estimates

     Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles, or GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates of the consolidated financial statements, the disclosure of contingencies as of the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the periods presented. Although we believe that our estimates and judgments are reasonable under the circumstances existing at the time these estimates and judgments are made, actual results may differ from those estimates, which could affect our consolidated financial statements.

     We believe the following to be critical accounting policies because they are important to the portrayal of our financial condition or results of operations and they require critical management estimates and judgments about matters that are uncertain:

• revenue recognition;

• advance or guaranteed licensor royalty payments;

27

• software development costs;

• stock-based compensation; and

• income taxes.

  Revenue Recognition

     We derive our revenues primarily by licensing software products in the form of mobile games. License arrangements with our end users can be on a perpetual or subscription basis. A perpetual license gives an end user the right to use the licensed game on the registered mobile handset on a perpetual basis. A subscription license gives an end user the right to use the licensed game on the registered handset for a limited period of time, ranging from a few days to as long as one month. We distribute our products primarily through wireless carriers, which market our games to end users. Carriers usually bill license fees for perpetual and subscription licenses upon download of the game software by the end user. In the case of subscription licenses, many subscriber agreements provide for automatic renewal until the subscriber opts-out, while the others provide for opt-in renewal. In either case, subsequent billings for subscription licenses are generally billed monthly. We apply the provisions of Statement of Position 97-2, Software Revenue Recognition, as amended by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, to all transactions.

     We recognize revenues from our games when persuasive evidence of an arrangement exists, the game has been delivered, the fee is fixed or determinable, and the collection of the resulting receivable is probable. For both perpetual and subscription licenses, we consider a signed license agreement to be evidence of an arrangement with a carrier and a “clickwrap” agreement to be evidence of an arrangement with an end user. For these licenses, we define delivery as the download of the game by the end user.

     We estimate revenues from carriers in the current period when reasonable estimates of these amounts can be made. Several carriers provide reliable interim preliminary reporting and others report sales data within a reasonable time frame following the end of each month, both of which allow us to make reasonable estimates of revenues and therefore to recognize revenues during the reporting period when the end user licenses the game. Determination of the appropriate amount of revenue recognized involves judgments and estimates that we believe are reasonable, but it is possible that actual results may differ from our estimates. Our estimates for revenues include consideration of factors such as preliminary sales data, carrier-specific historical sales trends, the age of games and the expected impact of newly launched games, successful introduction of new handsets, promotions during the period and economic trends. When we receive the final carrier reports, to the extent not received within a reasonable time frame following the end of each month, we record any differences between estimated revenues and actual revenues in the reporting period when we determine the actual amounts. Historically, the revenues on the final revenue report have not differed by more than one-half of 1% of the reported revenues for the period, which we deemed to be immaterial. Revenues earned from certain carriers may not be reasonably estimated. If we are unable to reasonably estimate the amount of revenue to be recognized in the current period, we recognize revenues upon the receipt of a carrier revenue report and when our portion of a game’s licensed revenues is fixed or determinable and collection is probable. To monitor the reliability of our estimates, our management, where possible, reviews the revenues by carrier and by game on a weekly basis to identify unusual trends such as differential adoption rates by carriers or the introduction of new handsets. If we deem a carrier not to be creditworthy, we defer all revenues from the arrangement with that carrier until we receive payment and all other revenue recognition criteria have been met.

     In accordance with Emerging Issues Task Force, or EITF, Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, we recognize as revenues the amount the carrier reports as payable to us upon the sale of our games. We have evaluated our carrier agreements and have determined that we are not the principal when selling our games through carriers. Key indicators that we evaluated in reaching this determination included:

• wireless subscribers directly contract with their carriers, which have most of the service interaction and are generally viewed as the primary obligor by the subscribers;

• carriers generally have significant control over the types of games that they offer to their subscribers;

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• carriers are directly responsible for billing and collecting fees from their subscribers, including the resolution of billing disputes;

• carriers generally pay us a fixed percentage of their revenues or a fixed fee for each game;

• carriers generally must approve the price of our games in advance of their sale to subscribers, and our more significant carriers generally have the ability to set the ultimate price charged to their subscribers; and

• we have limited risks, including no inventory risk and limited credit risk.

  Advance or Guaranteed Licensor Royalty Payments

     Our royalty expenses consist of fees that we pay to branded content owners for the use of their intellectual property, including trademarks and copyrights, in the development of our games. Royalty-based obligations are either paid in advance and capitalized on our balance sheet as prepaid royalties or accrued as incurred and subsequently paid. These royalty-based obligations are expensed to cost of revenues at the greater of the revenues derived from the relevant game multiplied by the applicable contractual rate or an effective royalty rate based on expected net product sales. Advanced license payments that are not recoupable against future royalties are capitalized and amortized over the lesser of the estimated life of the branded title or the term of the license agreement.

     Our contracts with some licensors include minimum guaranteed royalty payments, which are payable regardless of the ultimate volume of sales to end users. Effective January 1, 2006, we adopted FSP FIN 45-3, Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners. As a result, we recorded a minimum guaranteed liability of approximately $3.2 million at March 31, 2007 and $1.4 million as of December 31, 2006. When no significant performance remains with the licensor, we initially record each of these guarantees as an asset and as a liability at the contractual amount. We believe that the contractual amount represents the fair value of our liability. When significant performance remains with the licensor, we record royalty payments as an asset when actually paid and as a liability when incurred, rather than upon execution of the contract. We classify minimum royalty payment obligations as current liabilities to the extent they are contractually due within the next twelve months.

     Each quarter, we also evaluate the realization of our royalties as well as any unrecognized guarantees not yet paid to determine amounts that we deem unlikely to be realized through product sales. We use estimates of revenues, cash flows and net margins to evaluate the future realization of prepaid royalties and guarantees. This evaluation considers multiple factors, including the term of the agreement, forecasted demand, game life cycle status, game development plans and current and anticipated sales levels. To the extent that this evaluation indicates that the remaining prepaid and guaranteed royalty payments are not recoverable, we record an impairment charge in the period such impairment is indicated. Subsequently, if actual market conditions are more favorable than anticipated, amounts of prepaid royalties previously written down may be utilized, resulting in lower cost of revenues and higher income from operations than previously expected in that period. We believe that the combination of the evolving market for licensing other companies’ intellectual property and our improved license pre-qualification process will reduce risk of future impairments. The impairments that we have recorded to date are predominantly related to license agreements entered into prior to 2005 and had significant guarantees for which the success was tied to a third-party product release. In 2005 and 2006, the market for licensed intellectual property stabilized, resulting in lower upfront commitment fees. We believe our improved visibility regarding forecasted demand and gaming trends supports our ability to reasonably determine the realizability of the assets on our consolidated balance sheet.

  Software Development Costs

     We apply the principles of SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. SFAS No. 86 requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. We have adopted the “tested working model” approach to establishing technological feasibility for our games. Under this approach, we do not consider a game in development to have passed the technological feasibility milestone until we have completed a model of the game that contains essentially all the functionality and features of the final game and have tested the model to ensure that it works as expected. To date, we have not incurred significant costs between the establishment of technological feasibility and the release of a game for sale; thus, we have expensed all software development costs as incurred.

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We also will consider the following factors in determining whether costs should be capitalized: the emerging nature of the mobile game market; the gradual evolution of the wireless carrier platforms and mobile handsets for which we develop games; the lack of pre-orders or sales history for our games; the uncertainty regarding a game’s revenue-generating potential; our lack of control over the carrier distribution channel resulting in uncertainty as to when, if ever, a game will be available for sale; and our historical practice of canceling games at any stage of the development process.

  Stock-Based Compensation

     Prior to January 1, 2006, we accounted for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, and related interpretations, and followed the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense for an option was based on the difference, if any, on the date of the grant between the fair value of a company’s common stock and the exercise price of the option. APB No. 25 required companies to record deferred stock-based compensation on their balance sheets and amortize it to expense over the vesting periods of the individual options. We amortize deferred stock-based compensation using the multiple option method as prescribed by FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, or FIN 28, over the option vesting period using an accelerated amortization schedule.

     Effective January 1, 2006, we adopted the fair value provisions of SFAS No. 123R, Share-Based Payment, which supersedes our previous accounting under APB No. 25. SFAS No. 123R requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. SFAS No. 123R requires companies to estimate the fair value of share-based payment awards on the grant date using an option pricing model. We adopted SFAS No. 123R using the prospective transition method, which required us to apply SFAS No. 123R to option grants on and after the required effective date. For options granted prior to the January 1, 2006 effective date that remained unvested on that date, we continue to recognize compensation expense under the intrinsic value method of APB No. 25. In addition, we are continuing to amortize those awards granted prior to January 1, 2006 utilizing an accelerated amortization schedule, while we will expense all options granted or modified on and after January 1, 2006 on a straight-line basis. To value awards granted on or after January 1, 2006, we used the Black-Scholes option pricing model, which requires, among other inputs, an estimate of the fair value of the underlying common stock on the date of grant and assumptions as to volatility of our stock over the term of the related options, the expected term of the options, the risk-free interest rate and the option forfeiture rate. We determined the assumptions used in this pricing model at each grant date. We concluded that it was not practicable to calculate the volatility of our share price since our securities are not publicly traded and therefore there is no readily determinable market value for our stock. Therefore, we based expected volatility on the historical volatility of a peer group of publicly traded entities. We determined the expected term of our options based upon historical exercises, post-vesting cancellations and the options’ contractual term. We based the risk-free rate for the expected term of the option on the U.S. Treasury Constant Maturity Rate as of the grant date. We determined the forfeiture rate based upon our historical experience with option cancellations adjusted for unusual or infrequent events.

     In the three months ended March 31, 2007, we recorded total employee non-cash stock-based compensation expense of $608,000, of which $135,000 represented continued amortization of deferred stock-based compensation for options granted prior to 2006 and $473,000 represented expense recorded in accordance with SFAS 123R. In future periods, stock-based compensation expense may increase as we issue additional equity-based awards to continue to attract and retain key employees. Additionally, SFAS 123R requires that we recognize compensation expense only for the portion of stock options that are expected to vest. Our estimated forfeiture rate for the three months ended March 31, 2007 was 12%. If the actual number of forfeitures differs from that estimated by management, we will be required to record adjustments to stock-based compensation expense in future periods.

     Given the absence of an active market for our common stock prior to our IPO, our board of directors, the members of which we believe had extensive business, finance and venture capital experience, was required to estimate the fair value of our common stock for purposes of determining exercise prices for the options it granted based in part on a market capitalization analysis of comparable public companies and other metrics, including revenue multiples and price/earning multiples, as well as the following:

• the prices for our convertible preferred stock sold to outside investors in arms-length transactions;

• the rights, preference and privileges of that convertible preferred stock relative to those of our common stock;

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• our operating and financial performance;

• the hiring of key personnel;

• the introduction of new products;

• our stage of development and revenue growth;

• the fact that the options grants involved illiquid securities in a private company;

• the risks inherent in the development and expansion of our services; and

• the likelihood of achieving a liquidity event, such as an IPO or sale of the company, for the shares of common stock underlying the options given prevailing market conditions.

     At March 31, 2007, we had $7.2 million of total unrecognized compensation expense under SFAS No. 123R, net of estimated forfeitures, that will be recognized over a weighted average period of 2.77 years. Based on the market closing price on March 31, 2007 of $10.00 per share, the aggregate intrinsic value of outstanding options and exercisable options at March 31, 2007, was $13.8 million and $7.2 million, respectively.

  Income Taxes

     We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax benefit (provision) in each of the jurisdictions in which we operate. This process involves estimating our current income tax benefit (provision) together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet using the enacted tax rates in effect for the year in which we expect the differences to reverse.

     We record a valuation allowance to reduce our deferred tax assets to an amount that more likely than not will be realized. As of December 31, 2006, our valuation allowance on our net deferred tax assets was $14.4 million. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, we would need to make an adjustment to the allowance for the deferred tax asset, which would increase income or reduce the loss in the period that determination was made.

     On January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which supplements SFAS No. 109 by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. We consider many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

     We have not provided for federal income taxes on the unremitted earnings of foreign subsidiaries because these earnings are intended to be reinvested permanently.

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Results of Operations

  Comparison of the Three Months Ended March 31, 2007 and 2006

     Revenues

	Three Months Ended
	March 31,
	2007		2006
	(in thousands)
Revenues	$	15,698	$	8,073

     Our revenues increased $7.6 million, or 94.5%, from $8.1 million for the three months ended March 31, 2006 to $15.7 million for the three months ended March 31, 2007, due primarily to increased revenue per title, including our top ten titles, new titles, our growing catalog of titles and broader distribution reach in all parts of the world. Revenues from our top ten games increased from $4.7 million in the three months ended March 31, 2006 to $8.9 million in the three months ended March 31, 2007. The increase also resulted from sales of new titles, including Monopoly Here and Now, World Series of Poker, Who Wants to be a Millionaire (2^nd Edition) and Deer Hunter 2, and sales of games acquired from iFone in March 2006. No material revenues from iFone titles were recorded during the three months ended March 31, 2006. Revenues for the three months ended March 31, 2007 from our catalog increased by $3.3 million from the revenues derived from those games in the three months ended March 31, 2006. By utilizing our carrier relationships and our marketing and development resources, we were able to increase worldwide distribution of iFone games and thus to increase significantly the revenues derived from the licenses that we acquired from iFone. International revenues, defined as revenues generated from carriers whose principal operations are located outside the United States, increased $3.8 million from $3.5 million in the three months ended March 31, 2006 to $7.3 million in the three months ended March 31, 2007.

     Cost of Revenues

	Three Months Ended
	March 31,
	2007			2006
	(In thousands)
Cost of revenues:
Royalties	$	4,292		$	2,538
Impairment of prepaid royalties and guarantees		—			60
Amortization of intangible assets		552			118
Total cost of revenues	$	4,844		$	2,716
Revenues	$	15,698		$	8,073
Gross margin		69.1	%		66.4	%

     Our cost of revenues increased $2.1 million, or 78.4%, from $2.7 million in the three months ended March 31, 2006 to $4.8 million in the three months ended March 31, 2007. The increase resulted from an increase in royalties, which was offset by a decrease in impairment of prepaid royalties and guarantees, and an increase in amortization of acquired intangible assets. Royalties increased $1.8 million principally because of higher revenues with associated royalties, including those acquired from iFone. Revenues attributable to games based upon branded intellectual property increased as a percentage of revenues from 85.4% in the three months ended March 31, 2006 to 87.3% in the three months ended March 31, 2007. The average royalty rate that we paid on games based on licensed intellectual property decreased from 36.8% in the three months ended March 31, 2006 to 31.3% in the three months ended March 31, 2007. As a result of the decrease in average royalty rate from branded titles, overall royalties as a percentage of total revenues decreased from 31.4% to 27.3%. Amortization of intangible assets increased by $434,000 due primarily to the amortization of intangible assets acquired in 2006 from iFone.

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     Gross Margin

     Our gross margin increased from 66.4% in the three months ended March 31, 2006 to 69.1% in the three months ended March 31, 2007 because of the decrease in royalty rates, decreased impairment of prepaid royalties and intangible assets and offset by the increase in the amortization of intangible assets. Without the effect of amortization and impairment of acquired intangible assets, our gross margin would have been 73% for the three months ended March 31, 2007 and 68% for the three months ended March 31, 2006.

     Research and Development Expenses

	Three Months Ended
	March 31,
	2007			2006
	(In thousands)
Research and development expenses	$	4,713		$	3,189
Percentage of revenues		30.0	%		39.5	%

     Our research and development expenses increased $1,524, or 47.8%, from $3.2 million in the three months ended March 31, 2006 to $4.7 million in the three months ended March 31, 2007. The increase in research and development costs was primarily due to increases in salaries and benefits of $726,000, outside services costs of $423,000, overhead allocations of $147,000, research materials of $103,000 and stock based compensation of $62,000.

     Research and development staff had increased by 31 employees through March 31, 2007 as compared to the same period in 2006 and salaries and benefits had increased as a result. Research and development expenses included $33,000 of stock-based compensation expense in the three months ended March 31, 2006 and $95,000 in the three months ended March 31, 2007. As a percentage of revenues, research and development expenses declined from 39.5% in the three months ended March 31, 2006 to 30.0% in the three months ended March 31, 2007 due to an increase in revenues.

     Sales and Marketing Expenses

	Three Months Ended
	March 31,
	2007			2006
	(In thousands)
Sales and marketing expenses	$	3,075		$	2,202
Percentage of revenues		19.6	%		27.3	%

     Our sales and marketing expenses increased $873,000, or 39.7%, from $2.2 million in the three months ended March 31, 2006 to $3.1 million in the three months ended March 31, 2007. The increase was primarily due to increase in salaries and benefits of $212,000, as we increased our sales and marketing headcount from 37 at March 31, 2006 to 44 at March 31, 2007, $470,000 increase in marketing expenses, $135,000 increase in travel and entertainment and $70,000 increase in stock based compensation. We increased staffing and marketing program spending to expand our marketing efforts for our games and the Glu brand, to increase sales efforts to our new and existing wireless carriers and to expand our sales and marketing operations into the Asia-Pacific and Latin America regions. Aside from the increase in headcount in our sales and marketing functions, the increase in salaries and benefits cost was due to an increase in variable compensation of $30,000, primarily an increase in commissions paid to our sales employees as a result of higher revenue attainment. As a percentage of revenues, sales and marketing expenses declined from 27.3% in the three months ended March 31, 2006 to 19.6% in the three months ended March 31, 2007 as our sales and marketing activities generated more revenues across a greater number of carriers and mobile handsets. Sales and marketing expenses included $27,000 of stock-based compensation expense in the three months ended March 31, 2006 and $97,000 in the three months ended March 31, 2007.

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     General and Administrative Expenses

	Three Months Ended
	March 31,
	2007			2006
	(In thousands)
General and administrative expenses	$	4,009		$	1,852
Percentage of revenues		25.5	%		22.9	%

     Our general and administrative expenses increased $2.2 million, or 116.5%, from $1.9 million in the three months ended March 31, 2006 to $4.0 million in the three months ended March 31, 2007. The increase in general and administrative expenses was primarily the result of a $1.0 million increase in salaries and benefits, $592,000 increase in professional fees, $209,000 increase in stock based compensation, and increase in allocated facilities costs of $143,000. We increased our general and administrative headcount from 31 at March 31, 2006 to 49 March 31, 2007. As a percentage of revenues, general and administrative expenses increased from 22.9% in the three months ended March 31, 2006 to 25.5% in the three months ended March 31, 2007 as a result of increased salaries and benefits and spending in professional fees related to our IPO. General and administrative expenses included $207,000 of stock-based compensation expense in the three months ended March 31, 2006 and $416,000 in the three months ended March 31, 2007.

     Other Operating Expenses

     Our amortization of intangible assets, such as non-competition agreements, acquired from Macrospace and iFone was $154,000 in the three months ended March 31, 2006 and $67,000 in the three months ended March 31, 2007. The decrease was due to the full amortization of certain intangibles during 2006.

     Our acquired in-process research and development decreased from $1.5 million in the three months ended March 31, 2006 to zero in the three months ended March 31, 2007. The IPR&D charge recorded in 2006 was related to the development of new games by iFone. We determined the value of acquired IPR&D using a discounted cash flows approach. We calculated the present value of expected future cash flows attributable to the in-process technology using a 21% discount rate. This rate took into account the percentage of completion of the development effort of approximately 20% and the risks associated with our developing technology given changes in trends and technology in our industry. As of December 31, 2006, all acquired IPR&D projects had been completed at a cost similar to the original projections.

     Our gain on sale of assets increased from $0 during the three months ended March 31, 2006 to $1.0 million during the three months ended March 31, 2007 due to the sale of ProvisionX software to a third party. Under the terms of the agreement, we will co-own the intellectual property rights to the ProvisionX software, excluding any alterations or modifications following the sale, by the third party.

     Other Expenses

     Interest and other income (expense), net, decreased from income of $152,000 in the three months ended March 31, 2006 to expense of $522,000 in the three months ended March 31, 2007. This decrease was primarily due to $847,000 of interest expenses in conjunction with our loan from the lender which included $300,000 of cash interest paid on the loan and $548,000 of non-cash interest expense related to the full recognition of the unamortized debt issuance costs and warrant discount on upon extinguishment of the loan with proceeds from our initial public offering. These expenses were partially offset by increased foreign currency transaction gains of $149,000 and by a benefit in the change in the fair value of the preferred stock warrants of $10,000 prior to their conversion to common stock warrants on the closing of the IPO. The warrants were subject to revaluation at each balance sheet date and changes in estimated fair value were recorded as a component of other income/(expense). Subsequent to the IPO and the associated conversion of the outstanding redeemable convertible preferred stock into common stock, the warrants to exercise the redeemable convertible preferred stock converted into common stock warrants; accordingly,

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     the liability related to the redeemable convertible preferred stock warrants was transferred to common stock and additional paid-in-capital and the common stock warrants are no longer subject to re-measurement.

     Income Tax Provision

     Income tax provision increased from $106,000 in the three months ended March 31, 2006 to $272,000 in the three months ended March 31, 2007 primarily as a result of increased foreign withholding taxes.

Liquidity and Capital Resources

	Three Months Ended March 31,
	2007			2006
	(in thousands)
Consolidated Statement of Cash Flows Data:
Capital expenditures	$	623		$	295
Depreciation and amortization		1,073			608
Cash flows used in operating activities		(528	)		(3,489	)
Cash flows provided by investing activities		3,667			6,109
Cash flows provided by (used in) financing activities		64,534			(882	)

     Since our inception, we have incurred recurring losses and negative annual cash flows from operating activities, and we had an accumulated deficit of $49.9 million and $46.0 million as of March 31, 2007 and December 31, 2006, respectively. Our primary sources of liquidity have historically been private placements of shares of our preferred stock with aggregate proceeds of $57.4 million and borrowings under our credit facilities with aggregate proceeds of $12.0 million. In the quarter ended March 31, 2007, we raised $74.7 million of proceeds, net of underwriting discounts and estimated expenses, in our IPO. In the future, we anticipate that our primary sources of liquidity will be cash generated from our operating activities.

Operating Activities

     In the three months ended March 31, 2007, we used $528,000 of net cash in operating activities as compared to $3.5 million in the three months ended March 31, 2006. This decrease was primarily due to a decline in our net loss of $2.7 million from the three months ended March 31, 2007 as compared to the same period in 2006, decreased payments in accounts payable and accrued liabilities of $1.7 million due primarily to the payment of liabilities assumed as a part of the iFone acquisition in the three months ended March 31, 2006, decreased payments of third-party royalties of $1.9 million and decreased payments for restructuring of $321,000. Non-cash items increased for the three months ended March 31, 2007 by $118,000, $347,000, $341,000 and $548,000 for depreciation, amortization of intangible assets, stock based compensation and non-cash interest expense, respectively, as compared to the same period in 2006.

     This was offset by a charge for acquired in-process research and development of $1.5 million in the three months ended March 31, 2006 and a gain on sale of assets of $1.0 million in the three months ended March 31, 2007. Cash used for accounts receivable, prepaids and other assets, and accrued compensation increased by $1.3 million, $410,000 and $590,000, respectively, in the three months ended March 31, 2007 as compared to the same period in 2006.

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     We expect to continue to use cash in our operating activities during at least the second and third quarters of 2007 because of anticipated net losses and expected growth in our accounts receivable balance due to the expected growth in our revenues. Additionally, we may decide to enter into new licensing arrangements for existing or new licensed intellectual properties that may require us to make royalty payments at the outset of the agreement. If we do sign these agreements, this could significantly increase our future use of cash in operating activities.

  Investing Activities

     Our primary investing activities have consisted of purchases and sales of short-term investments, purchases of property and equipment, and, in the three months ended March 31, 2006, the acquisition of iFone. Purchases of property and equipment have been less than $1.0 million in each period. We expect to use more cash in investing activities in 2007 as we expand our internal development capacity in the Asia-Pacific region by opening new facilities. We expect to fund this investment with our existing cash, cash equivalents and short-term investments.

     In the three months ended March 31, 2007, we generated $3.7 million of net cash from investing activities. This net cash resulted from net sales of short-term investments of $3.3 million, $1.0 million proceeds from the sale of assets offset by purchases of property and equipment of $623,000.

     In the three months ended March 31, 2006 we generated $6.1 million of net cash from investing activities. This net cash resulted from net sales of short-term investments of $13.8 million and offset by the acquisition of iFone for cash and stock, net of cash acquired, of $7.4 million and purchases of property and equipment of $295,000.

  Financing Activities

     In the three months ended March 31, 2007, our financing activities provided $64.5 million of cash primarily from $76.5 million of IPO proceeds net of underwriters’ fees and offering costs offset by the payment of the $12.0 million loan from the lender. We expect to use cash of $1.8 million in the three months ended June 30, 2007 for the payment of offering costs that were accrued at March 31, 2007.

     In the three months ended March 31, 2006, we used $882,000 net cash in financing activities, substantially all of which came from the payment of a loan assumed in connection with the iFone acquisition.

  Sufficiency of Current Cash, Cash Equivalents and Short-Term Investments

     Our cash, cash equivalents and short-term investments were $77.0 million as of March 31, 2007. We believe that our cash, cash equivalents and short-term investments and any cash flow from operations will be sufficient to meet our anticipated cash needs, including for working capital purposes, capital expenditures and various contractual obligations, for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these sources are insufficient to satisfy our cash requirements, we may seek to sell debt securities or additional equity securities or to obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financial covenants that would restrict our operations. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all. We anticipate that, from time to time, we may evaluate acquisitions of complementary businesses, technologies or assets. However, there are no current understandings, commitments or agreements with respect to any acquisitions.

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  Contractual Obligations

     The following table is a summary of our contractual obligations as of March 31, 2007:

	Payments Due by Period
			Less than
	Total		1 Year		1-3 Years		3-5 Years		Thereafter
	(In thousands)
Capital lease obligations	$	13		—		—		—		—
Operating lease obligations		4,303		1,246		2,587		470		—
Guaranteed royalties(1)		5,980		1,525		3,730		725		—

(1) We have entered into license and development arrangements with various owners of brands and other intellectual property so that we can create and publish games for mobile handsets based on that intellectual property. Pursuant to some of these agreements, we are required to pay guaranteed royalties over the term of the contracts regardless of actual game sales. Certain of these minimum payments totaling $3.2 million have been recorded as liabilities in our condensed consolidated balance sheet because payment is not contingent upon performance by the licensor.

  Off-Balance Sheet Arrangements

     We do not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

  Recent Accounting Pronouncements

     Information with respect to Recent Accounting Pronouncements may be found in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements in this quarterly report, which information is incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Interest Rate and Credit Risk

     We have exposure to interest rate risk that relates primarily to our investment portfolio. All of our current investments are classified as cash equivalents or short-term investments and carried at cost, which approximates market value. We do not currently use or plan to use derivative financial instruments in our investment portfolio. The risk associated with fluctuating interest rates is limited to our investment portfolio, and we do not believe that a 10% change in interest rates would have a significant impact on our interest income, operating results or liquidity.

     As of March 31, 2007 and December 31, 2006, our cash and cash equivalents were maintained by financial institutions in the United States, the United Kingdom, Hong Kong, Brazil, Germany and France, and our current deposits are likely in excess of insured limits. We believe that the financial institutions that hold our investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

     Our accounts receivable primarily relate to revenues earned from domestic and international wireless carriers. We perform ongoing credit evaluations of our carriers’ financial condition but generally require no collateral from them. At March 31, 2007, Verizon Wireless accounted for 23% of our total accounts receivable. At December 31, 2006, Verizon Wireless, Sprint Nextel and Vodafone accounted for 21%, 11% and 10% of our total accounts receivable, respectively.

  Foreign Currency Risk

     The functional currencies of our United States and United Kingdom operations are the U.S. Dollar, or USD, and the pound sterling, respectively. A significant portion of our business is conducted in currencies other than the USD or the pound sterling. Our revenues are usually denominated in the functional currency of the carrier. Operating expenses are usually in the local currency of the operating unit, which mitigates a portion of the exposure related to currency fluctuations. Intercompany transactions between our domestic and foreign operations are denominated in either the USD or the pound sterling. At month-end, foreign currency-denominated accounts receivable and intercompany balances are marked to market and unrealized gains and losses are included in other income (expense), net.

     Our foreign currency exchange gains and losses have been generated primarily from fluctuations in the pound sterling versus the USD and in the Euro versus the pound sterling. It is uncertain whether these currency trends will continue. In the future, we may experience foreign currency exchange losses on our accounts receivable and intercompany receivables and payables.

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Foreign currency exchange losses could have a material adverse effect on our business, operating results and financial condition.

  Inflation

     We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we might not be able to offset these higher costs fully through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     Regulations under the Securities Exchange Act of 1934 (“Exchange Act”) require public companies, including our Company to maintain “disclosure controls and procedures”, which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. Our chief executive officer and chief financial officer have concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of the end of the period covered by this report, that our disclosure controls and procedures were effective for this purpose.

Changes in Internal Control over Financial Reporting

     Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. In connection with their evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over financial reporting during the fiscal quarter covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     From time to time, we are subject to various claims, complaints and legal actions in the normal course of business. We do not believe we are party to any currently pending litigation, the outcome of which will have a material adverse effect on our operations or financial position.

ITEM 1A. RISK FACTORS

Risks Related to Our Business

We have a history of net losses, may incur substantial net losses in the future and may not achieve profitability.

We have incurred significant losses since inception, including a net loss of $8.3 million in 2004, a net loss of $17.9 million in 2005 and a net loss of $12.3 million in 2006. As of December 31, 2006, we had an accumulated deficit of $46.0 million, and as of March 31, 2007, we had an accumulated deficit of $49.9 million. We expect to continue to increase expenses as we implement initiatives designed to continue to grow our business, including, among other things, the development and marketing of new games, further international expansion, expansion of our infrastructure, acquisition of content, and general and administrative expenses associated with being a public company. If our revenues do not increase to offset these expected increases in operating expenses, we will continue to incur significant losses and will not become profitable. Our revenue growth in recent periods should not be considered indicative of our future performance. In fact, in future periods, our revenues could decline. Accordingly, we may not be able to achieve profitability in the future.

We have a limited operating history in an emerging market, which may make it difficult to evaluate our business.

We were incorporated in May 2001 and began selling mobile games in July 2002. Accordingly, we have only a limited history of generating revenues, and the future revenue potential of our business in this emerging market is uncertain. As a result of our short operating history, we have limited financial data that can be used to evaluate our business. Any evaluation of our business and our prospects must be considered in light of our limited operating history and the risks and uncertainties encountered by companies in our stage of development. As an early stage company in the emerging mobile entertainment industry, we face increased risks, uncertainties, expenses and difficulties. To address these risks and uncertainties, we must do the following:

•  maintain our current, and develop new, wireless carrier relationships;

•  maintain and expand our current, and develop new, relationships with third-party branded content owners;

•  retain or improve our current revenue-sharing arrangements with carriers and third-party branded content owners;

•  maintain and enhance our own brands;

•  continue to develop new high-quality mobile games that achieve significant market acceptance;

•  continue to port existing mobile games to new mobile handsets;

•  continue to develop and upgrade our technology;

•  continue to enhance our information processing systems;

•  increase the number of end users of our games;

•  maintain and grow our non-carrier, or “off-deck,” distribution, including through our website and third-party direct-to-consumer distributors;

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•  expand our development capacity in countries with lower costs;

•  execute our business and marketing strategies successfully;

•  respond to competitive developments; and

•  attract, integrate, retain and motivate qualified personnel.

We may be unable to accomplish one or more of these objectives, which could cause our business to suffer. In addition, accomplishing many of these efforts might be very expensive, which could adversely impact our operating results and financial condition.

Our financial results could vary significantly from quarter to quarter and are difficult to predict.

Our revenues and operating results could vary significantly from quarter to quarter because of a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. In addition, we may not be able to predict our future revenues or results of operations. We base our current and future expense levels on our internal operating plans and sales forecasts, and our operating costs are to a large extent fixed. As a result, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenues, and even a small shortfall in revenues could disproportionately and adversely affect financial results for that quarter. Individual games and carrier relationships represent meaningful portions of our revenues and net loss in any quarter. We may incur significant or unanticipated expenses when licenses are renewed. In addition, some payments from carriers that we recognize as revenue on a cash basis may be delayed unpredictably.

In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly results include:

•  the number of new mobile games released by us and our competitors;

•  the timing of release of new games by us and our competitors, particularly those that may represent a significant portion of revenues in a period;

•  the popularity of new games and games released in prior periods;

•  changes in prominence of deck placement for our leading games and those of our competitors;

•  the expiration of existing content licenses for particular games;

•  the timing of charges related to impairments of goodwill, intangible assets, prepaid royalties and guarantees;

•  changes in pricing policies by us, our competitors or our carriers and other distributors;

•  changes in the mix of original and licensed games, which have varying gross margins;

•  the timing of successful mobile handset launches;

•  the seasonality of our industry;

•  fluctuations in the size and rate of growth of overall consumer demand for mobile games and related content;

•  strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

•  our success in entering new geographic markets;

•  foreign exchange fluctuations;

•  accounting rules governing recognition of revenue;

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•  the timing of compensation expense associated with equity compensation grants; and

•  decisions by us to incur additional expenses, such as increases in marketing or research and development.

As a result of these and other factors, our operating results may not meet the expectations of investors or public market analysts who choose to follow our company. Failure to meet market expectations would likely result in decreases in the trading price of our common stock.

The markets in which we operate are highly competitive, and many of our competitors have significantly greater resources than we do.

The development, distribution and sale of mobile games is a highly competitive business. For end users, we compete primarily on the basis of brand, game quality and price. For wireless carriers, we compete for deck placement based on these factors, as well as historical performance and perception of sales potential and relationships with licensors of brands and other intellectual property. For content and brand licensors, we compete based on royalty and other economic terms, perceptions of development quality, porting abilities, speed of execution, distribution breadth and relationships with carriers. We also compete for experienced and talented employees.

Our primary competitors include Digital Chocolate, Electronic Arts (EA Mobile), Gameloft, Hands-On Mobile, I-play, Namco and THQ, with Electronic Arts having the largest market share of any company in the mobile games market. In the future, likely competitors include major media companies, traditional video game publishers, content aggregators, mobile software providers and independent mobile game publishers. Carriers may also decide to develop, internally or through a managed third-party developer, and distribute their own mobile games. If carriers enter the mobile game market as publishers, they might refuse to distribute some or all of our games or might deny us access to all or part of their networks.

Some of our competitors’ and our potential competitors’ advantages over us, either globally or in particular geographic markets, include the following:

•  significantly greater revenues and financial resources;

•  stronger brand and consumer recognition regionally or worldwide;

•  the capacity to leverage their marketing expenditures across a broader portfolio of mobile and non-mobile products;

•  more substantial intellectual property of their own from which they can develop games without having to pay royalties;

•  pre-existing relationships with brand owners or carriers that afford them access to intellectual property while blocking the access of competitors to that same intellectual property;

•  greater resources to make acquisitions;

•  lower labor and development costs; and

•  broader global distribution and presence.

If we are unable to compete effectively or we are not as successful as our competitors in our target markets, our sales could decline, our margins could decline and we could lose market share, any of which would materially harm our business, operating results and financial condition.

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Failure to renew our existing brand and content licenses on favorable terms or at all and to obtain additional licenses would impair our ability to introduce new mobile games or to continue to offer our current games based on third-party content.

Revenues derived from mobile games and other applications based on or incorporating brands or other intellectual property licensed from third parties accounted for 80.5% and 88.4% of our revenues in 2005 and 2006, respectively. In 2006, revenues derived from our four largest licensors, Atari, Fox, PopCap Games and Celador, together accounted for approximately 58.1% of our revenues. Even if mobile games based on licensed content or brands remain popular, any of our licensors could decide not to renew our existing license or not to license additional intellectual property and instead license to our competitors or develop and publish its own mobile games or other applications, competing with us in the marketplace. Many of these licensors already develop games for other platforms, and may have significant experience and development resources available to them should they decide to compete with us rather than license to us.

We have both exclusive and non-exclusive licenses and both licenses that are global and licenses that are limited to specific geographies, often with other mobile game publishers having rights to geographies not covered by our licenses. Our licenses generally have terms that range from two to five years, with the primary exceptions being our six-year licenses covering World Series of Poker and Deer Hunter 2 and our seven-year license covering Kasparov Chess. Some of the licenses that we have inherited through acquisitions provide that the licensor owns the intellectual property that we develop in the mobile version of the game and that, when our license expires, the licensor can transfer that intellectual property to a new licensee. Increased competition for licenses may lead to larger guarantees, advances and royalties that we must pay to our licensors, which could significantly increase our cost of revenues and cash usage. We may be unable to renew these licenses or to renew them on terms favorable to us, and we may be unable to secure alternatives in a timely manner. Failure to maintain or renew our existing licenses or to obtain additional licenses would impair our ability to introduce new mobile games or to continue to offer our current games, which would materially harm our business, operating results and financial condition. Some of our existing licenses impose, and licenses that we obtain in the future might impose, development, distribution and marketing obligations on us. If we breach our obligations, our licensors might have the right to terminate the license or change an exclusive license to a non-exclusive license, which would harm our business, operating results and financial condition.

Even if we are successful in gaining new licenses or extending existing licenses, we may fail to anticipate the entertainment preferences of our end users when making choices about which brands or other content to license. If the entertainment preferences of end users shift to content or brands owned or developed by companies with which we do not have relationships, we may be unable to establish and maintain successful relationships with these developers and owners, which would materially harm our business, operating results and financial condition. In addition, some rights are licensed from licensors that have or may develop financial difficulties, and may enter into bankruptcy protection under U.S. federal law or the laws of other countries. If any of our licensors files for bankruptcy, our licenses might be impaired or voided, which could materially harm our business, operating results and financial condition.

We currently rely on wireless carriers to market and distribute our games and thus to generate our revenues. In particular, subscribers of Verizon Wireless, Sprint Nextel, Cingular Wireless and Vodafone collectively represented 55.1% of our revenues in 2006. The loss of or a change in any of these significant carrier relationships could cause us to lose access to their subscribers and thus materially reduce our revenues.

Our future success is highly dependent upon maintaining successful relationships with the wireless carriers with which we currently work and establishing new carrier relationships in

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geographies where we have not yet established a significant presence. A significant portion of our revenues is derived from a very limited number of carriers. In 2006, we derived approximately 20.6% of our revenues from subscribers of Verizon Wireless, 12.6% of our revenues from subscribers of Sprint Nextel affiliates, 11.3% of our revenues from subscribers of Cingular Wireless and 10.6% of our revenues from subscribers of Vodafone. During 2005, we derived approximately 24.3%, 11.9%, 11.9% and 6.2%, respectively, of our revenues from subscribers of these carriers. In 2005 and 2006, subscribers from carriers representing the next ten largest sources of our revenues represented 25.6% and 23.8% of our revenues, respectively, although some of the carriers represented in this group varied from period to period. We expect that we will continue to generate a substantial majority of our revenues through distribution relationships with fewer than 20 carriers for the foreseeable future. Our failure to maintain our relationships with these carriers would materially reduce our revenues and thus harm our business, operating results and financial condition.

Our carrier agreements do not establish us as the exclusive provider of mobile games with the carriers and typically have a term of one or two years with automatic renewal provisions upon expiration of the initial term, absent a contrary notice from either party. In addition, the carriers usually can terminate these agreements early and, in some instances, at any time without cause, which could give them the ability to renegotiate economic or other terms. The agreements generally do not obligate the carriers to market or distribute any of our games. In many of these agreements, we warrant that our games do not contain libelous or obscene content, do not contain material defects or viruses, and do not violate third-party intellectual property rights and we indemnify the carrier for any breach of a third party’s intellectual property. In addition, our agreements with a substantial minority of our carriers, including Verizon Wireless, allow the carrier to set the retail price at a level different from the price implied by our negotiated revenue split, without a corresponding change to our wholesale price to the carrier. If one of these carriers raises the retail price of one of our games, unit demand for that game might decline, reducing our revenues, without necessarily reducing, and perhaps increasing, the total revenues that the carrier receives from sales of that game.

Many other factors outside our control could impair our ability to generate revenues through a given carrier, including the following:

•  the carrier’s preference for our competitors’ mobile games rather than ours;

•  the carrier’s decision not to include or highlight our games on the deck of its mobile handsets;

•  the carrier’s decision to discontinue the sale of our mobile games or all mobile games like ours;

•  the carrier’s decision to offer games to its subscribers without charge or at reduced prices;

•  the carrier’s decision to require market development funds from publishers like us;

•  the carrier’s decision to restrict or alter subscription or other terms for downloading our games;

•  a failure of the carrier’s merchandising, provisioning or billing systems;

•  the carrier’s decision to offer its own competing mobile games; and

•  consolidation among carriers.

If any of our carriers decides not to market or distribute our games or decides to terminate, not renew or modify the terms of its agreement with us or if there is consolidation among carriers generally, we may be unable to replace the affected agreement with acceptable alternatives, causing us to lose access to that carrier’s subscribers and the revenues they afford us, which could materially harm our business, operating results and financial condition.

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End user tastes are continually changing and are often unpredictable; if we fail to develop and publish new mobile games that achieve market acceptance, our sales would suffer.

Our business depends on developing and publishing mobile games that wireless carriers will place on their decks and end users will buy. We must continue to invest significant resources in licensing efforts, research and development, marketing and regional expansion to enhance our offering of games and introduce new games, and we must make decisions about these matters well in advance of product release in order to implement them in a timely manner. Our success depends, in part, on unpredictable and volatile factors beyond our control, including end-user preferences, competing games and the availability of other entertainment activities. If our games and related applications are not responsive to the requirements of our carriers or the entertainment preferences of end users, or they are not brought to market in a timely and effective manner, our business, operating results and financial condition would be harmed. Even if our games are successfully introduced and initially adopted, a subsequent shift in our carriers or the entertainment preferences of end users could cause a decline in our games’ popularity that could materially reduce our revenues and harm our business, operating results and financial condition.

Inferior deck placement would likely adversely impact our revenues and thus our operating results and financial condition.

Wireless carriers provide a limited selection of games that are accessible to their subscribers through a deck on their mobile handsets. The inherent limitation on the number of games available on the deck is a function of the limited screen size of handsets and carriers’ perceptions of the depth of menus and numbers of choices end users will generally utilize. Carriers typically provide one or more top level menus highlighting games that are recent top sellers, that the carrier believes will become top sellers or that the carrier otherwise chooses to feature, in addition to a link to a menu of additional games sorted by genre. We believe that deck placement on the top level or featured menu or toward the top of genre-specific or other menus, rather than lower down or in sub-menus, is likely to result in games achieving a greater degree of commercial success. If carriers choose to give our games less favorable deck placement, our games may be less successful than we anticipate, our revenues may decline and our business, operating results and financial condition may be materially harmed.

We have depended on no more than ten mobile games for a majority of our revenues in recent fiscal periods.

In our industry, new games are frequently introduced, but a relatively small number of games account for a significant portion of industry sales. Similarly, a significant portion of our revenues comes from a limited number of mobile games, although the games in that group have shifted over time. For example, in 2005 and 2006, we generated approximately 52.8% and 53.3% of our revenues, respectively, from our top ten games, but no individual game represented more than 10% of our revenues in either period. We expect to release a relatively small number of new games each year for the foreseeable future. If these games are not successful, our revenues could be limited and our business and operating results would suffer in both the year of release and thereafter.

In addition, the limited number of games that we release in a year may contribute to fluctuations in our operating results. Therefore, our reported results at quarter and year end may be affected based on the release dates of our products, which could result in volatility in the price of our common stock. If our competitors develop more successful games or offer them at lower prices or based on payment models, such as pay-for-play or subscription-based models, perceived as offering a better value proposition, or if we do not continue to develop consistently high-quality and well-received games, our revenues would likely decline and our business, operating results and financial condition would be harmed.

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If we are unsuccessful in establishing and increasing awareness of our brand and recognition of our mobile games or if we incur excessive expenses promoting and maintaining our brand or our games, our potential revenues could be limited, our costs could increase and our operating results and financial condition could be harmed.

We believe that establishing and maintaining our brand is critical to retaining and expanding our existing relationships with wireless carriers and content licensors, as well as developing new relationships. Promotion of the Glu brand will depend on our success in providing high-quality mobile games. Similarly, recognition of our games by end users will depend on our ability to develop engaging games of high quality with attractive titles. However, our success will also depend, in part, on the services and efforts of third parties, over which we have little or no control. For instance, if our carriers fail to provide high levels of service, our end users’ ability to access our games may be interrupted, which may adversely affect our brand. If end users, branded content owners and carriers do not perceive our existing games as high-quality or if we introduce new games that are not favorably received by our end users and carriers, then we may be unsuccessful in building brand recognition and brand loyalty in the marketplace. In addition, globalizing and extending our brand and recognition of our games will be costly and will involve extensive management time to execute successfully. Further, the markets in which we operate are highly competitive and some of our competitors, such as Electronic Arts (EA Mobile), already have substantially more brand name recognition and greater marketing resources than we do. If we fail to increase brand awareness and consumer recognition of our games, our potential revenues could be limited, our costs could increase and our business, operating results and financial condition could suffer.

Our business and growth may suffer if we are unable to hire and retain key personnel, who are in high demand.

We depend on the continued contributions of our senior management and other key personnel, especially L. Gregory Ballard and Albert A. “Rocky” Pimentel. The loss of the services of any of our executive officers or other key employees could harm our business. All of our U.S. executive officers and key employees are at-will employees, which means they may terminate their employment relationship with us at any time. None of our U.S. employees is bound by a contractual non-competition agreement, which could make us vulnerable to recruitment efforts by our competitors. Internationally, while some employees and contractors are bound by non-competition agreements, we may experience difficulty in enforcing these agreements. We do not maintain a key-person life insurance policy on any of our officers or other employees.

Our future success also depends on our ability to identify, attract and retain highly skilled technical, managerial, finance, marketing and creative personnel. We face intense competition for qualified individuals from numerous technology, marketing and mobile entertainment companies. In addition, competition for qualified personnel is particularly intense in the San Francisco Bay Area, where our headquarters are located. Further, our principal overseas operations are based in London and Hong Kong, cities that, similar to our headquarters region, have high costs of living and consequently high compensation standards. Qualified individuals are in high demand, and we may incur significant costs to attract them. We may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing creative, operational and managerial requirements, or may be required to pay increased compensation in order to do so. If we are unable to attract and retain the qualified personnel we need to succeed, our business would suffer.

Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key employees. Many of our senior management personnel and other key employees have become, or will soon become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or if the exercise prices of the options that they hold are significantly above the

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market price of our common stock. If we are unable to retain our employees, our business, operating results and financial condition would be harmed.

Growth may place significant demands on our management and our infrastructure.

We operate in an emerging market and have experienced, and may continue to experience, growth in our business through internal growth and acquisitions. This growth has placed, and may continue to place, significant demands on our management and our operational and financial infrastructure. In particular, we grew from approximately 130 employees at December 31, 2004 to more than 210 employees at September 30, 2005 in anticipation of revenues that did not immediately result. As a consequence, we had to terminate 27 employees in December 2005. Continued growth could strain our ability to:

•  develop and improve our operational, financial and management controls;

•  enhance our reporting systems and procedures;

•  recruit, train and retain highly skilled personnel;

•  maintain our quality standards; and

•  maintain branded content owner, wireless carrier and end-user satisfaction.

Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.

The acquisition of other companies, businesses or technologies could result in operating difficulties, dilution and other harmful consequences.

We have made recent acquisitions and, although we have no present understandings, commitments or agreements to do so, we may pursue further acquisitions, any of which could be material to our business, operating results and financial condition. Future acquisitions could divert management’s time and focus from operating our business. In addition, integrating an acquired company, business or technology is risky and may result in unforeseen operating difficulties and expenditures. We may also use a portion of the net proceeds of our IPO for the acquisition of, or investment in, companies, technologies, products or assets that complement our business. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development expenses, any of which could harm our financial condition and operating results. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all.

International acquisitions involve risks related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

Some or all of these issues may result from our acquisitions of Macrospace in December 2004 and iFone in March 2006, each of which is based in the United Kingdom. If the anticipated benefits of either of these or future acquisitions do not materialize, we experience difficulties integrating iFone or businesses acquired in the future, or other unanticipated problems arise, our business, operating results and financial condition may be harmed.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our earnings based on this impairment assessment process, which could harm our operating results.

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We face added business, political, regulatory, operational, financial and economic risks as a result of our international operations and distribution, any of which could increase our costs and hinder our growth.

International sales represented approximately 41.8% and 44.8% of our revenues in 2005 and 2006, respectively. In addition, as part of our international efforts, we acquired U.K.-based Macrospace in December 2004, opened our Hong Kong office in July 2005, expanded our presence in the European market with our acquisition of iFone in March 2006, opened an office in France in the third quarter of 2006, opened additional offices in Brazil and Germany in the fourth quarter of 2006, and opened an office in Spain in the second quarter of 2007. We expect to open additional international offices, and we expect international sales to continue to be an important component of our revenues. Risks affecting our international operations include:

•  challenges caused by distance, language and cultural differences;

•  multiple and conflicting laws and regulations, including complications due to unexpected changes in these laws and regulations;

•  the burdens of complying with a wide variety of foreign laws and regulations;

•  higher costs associated with doing business internationally;

•  difficulties in staffing and managing international operations;

•  greater fluctuations in sales to end users and through carriers in developing countries, including longer payment cycles and greater difficulty collecting accounts receivable;

•  protectionist laws and business practices that favor local businesses in some countries;

•  foreign tax consequences;

•  foreign exchange controls that might prevent us from repatriating income earned in countries outside the United States;

•  price controls;

•  the servicing of regions by many different carriers;

•  imposition of public sector controls;

•  political, economic and social instability;

•  restrictions on the export or import of technology;

•  trade and tariff restrictions;

•  variations in tariffs, quotas, taxes and other market barriers; and

•  difficulties in enforcing intellectual property rights in countries other than the United States.

In addition, developing user interfaces that are compatible with other languages or cultures can be expensive. As a result, our ongoing international expansion efforts may be more costly than we expect. Further, expansion into developing countries subjects us to the effects of regional instability, civil unrest and hostilities, and could adversely affect us by disrupting communications and making travel more difficult.

These risks could harm our international expansion efforts, which, in turn, could materially and adversely affect our business, operating results and financial condition.

If we fail to deliver our games at the same time as new mobile handset models are commercially introduced, our sales may suffer.

Our business is dependent, in part, on the commercial introduction of new handset models with enhanced features, including larger, higher resolution color screens, improved audio quality, and

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greater processing power, memory, battery life and storage. We do not control the timing of these handset launches. Some new handsets are sold by carriers with one or more games or other applications pre-loaded, and many end users who download our games do so after they purchase their new handsets to experience the new features of those handsets. Some handset manufacturers give us access to their handsets prior to commercial release. If one or more major handset manufacturers were to cease to provide us access to new handset models prior to commercial release, we might be unable to introduce compatible versions of our games for those handsets in coordination with their commercial release, and we might not be able to make compatible versions for a substantial period following their commercial release. If, because of game launch delays, we miss the opportunity to sell games when new handsets are shipped or our end users upgrade to a new handset, or if we miss the key holiday selling period, either because the introduction of a new handset is delayed or we do not deploy our games in time for the holiday selling season, our revenues would likely decline and our business, operating results and financial condition would likely suffer.

Wireless carriers generally control the price charged for our mobile games and the billing and collection for sales of our mobile games and could make decisions detrimental to us.

Wireless carriers generally control the price charged for our mobile games either by approving or establishing the price of the games charged to their subscribers. Some of our carrier agreements also restrict our ability to change prices. In cases where carrier approval is required, approvals may not be granted in a timely manner or at all. A failure or delay in obtaining these approvals, the prices established by the carriers for our games, or changes in these prices could adversely affect market acceptance of those games. Similarly, for the significant minority of our carriers, including Verizon Wireless, when we make changes to a pricing plan (the wholesale price and the corresponding suggested retail price based on our negotiated revenue-sharing arrangement), adjustments to the actual retail price charged to end users may not be made in a timely manner or at all (even though our wholesale price was reduced). A failure or delay by these carriers in adjusting the retail price for our games, could adversely affect sales volume and our revenues for those games.

Carriers and other distributors also control billings and collections for our games, either directly or through third-party service providers. If our carriers or their third-party service providers cause material inaccuracies when providing billing and collection services to us, our revenues may be less than anticipated or may be subject to refund at the discretion of the carrier. This could harm our business, operating results and financial condition.

We may be unable to develop and introduce in a timely way new mobile games, and our games may have defects, which could harm our brand.

The planned timing and introduction of new original mobile games and games based on licensed intellectual property are subject to risks and uncertainties. Unexpected technical, operational, deployment, distribution or other problems could delay or prevent the introduction of new games, which could result in a loss of, or delay in, revenues or damage to our reputation and brand. If any of our games is introduced with defects, errors or failures, we could experience decreased sales, loss of end users, damage to our carrier relationships and damage to our reputation and brand. Our attractiveness to branded content licensors might also be reduced. In addition, new games may not achieve sufficient market acceptance to offset the costs of development, particularly when the introduction of a game is substantially later than a planned “day-and-date” launch, which could materially harm our business, operating results and financial condition.

If we fail to maintain and enhance our capabilities for porting games to a broad array of mobile handsets, our attractiveness to wireless carriers and branded content owners will be impaired, and our sales could suffer.

Once developed, a mobile game may be required to be ported to, or converted into separate versions for, more than 1,000 different handset models, many with different technological

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requirements. These include handsets with various combinations of underlying technologies, user interfaces, keypad layouts, screen resolutions, sound capabilities and other carrier-specific customizations. If we fail to maintain or enhance our porting capabilities, our sales could suffer, branded content owners might choose not to grant us licenses and carriers might choose to give our games less desirable deck placement or not to give our games placement on their decks at all.

Changes to our game design and development processes to address new features or functions of handsets or networks might cause inefficiencies in our porting process or might result in more labor intensive porting processes. In addition, we anticipate that in the future we will be required to port existing and new games to a broader array of handsets. If we utilize more labor intensive porting processes, our margins could be significantly reduced and it might take us longer to port games to an equivalent number of handsets. This, in turn, could harm our business, operating results and financial condition.

If our independent, third-party developers cease development of new games for us and we are unable to find comparable replacements, we may have to reduce the number of games that we intend to introduce, delay the introduction of some games or increase our internal development staff, which would be a time-consuming and potentially costly process, and, as a result, our competitive position may be adversely impacted.

We rely on independent third-party developers to develop a few of our games, which subjects us to the following risks:

•  key developers who worked for us in the past may choose to work for or be acquired by our competitors;

•  developers currently under contract may try to renegotiate our agreements with them on terms less favorable to us; and

•  our developers may be unable or unwilling to allocate sufficient resources to complete our games in a timely or satisfactory manner or at all.

If our developers terminate their relationships with us or negotiate agreements with terms less favorable to us, we may have to reduce the number of games that we intend to introduce, delay the introduction of some games or increase our internal development staff, which would be a time-consuming and potentially costly process, and, as a result, our business, operating results and financial condition could be harmed.

If one or more of our games were found to contain hidden, objectionable content, our reputation and operating results could suffer.

Historically, many video games have been designed to include hidden content and gameplay features that are accessible through the use of in-game cheat codes or other technological means that are intended to enhance the gameplay experience. For example, Super K.O. Boxing includes additional characters and game modes that are available with a code (usually provided to a player after accomplishing a certain level of achievement in the game). These features have been common in console and computer games. However, in several recent cases, hidden content or features have been included in other publishers’ products by an employee who was not authorized to do so or by an outside developer without the knowledge of the publisher. From time to time, some of this hidden content and these hidden features have contained profanity, graphic violence and sexually explicit or otherwise objectionable material. Our design and porting process and the constraints on the file size of our games reduce the possibility of hidden, objectionable content appearing in the games we publish. Nonetheless, these processes and constraints may not prevent this content from being included in our games. If a game we published were found to contain hidden, objectionable content, our wireless carriers and other distributors of our games could refuse to sell it, consumers could refuse to buy it or demand a refund of their money, and, if the game was based on licensed content,

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the licensor could demand that we incur significant expense to remove the objectionable content from the game and all ported versions of the game. This could have a materially negative impact on our business, operating results and financial condition. In addition, our reputation could be harmed, which could impact sales of other games we sell and our attractiveness to content licensors and carriers or other distributors of our games. If any of these consequences were to occur, our business, operating results and financial condition could be significantly harmed.

If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which could negatively impact the price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to evaluate and report on our internal control over financial reporting and have our independent registered public accounting firm attest to our evaluation beginning with our Annual Report on Form 10-K for the year ending December 31, 2008. We are in the process of preparing and implementing an internal plan of action for compliance with Section 404 and strengthening and testing our system of internal controls to provide the basis for our report. The process of implementing our internal controls and complying with Section 404 will be expensive and time consuming, and will require significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we conclude, and our independent registered public accounting firm concurs, that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness or a significant deficiency in our internal control, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. For example, our auditors have identified a significant deficiency in that we did not have sufficient personnel within our accounting function in the United Kingdom. While we believe we have adequately remediated the deficiency, our remediation may prove inadequate and there can be no assurance that additional deficiencies will not be identified. In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including ineligibility for short form resale registration, action by the Securities and Exchange Commission, or SEC, the suspension or delisting of our common stock from The NASDAQ Global Market and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.

If we do not adequately protect our intellectual property rights, it may be possible for third parties to obtain and improperly use our intellectual property and our competitive position may be adversely affected.

Our intellectual property is an essential element of our business. We rely on a combination of copyright, trademark, trade secret and other intellectual property laws and restrictions on disclosure to protect our intellectual property rights. To date, we have not sought patent protection. Consequently, we will not be able to protect our technologies from independent invention by third parties. Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise to obtain and use our technology and games. Monitoring unauthorized use of our games is difficult and costly, and we cannot be certain that the steps we have taken will prevent piracy and other unauthorized distribution and use of our technology and games, particularly internationally where the laws may not protect our intellectual property rights as fully as in the United States. In the future, we

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may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our management and resources.

In addition, although we require our third-party developers to sign agreements not to disclose or improperly use our trade secrets and acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property and to assign to us any ownership they may have in those works, it may still be possible for third parties to obtain and improperly use our intellectual properties without our consent. This could harm our business, operating results and financial condition.

Third parties may sue us for intellectual property infringement, which, if successful, may disrupt our business and could require us to pay significant damage awards.

Third parties may sue us for intellectual property infringement or initiate proceedings to invalidate our intellectual property, either of which, if successful, could disrupt the conduct of our business, cause us to pay significant damage awards or require us to pay licensing fees. In the event of a successful claim against us, we might be enjoined from using our or our licensed intellectual property, we might incur significant licensing fees and we might be forced to develop alternative technologies. Our failure or inability to develop non-infringing technology or games or to license the infringed or similar technology or games on a timely basis could force us to withdraw games from the market or prevent us from introducing new games. In addition, even if we are able to license the infringed or similar technology or games, license fees could be substantial and the terms of these licenses could be burdensome, which might adversely affect our operating results. We might also incur substantial expenses in defending against third-party infringement claims, regardless of their merit. Successful infringement or licensing claims against us might result in substantial monetary liabilities and might materially disrupt the conduct of our business.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, damages caused by malicious software and other losses.

In the ordinary course of our business, most of our agreements with carriers and other distributors include indemnification provisions. In these provisions, we agree to indemnify them for losses suffered or incurred in connection with our games, including as a result of intellectual property infringement and damages caused by viruses, worms and other malicious software. The term of these indemnity provisions is generally perpetual after execution of the corresponding license agreement, and the maximum potential amount of future payments we could be required to make under these indemnification provisions is generally unlimited. Large future indemnity payments could harm our business, operating results and financial condition.

As a result of a majority of our revenues currently being derived from four wireless carriers, if any one of these carriers were unable to fulfill its payment obligations, our financial condition and results of operations would suffer.

As of December 31, 2006, our outstanding accounts receivable balances with Verizon Wireless, Sprint Nextel, Vodafone and Cingular Wireless were $3.0 million, $1.5 million, $1.4 million and $1.2 million, respectively. As of December 31, 2005, our outstanding accounts receivable balances with those carriers were $1.7 million, $693,000, $277,000 and $538,000, respectively. Since 49.3% of our outstanding accounts receivable at December 31, 2006 were with Verizon Wireless, Sprint Nextel, Cingular Wireless and Vodafone, we have a concentration of credit risk. If any of these carriers is unable to fulfill its payment obligations to us under our carrier agreements with them, our revenues could decline significantly and our financial condition might be harmed.

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We may need to raise additional capital to grow our business, and we may not be able to raise capital on terms acceptable to us or at all.

The operation of our business and our efforts to grow our business further will require significant cash outlays and commitments. If our cash, cash equivalents and short-term investments balances and any cash generated from operations and from our IPO are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our growth. We may not be able to raise needed cash on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the IPO price. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our common stock. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our growth and operating plans to the extent of available funding, which would harm our ability to grow our business.

We face risks associated with currency exchange rate fluctuations.

Although we currently transact approximately three-fifths of our business in U.S. Dollars, we also transact approximately one-third of our business in pounds sterling and Euros and a small portion of our business in other currencies. Conducting business in currencies other than U.S. Dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our reported operating results. Fluctuations in the value of the U.S. Dollar relative to other currencies impact our revenues, cost of revenues and operating margins and result in foreign currency transaction gains and losses. To date, we have not engaged in exchange rate hedging activities. Even were we to implement hedging strategies to mitigate this risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications.

Our business in countries with a history of corruption and transactions with foreign governments, including with government owned or controlled wireless carriers, increase the risks associated with our international activities.

As we operate and sell internationally, we are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business. We have operations, deal with carriers and make sales in countries known to experience corruption, particularly certain emerging countries in East Asia, Eastern Europe and Latin America, and further international expansion may involve more of these countries. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors that could be in violation of various laws including the FCPA, even though these parties are not always subject to our control. We have attempted to implement safeguards to discourage these practices by our employees, consultants, sales agents and distributors. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

Changes to financial accounting standards and new exchange rules could make it more expensive to issue stock options to employees, which would increase compensation costs and might cause us to change our business practices.

We prepare our financial statements to conform with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation by the Financial

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Accounting Standards Board, or FASB, the SEC, and various other bodies. A change in those principles could have a significant effect on our reported results and might affect our reporting of transactions completed before a change is announced. For example, we have used stock options as a fundamental component of our employee compensation packages. We believe that stock options directly motivate our employees to maximize long-term stockholder value and, through the use of vesting, encourage employees to remain in our employ. Several regulatory agencies and entities have made regulatory changes that could make it more difficult or expensive for us to grant stock options to employees. For example, the FASB released Statement of Financial Accounting Standards, or SFAS, No. 123R, Share-Based Payment, that required us to record a charge to earnings for employee stock option grants beginning in 2006. In addition, regulations implemented by the NASDAQ Stock Market generally require stockholder approval for all stock option plans, which could make it more difficult for us to grant stock options to employees. We may, as a result of these changes, incur increased compensation costs, change our equity compensation strategy or find it difficult to attract, retain and motivate employees, any of which could materially and adversely affect our business, operating results and financial condition.

Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified members for our board of directors.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the NASDAQ Stock Market. The requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. This can be difficult to do. For example, we depend on the reports of wireless carriers for information regarding the amount of sales of our games and related applications and to determine the amount of royalties we owe branded content licensors and the amount of our revenues. These reports may not be timely, and in the past they have contained, and in the future they may contain, errors.

In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we will need to expend significant resources and provide significant management oversight. We have a substantial effort ahead of us to implement appropriate processes, document our system of internal control over relevant processes, assess their design, remediate any deficiencies identified and test their operation. As a result, management’s attention may be diverted from other business concerns, which could harm our business, operating results and financial condition. These efforts will also involve substantial accounting-related costs. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The NASDAQ Global Market.

The Sarbanes-Oxley Act and the rules and regulations of the NASDAQ Stock Market will make it more difficult and more expensive for us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and officers’ insurance, our ability to recruit and retain qualified directors, especially those directors who may be considered independent for purposes of the NASDAQ Stock Market rules, and officers will be significantly curtailed.

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Risks Relating to Our Industry

Wireless communications technologies are changing rapidly, and we may not be successful in working with these new technologies.

Wireless network and mobile handset technologies are undergoing rapid innovation. New handsets with more advanced processors and supporting advanced programming languages continue to be introduced. In addition, networks that enable enhanced features, such as multiplayer technology, are being developed and deployed. We have no control over the demand for, or success of, these products or technologies. The development of new, technologically advanced games to match the advancements in handset technology is a complex process requiring significant research and development expense, as well as the accurate anticipation of technological and market trends. If we fail to anticipate and adapt to these and other technological changes, the available channels for our games may be limited and our market share and our operating results may suffer. Our future success will depend on our ability to adapt to rapidly changing technologies, develop mobile games to accommodate evolving industry standards and improve the performance and reliability of our games. In addition, the widespread adoption of networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our games.

Technology changes in our industry require us to anticipate, sometimes years in advance, which technologies we must implement and take advantage of in order to make our games and other mobile entertainment products competitive in the market. Therefore, we usually start our product development with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly and effectively than we can. In either case, our products may be technologically inferior to those of our competitors, less appealing to end users or both. If we cannot achieve our technology goals within the original development schedule of our products, then we may delay their release until these technology goals can be achieved, which may delay or reduce our revenues, increase our development expenses and harm our reputation. Alternatively, we may increase the resources employed in research and development in an attempt either to preserve our product launch schedule or to keep up with our competition, which would increase our development expenses. In either case, our business, operating results and financial condition could be materially harmed.

The complexity of and incompatibilities among mobile handsets may require us to use additional resources for the development of our games.

To reach large numbers of wireless subscribers, mobile entertainment publishers like us must support numerous mobile handsets and technologies. However, keeping pace with the rapid innovation of handset technologies together with the continuous introduction of new, and often incompatible, handset models by wireless carriers requires us to make significant investments in research and development, including personnel, technologies and equipment. In the future, we may be required to make substantial investments in our development if the number of different types of handset models continues to proliferate. In addition, as more advanced handsets are introduced that enable more complex, feature rich games, we anticipate that our per-game development costs will increase, which could increase the risks associated with the failure of any one game and could materially harm our operating results and financial condition.

If wireless subscribers do not continue to use their mobile handsets to access games and other applications, our business growth and future revenues may be adversely affected.

We operate in a developing industry. Our success depends on growth in the number of wireless subscribers who use their handsets to access data services and, in particular, entertainment applications of the type we develop and distribute. New or different mobile entertainment applications, such as streaming video or music applications, developed by our current or future competitors may be preferred by subscribers to our games. In addition, other mobile platforms such as the iPod and dedicated portable gaming platforms such as the PlayStation Portable and the Nintendo DS may become widespread, and end users may choose to switch to these platforms. If the market for our games does not continue to grow or we are unable to acquire new end users, our business growth and future revenues could be adversely affected. If end users switch their entertainment spending away from the games and related applications that we publish, or switch to portable gaming platforms or distribution where we do not have comparative strengths, our revenues would likely decline and our business, operating results and financial condition would suffer.

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Our industry is subject to risks generally associated with the entertainment industry, any of which could significantly harm our operating results.

Our business is subject to risks that are generally associated with the entertainment industry, many of which are beyond our control. These risks could negatively impact our operating results and include: the popularity, price and timing of release of games and mobile handsets on which they are played; economic conditions that adversely affect discretionary consumer spending; changes in consumer demographics; the availability and popularity of other forms of entertainment; and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.

A shift of technology platform by wireless carriers and mobile handset manufacturers could lengthen the development period for our games, increase our costs and cause our games to be of lower quality or to be published later than anticipated.

End users of games must have a mobile handset with multimedia capabilities enabled by technologies capable of running third-party games and related applications such as ours. Our development resources are concentrated in the BREW and Java platforms, and we have experience developing games for the i-mode, Mophun, Symbian and Windows Mobile Platforms. If one or more of these technologies fall out of favor with handset manufacturers and wireless carriers and there is a rapid shift to a technology platform such as Adobe Flash Lite or a new technology where we do not have development experience or resources, the development period for our games may be lengthened, increasing our costs, and the resulting games may be of lower quality, and may be published later than anticipated. In such an event, our reputation, business, operating results and financial condition might suffer.

System or network failures could reduce our sales, increase costs or result in a loss of end users of our games.

Mobile game publishers rely on wireless carriers’ networks to deliver games to end users and on their or other third parties’ billing systems to track and account for the downloading of their games. In certain circumstances, mobile game publishers may also rely on their own servers to deliver games on demand to end users through their carriers’ networks. In addition, certain subscription-based games such as World Series of Poker and entertainment products such as FOX Sports Mobile require access over the mobile Internet to our servers in order to enable features such as multiplayer modes, high score posting or access to information updates. Any failure of, or technical problem with, carriers’, third parties’ or our billing systems, delivery systems, information systems or communications networks could result in the inability of end users to download our games, prevent the completion of billing for a game, or interfere with access to some aspects of our games or other products. If any of these systems fails or if there is an interruption in the supply of power, an earthquake, fire, flood or other natural disaster, or an act of war or terrorism, end users might be unable to access our games. For example, from time to time, our carriers have experienced failures with their billing and delivery systems and communication networks, including gateway failures that reduced the provisioning capacity of their branded e-commerce system. Any failure of, or technical problem with, the carriers’, other third parties’ or our systems could cause us to lose end users or revenues or incur substantial repair costs and distract management from operating our business. This, in turn, could harm our business, operating results and financial condition.

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The market for mobile games is seasonal, and our results may vary significantly from period to period.

Many new mobile handset models are released in the fourth calendar quarter to coincide with the holiday shopping season. Because many end users download our games soon after they purchase new handsets, we may experience seasonal sales increases based on the holiday selling period. However, due to the time between handset purchases and game purchases, most of this holiday impact occurs for us in our first quarter. In addition, we seek to release many of our games in conjunction with specific events, such as the release of a related movie. If we miss these key selling periods for any reason, our sales will suffer disproportionately. Likewise, if a key event to which our game release schedule is tied were to be delayed or cancelled, our sales would also suffer disproportionately. Further, for a variety of reasons, including roaming charges for data downloads that may make purchase of our games prohibitively expensive for many end users while they are traveling, we may experience seasonal sales decreases during the summer, particularly in Europe. If the level of travel increases or expands to other periods, our operating results and financial condition may be harmed. Our ability to meet game development schedules is affected by a number of factors, including the creative processes involved, the coordination of large and sometimes geographically dispersed development teams required by the increasing complexity of our games, and the need to fine-tune our games prior to their release. Any failure to meet anticipated development or release schedules would likely result in a delay of revenues or possibly a significant shortfall in our revenues and cause our operating results to be materially different than anticipated.

Our business depends on the growth and maintenance of wireless communications infrastructure.

Our success will depend on the continued growth and maintenance of wireless communications infrastructure in the United States and internationally. This includes deployment and maintenance of reliable next-generation digital networks with the speed, data capacity and security necessary to provide reliable wireless communications services. Wireless communications infrastructure may be unable to support the demands placed on it if the number of subscribers continues to increase, or if existing or future subscribers increase their bandwidth requirements. Wireless communications have experienced a variety of outages and other delays as a result of infrastructure and equipment failures, and could face outages and delays in the future. These outages and delays could reduce the level of wireless communications usage as well as our ability to distribute our games successfully. In addition, changes by a wireless carrier to network infrastructure may interfere with downloads of our games and may cause end users to lose functionality in our games that they have already downloaded. This could harm our business, operating results and financial condition.

Future mobile handsets may significantly reduce or eliminate wireless carriers’ control over delivery of our games and force us to rely further on alternative sales channels, which, if not successful, could require us to increase our sales and marketing expenses significantly.

Substantially all our games are currently sold through carriers’ branded e-commerce services. We have invested significant resources developing this sales channel. However, a growing number of handset models currently available allow wireless subscribers to browse the Internet and, in some cases, download applications from sources other than a carrier’s branded e-commerce service. In addition, the development of other application delivery mechanisms such as premium-SMS may enable subscribers to download applications without having to access a carrier’s branded e-commerce service. Increased use by subscribers of open operating system handsets or premium-SMS delivery systems will enable them to bypass carriers’ branded e-commerce services and could reduce the market power of carriers. This could force us to rely further on alternative sales channels where we may not be successful selling our games, and could require us to increase our sales and marketing expenses significantly. As with our carriers, we believe that inferior placement of our games and other mobile entertainment products in the menus of off-deck distributors will result in lower revenues than might otherwise be anticipated from these alternative sales channels. We may be unable to develop and promote our direct website distribution sufficiently to overcome the limitations and disadvantages of off-deck distribution channels. This could harm our business, operating results and financial condition.

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Actual or perceived security vulnerabilities in mobile handsets or wireless networks could adversely affect our revenues.

Maintaining the security of mobile handsets and wireless networks is critical for our business. There are individuals and groups who develop and deploy viruses, worms and other illicit code or malicious software programs that may attack wireless networks and handsets. Security experts have identified computer “worm” programs, such as “Cabir” and “Commwarrior.A,” and viruses, such as “Lasco.A,” that target handsets running on the Symbian operating system. Although these worms have not been widely released and do not present an immediate risk to our business, we believe future threats could lead some end users to seek to return our games, reduce or delay future purchases of our games or reduce or delay the use of their handsets. Wireless carriers and handset manufacturers may also increase their expenditures on protecting their wireless networks and mobile phone products from attack, which could delay adoption of new handset models. Any of these activities could adversely affect our revenues and this could harm our business, operating results and financial condition.

If a substantial number of the end users that purchase our games by subscription change mobile handsets or if wireless carriers switch to subscription plans that require active monthly renewal by subscribers, our sales could suffer.

Subscriptions represent a significant portion of our revenues. As handset development continues, over time an increasing percentage of end users who already own one or more of our subscription games will likely upgrade from their existing handsets. With some wireless carriers, it is not currently feasible for these end users to transfer their existing subscriptions from one handset to another. In addition, carriers may switch to subscription billing systems that require end users to actively renew, or opt-in, each month from current systems that passively renew unless end users take some action to opt-out of their subscriptions. In either case, unless we are able to re-sell subscriptions to these end users or replace these end users with other end users, our sales would suffer and this could harm our business, operating results and financial condition.

Changes in government regulation of the media and wireless communications industries may adversely affect our business.

It is possible that a number of laws and regulations may be adopted in the United States and elsewhere that could restrict the media and wireless communications industries, including laws and regulations regarding customer privacy, taxation, content suitability, copyright, distribution and antitrust. Furthermore, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours conducting business through wireless carriers. We anticipate that regulation of our industry will increase and that we will be required to devote legal and other resources to address this regulation. Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding the media and wireless communications industries may lessen the growth of wireless communications services and may materially reduce our ability to increase or maintain sales of our games.

A number of studies have examined the health effects of mobile phone use, and the results of some of the studies have been interpreted as evidence that mobile phone use causes adverse health effects. The establishment of a link between the use of mobile phone services and health problems, or any media reports suggesting such a link, could increase government regulation of, and reduce demand for, mobile phones and, accordingly, the demand for our games and related applications, and this could harm our business, operating results and financial condition.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

     From January 1, 2007 through March 31, 2007, we granted stock options to purchase 464,607 shares of our common stock at prices ranging from $10.65 to $11.50 per share to our employees and directors under our 2001 Plan and our 2007 Equity Incentive Plan. During such period, we issued and sold an aggregate of 95,130 shares of our common stock to employees and former employees at a weighted-average exercise price of approximately $0.84 per share pursuant to exercises of options granted under our 2001 Plan. On February 28, 2007, we issued warrants to purchase an aggregate of 272,204 shares of our common stock at an exercise price of $0.0003 per share to Granite Global Ventures II, L.P. and TWI Glu Mobile Holdings Inc. in exchange for their consent to convert outstanding shares of our preferred stock held by them into our common stock in connection our IPO.

     The sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D of the Securities Act, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and instruments issued in such transactions. All recipients had adequate access, through their relationship with us, to information about us.

Use of Proceeds from Public Offering of Common Stock

     The Form S-1 Registration Statement (Registration No. 333-139493) relating to our IPO was declared effective by the SEC on March 21, 2007, and the offering commenced the following day. Goldman Sachs & Co. acted as the sole book-running manager for the offering, and Lehman Brothers Inc., Bank of America Securities LLC and Needham & Company, LLC acted as co-managers of the offering.

     The securities registered were 7,300,000 shares of common stock, plus 1,095,000 additional shares to cover the underwriters’ over-allotment option (1,094,000 of which were held before the IPO by certain of our stockholders). On April 25, 2007, the underwriters exercised the over-allotment option as to 199,469 shares, all of which were sold by our stockholders and not by us. The remaining 895,531 shares will not be sold pursuant to the registration statement. The aggregate public offering price of the offering amount registered, including shares to cover the underwriters’ over-allotment option, was $96,542,500. We sold 7,300,000 shares of our common stock for an aggregate offering price of $83,950,000, the selling stockholders sold 199,469 shares for an aggregate offering price of $2,293,894 and the offering has terminated.

Expenses incurred in connection with the issuance and distributions of the securities registered were as follows:

• Underwriting discount — $5,876,500

• Other expenses — approximately $3,300,000

• Total expenses — approximately $8,876,500

     The other expenses and total expenses provided above are estimates. None of such payments were direct or indirect payments to any of our directors or officers or their associates or to persons owning 10 percent or more of our common stock or direct or indirect payments to others. The net offering proceeds to us after deducting underwriters’ discounts and the total expenses described above was approximately $74.7 million.

     We used approximately $12.0 million of the net proceeds to repay in full the principal and accrued interest on our outstanding loan from the lender. We expect to use the remaining net proceeds for general corporate purposes, including working capital and potential capital expenditures and acquisitions. Although we may also use a portion of the net proceeds for the acquisition of, or investment in, companies, technologies, products or assets that complement our business, we have no present understandings, commitments or agreements to enter into any acquisitions or make any investments.

     Our management will retain broad discretion in the allocation and use of the net proceeds of our IPO, and investors will be relying on the judgment of our management regarding the application of the net proceeds. Pending specific utilization of the net proceeds as described above, we have invested the net proceeds of the offering in short-term, interest-bearing obligations, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the United States. The goal with respect to the investment of the net proceeds will be capital preservation and liquidity so that such funds are readily available to fund our operations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On March 2, 2007, the shareholders of Glu Mobile Inc., a California corporation (our California Predecessor), and our California Predecessor (our then sole stockholder) voted upon the following actions by written consent. The results set forth below relate to the votes of the shareholders of our California Predecessor and reflect our 3-for-1 reverse stock split. Our sole stockholder voted in favor of each of the proposals. There were no broker non-votes as to any proposal as the matters were voted upon prior to our IPO.

1. Approval of our reincorporation from California to Delaware through the merger of our California Predecessor with us (the “Reincorporation”). The votes received by the shareholders of the California Predecessor were as follows:

Type of Stock	Shares For		Shares Against		Shares Abstaining
Common Stock		4,874,761		672		1,433
Preferred Stock		13,644,231		0		0

2. Approval of a 3-for-1 reverse stock split of our Common Stock following the Reincorporation but before the IPO. The votes received by the shareholders of the California Predecessor were as follows:

Type of Stock	Shares For		Shares Against		Shares Abstaining
Common Stock		3,622,665		88,950		1,165,251
Preferred Stock		13,536,472		27,056		80,703

3. Restatement of our Certificate of Incorporation and Bylaws, following the IPO, to read as set forth in Exhibits 3.02 and 3.04 to our Form
S-1. The votes received by the shareholders of the California Predecessor were as follows:

Type of Stock	Shares For		Shares Against		Shares Abstaining
Common Stock		4,777,982		70,116		27,768
Preferred Stock		13,596,627		0		47,604

4. Election of members of our Board of Directors and the assignment of each such director to one of three classes of directors, as follows: Class I — directors Richard A. Moran, Hany M. Nada and Sharon L. Wienbar; Class II — directors Ann Mather and Daniel L. Skaff; and Class III — directors L. Gregory Ballard, A. Brooke Seawell and William J. Miller, such assignments to be effective upon the closing of the IPO. The votes received by the shareholders of the California Predecessor were as follows:

Type of Stock	Shares For		Shares Against		Shares Abstaining
Common Stock		4,793,720		672		82,474
Preferred Stock		13,644,231		0		0

5. Adoption of our 2007 Equity Incentive Plan and the reservation of 1,766,666 shares (post-split) for initial issuance under such plan. The votes received by the shareholders of the California Predecessor were as follows:

Type of Stock	Shares For		Shares Against		Shares Abstaining
Common Stock		3,637,887		70,116		1,168,863
Preferred Stock		13,515,924		0		128,307

6. Adoption of our 2007 Employee Stock Purchase Plan and the reservation of 666,666 shares (post-split) for initial issuance under such plan. The votes received by the shareholders of the California Predecessor were as follows:

Type of Stock	Shares For		Shares Against		Shares Abstaining
Common Stock		4,833,399		10,672		32,795
Preferred Stock		13,569,571		27,056		47,604

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7. Approval of form of Indemnity Agreement to be entered into with each of our officers and directors. The votes received by the shareholders of the California Predecessor were as follows:

Type of Stock	Shares For		Shares Against		Shares Abstaining
Common Stock		4,844,926		3,172		28,768
Preferred Stock		13,596,627		0		47,604

ITEM 5. OTHER INFORMATION

     Not applicable.

ITEM 6. EXHIBITS

			Incorporated by Reference
Exhibit							Filing	Provided
Number		Exhibit Description	Form	File No.	Exhibit		Date	Herewith
	3.02	Restated Certificate of Incorporation of Glu Mobile Inc., dated as of March 26, 2007.	S-1	333-139493		3.02	2/14/07
	3.04	Amended and Restated Bylaws of Glu Mobile Inc.	S-1	333-139493		3.04	3/6/07
	10.01	Lease dated as of March 14, 2007 by and between The Royal Bank of Scotland, Plc, Glu Mobile Limited and Glu Mobile Inc.						X
	31.01	Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).						X
	31.02	Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).						X
	32.01	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*						X
	32.02	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*						X

* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Glu Mobile specifically incorporates it by reference.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GLU MOBILE INC.
Date: May 14, 2007	By:	/s/ L. Gregory Ballard
		L. Gregory Ballard
		President and Chief Executive Officer (Principal Executive Officer)

Date: May 14, 2007	By:	/s/ Albert A. Pimentel
		Albert A. Pimentel
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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EXHIBIT INDEX

		Incorporated by Reference
Exhibit								Filing		Provided
Number	Exhibit Description	Form		File No.		Exhibit		Date		Herewith
3.02	Restated Certificate of Incorporation of Glu Mobile Inc., dated as of March 26, 2007.		S-1		333-139493		3.02		2/14/07
3.04	Amended and Restated Bylaws of Glu Mobile Inc.		S-1		333-139493		3.04		3/6/07
10.01	Lease dated as of March 14, 2007 by and between The Royal Bank of Scotland, Plc, Glu Mobile Limited and Glu Mobile Inc.										X
31.01	Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).										X
31.02	Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).										X
32.01	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*										X
32.02	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*										X

* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Glu Mobile specifically incorporates it by reference.

EX-10.01

Exhibit 10.01

ALLEN & OVERY

Allen & Overy LLP

LEASE

THE ROYAL BANK OF SCOTLAND PLC

(as trustee and not otherwise of Schroder Exempt Property Unit Trust)

GLU MOBILE LIMITED

and

GLU MOBILE, INC

for lease of property known as
Part Second Floor, Beaumont House,
Kensington Village, Avonmore Road, London
W14 8TS

14 March, 2007

CONTENTS

Clause		Page
1.	Definitions		3
2.	Interpretation		7
3.	Lease		8
4.	Rent		8
5.	Service Charge		8
6.	Tenant’s Covenants		9
7.	Landlord’s Covenants		21
8.	Alienation		22
9.	Insurance		27
10.	Re-entry		33
11.	Guarantee		34
12.	Value Added Tax		34
13.	Trustee Liability Provision		35
14.	General		36
15.	Notices		40
16.	Governing Law and Jurisdiction		40
17.	Exclusion Agreement		40
1.	Option to renew		58
2.	Additional Rent Free Period		62
Signatories			63

LR1	Date of lease 14 March, 2007
LR2	Title number(s)
LR2.1	Landlord’s title number(s)
	BGL331130.
LR2.2	Other title numbers
	BGL40510.
LR3	Parties to this lease

Landlord	The Royal Bank of Scotland Plc whose registered office is at 36 St Andrew Square, Edinburgh EH2 2YB, acting in its capacity as trustee but not otherwise of Schroder Exempt Property Unit Trust Company Registration number SC90342
Tenant	Glu Mobile Limited, whose registered office is at 58-60 Berners Street, London W1T 3JS, Company Registration Number 04223253
Guarantor	Glu Mobile, Inc incorporated in the state of California United States of America

LR4	Property
	The property known as part second floor Beaumont House, Kensington Village as further described in the Definitions and Part 2 of Schedule 1.
	In the case of a conflict between this clause and the remainder of this lease then, for the purposes of registration, this clause shall prevail.
LR5	Prescribed statements etc
	None.
LR6	Term for which the Property is leased
	The term is as follows: 5 years commencing on and including the Term Commencement Date.
LR7	Premium
	None.
LR8	Prohibitions or restrictions on disposing of this lease
	This lease contains a provision that prohibits or restricts dispositions.

1

LR9	Rights of acquisition etc
LR9.1	Tenant’s contractual rights to renew this lease, to acquire the reversion or another lease of the Property, or to acquire an interest in other land
	This lease contains a contractual right for the Tenant to renew contained in Schedule 8.
LR9.2	Tenant’s covenant to (or offer to) surrender this lease
	None.
LR9.3	Landlord’s contractual rights to acquire this lease
	None.
LR10	Restrictive covenants given in this lease by the Landlord in respect of land other than the Property
	None.
LR11	Easements
LR11.1	Easements granted by this lease for the benefit of the Property
	The Easements specified in Parts 1 and 2 of Schedule 2.
LR11.2	Easements granted or reserved by this lease over the Property for the benefit of other property
	The Easements specified in Parts 1 and 2 of Schedule 3.
LR12	Estate rentcharge burdening the Property
	None.
LR13	Application for standard form of restriction
	None.
LR14	Declaration of trust where there is more than one person comprising the Tenant

2

THIS LEASE is made on 14 March, 2007

BETWEEN:

(1) THE ROYAL BANK OF SCOTLAND PLC, a company incorporated under the laws of Scotland under number SC90312 whose registered office is at 36 St Andrew Square, Edinburgh EH2 2YB and whose address for service is Trustee and Depositary Services (Ref: SEPUT), Drummond House, 1 Redheughs Avenue, Edinburgh EH12 9JN (acting in its capacity as trustee and not otherwise of Schroder Exempt Property Unit Trust) (the Landlord);

(2) GLU MOBILE LIMITED (registered in England under number 04223253) whose registered office is at 58-60 Berners Street London W1T 3JS (the Tenant); and

(3) GLU MOBILE, INC incorporated in the State of California of 1800 Gateway Drive, Suite 200 San Mateo CA 94404 (the Guarantor).

THIS DEED WITNESSES as follows:

1.	DEFINITIONS
	In this Lease the terms defined in Part 1 of Schedule 8 shall have effect and:
	Accounting Period means each one of the following periods:

(a)	the date hereof to the following 30th September;
(b)	thereafter every yearly period of the Term which shall commence on 1st October in each year of the Term and end on 30th September in the following year;
(c)	the period commencing on 1st October preceding the End of the Term and ending on the End of the Term; and
(d)	each one of the periods (if any) of which the Landlord shall with the consent of the Tenant (not to be unreasonably withheld or delayed) substitute for any one or more of the periods described in paragraphs (a), (b) or (c) above.

Additional Services means the services listed in paragraph 2 of Schedule 7 as from time to time altered (if at all) pursuant to Clause 5.2;

assign includes entering into any form of equitable assignment of the Property, including a registerable transfer where the Tenant’s title to the Property is registered or registerable, but does not include entering into a contract for the assignment or transfer of the Property, and assignment is similarly construed;

authorised guarantee agreement has the meaning given to it by the LTC Act 1995;

Basic Services means the services listed in paragraph 1 of Schedule 7 as from time to time altered (if at all) under Clause 5.2;

3

Building means the property described in Part 1 of Schedule 1 and every part of it and all additions and alterations to it made during the Term and includes (without limitation):

(a)	roadways, footpaths, service roads, service areas, car parks, loading bays and landscaped and open areas;
(b)	boundary walls and fences;

of, belonging or appurtenant thereto;

Building Percentage means 7.36 per cent in respect of the Total Building Service Costs attributable to the phase I water supply and 7.57 per cent in respect of the Total Building Service Cost attributable to the fitness centre and 13 per cent in respect of all other Total Building Service Costs or such other fair and reasonable proportions of the Total Building Service Costs properly attributable to the Property as the Landlord shall notify in writing to the Tenant and which the Tenant shall have agreed (such agreement not to be unreasonably withheld or delayed) or in the absence of such agreement as determined by the Landlord’s surveyor acting reasonably whose determination shall be conclusive save in the event of manifest error;

Building Service Costs means the costs set out in paragraph 3 of Schedule 7;

Building Service Charge means the Building Percentage of the Total Building Service Costs in any Accounting Period;

Building Services means the Additional Services and the Basic Services;

Business Day means a day (other than a Saturday or Sunday) on which banks are generally open in London for normal business;

Car Spaces means the 10 spaces in the Parking Area from time to time designated by the Landlord for the Tenant’s use;

CAW Regulations means the Control of Asbestos at Work Regulations 2002;

Clearing Bank means a corporate member of CHAPS Clearing Company Limited;

Common Parts means the roads, footpaths, service areas, car parks, loading bays, landscaped and open areas, entrances, staircases, passages, landings, passenger and goods lifts and other areas (whether or not in the nature of the foregoing) from time to time during the Term in or appurtenant to the Building provided by the Landlord for common use by the tenants of the Building;

Conduits includes those for sewage, water, gas, electricity, telecommunications and data processing;

End of the Term includes the expiry of the Term by effluxion of time or the determination of the Term by forfeiture, surrender, merger, notice or in any other way;

Estate means the land shown edged red on the Estate Plan known as Kensington Village Avonmore Road, London W14 together with the buildings now erected or in the course of erection on it or which may at any time in the future be erected on the land or any part of it and such further or adjoining land and buildings which during the Term shall become vested

4

in the Landlord and which shall be constructed altered or developed and designated by the Landlord a part of the Estate;

Estate Common Parts means all parts of the Estate (and signs relating to but not situated upon the Estate) (excluding the Property and other Lettable Areas) which are from time to time provided or designated by the Landlord or Head Landlord for the common or general use by or for the benefit of all or substantially all of the tenants licensees and occupiers of the Estate and where appropriate their respective employees agents and licensees and all others from time to time authorised by the Landlord or Head Landlord and without limitation includes all or any of the following which are or may from time to time be comprised in or appurtenant to the Estate namely the estate roads paths pavements vehicular and pedestrian ways and conducting media perimeter walls landscaped areas gates fences signs notice boards advertising features special decorative features security installations refuse collection and disposal areas and all other fixtures fittings furnishings and facilities as may from time to time be provided by the Landlord for common or general use;

Estate Percentage means 3.51 per cent or such other fair and reasonable proportion of the Estate Service Costs properly attributable to the Property in respect of Estate Common Parts or in the event of there being a relevant change in the circumstances of the Property and/or the Estate then such fair and reasonable percentage as shall be agreed between the parties or in the absence of such agreement as determined by the Landlord’s surveyor acting reasonably whose determination shall be conclusive save in the event of manifest error;

Estate Plan means the attached plan marked as such;

Estate Services means the services listed in paragraph 1 of Schedule 6 as from time to time altered (if at all) pursuant to Clause 5.2;

Estate Service Charge means the Estate Percentage of Total Estate Service Costs in any Accounting Period;

Estate Service Costs means the costs set out in paragraph 2 of Schedule 6;

exempt information document has the meaning given to that expression in rule 131 of the Land Regulation Rules 2003;

Guarantor includes the person named in this Lease as guarantor, if any, and any other person who is for the time being a guarantor in respect of the Tenant’s obligations under this Lease and his personal representatives and successors;

Head Landlord means any person for the time being entitled to possession of the Property at the end of any term of years granted by any Head Lease;

Head Lease means the lease under which the Landlord is for the time being entitled to possession of the Property at the End of the Term and every lease (whether immediate or otherwise) out of which that lease was created, all deeds varying any of those leases and all licences and consents granted under any of those leases or under any deed of variation;

Independent Surveyor means the independent chartered surveyor appointed pursuant to Clause 5.3;

Interest Rate means the base rate for the time being of The Royal Bank of Scotland plc or of another Clearing Bank designated from time to time by the Landlord or if there is no such

5

base rate the rate from time to time prescribed under section 32 of the Land Compensation Act 1961;

Landlord includes the person for the time being entitled to possession of the Property at the End of the Term;

Lease means this lease, every deed varying or supplemental to this lease and every licence and consent granted under this lease or under any deed of variation or supplemental deed and every collateral agreement (as defined in the LTC Act 1995);

Legal Obligation means any obligation from time to time created by any enactment or authority which relates either to the Property or to the Building or to either or both of their respective uses and includes without limitation obligations imposed as a condition of any necessary consents;

Lettable Areas means all parts of the Building or, as the case may be, the Estate designed to be let or let for commercial use;

LTC Act 1995 means the Landlord and Tenant (Covenants) Act 1995;

Parking Area means the car parking area forming part of the Estate and defined as Car Park in the Head Lease dated 22nd February, 2000 made between Rysbridge Estates Limited (1) and Lloyds TSB Bank plc (2);

Planning Acts means the Town and Country Planning Act 1990, the Planning (Listed Buildings and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990, the Planning (Consequential Provisions) Act 1990 and the Planning and Compensation Act 1991;

President means the President from time to time of the Royal Institution of Chartered Surveyors or any person authorised to act upon his behalf;

Property means the property described in Part 2 of Schedule 1 and every part of it and all additions and alterations to it;

Property Plan means the plan marked as such annexed to this Lease;

Quarter Days means 25th March, 24th June, 29th September and 25th December in every year;

Rent includes all sums reserved as rent by this Lease;

Retained Property means the whole of the Building other than the Lettable Areas;

Tenant includes the Tenant’s successors in title;

Term means the term granted by this Lease;

Term Commencement Date means 17 October, 2006;

Total Building Service Costs means the total of the Building Service Costs in any Accounting Period;

Total Estate Service Costs means the total of the Estate Service Costs in any Accounting Period;

6

Underlease EID application means an application to the Registrar to designate an underlease or derivative underlease an exempt information document so as to exclude from the edited copy of the underlease or derivative underlease as appropriate to be held by HM Land Registry such information as is excluded from any edited copy of this Lease held at HM Land Registry and such other information as the Landlord shall require;

VAT means value added tax and any imposition or levy of a like nature;

VAT Act 1994 means the Value Added Tax Act 1994;

VAT group means two or more bodies corporate registered as a group for VAT purposes under section 43 VAT Act 1994.

VAT Invoice means an invoice addressed to the Tenant and which complies with the requirements of section 6 (5) of and paragraph 2(1) of Schedule 11 to the VAT Act 1994 and regulations made pursuant thereto in relation to tax invoices.

2.	INTERPRETATION
2.1	Parties
	Where there are two or more persons included in the expressions Landlord, Tenant or Guarantor each reference to the Landlord, the Tenant or the Guarantor includes a separate reference to each of those persons.

2.2	Enactments
	Any reference, express or implied, to an enactment includes references to:

(a)	that enactment as amended, extended or applied by or under any other enactment (before or after the execution of this Lease);
(b)	any enactment which that enactment re-enacts (with or without modification);
(c)	any subordinate legislation made (before or after the execution of this Lease) under that enactment, as amended, extended or applied as described in paragraph (a) above or under any enactment referred to in paragraph (b) above; and
(d)	any consents, licences and permissions given (before or after the execution of this Lease) under that enactment, as amended, extended or applied as described in paragraph (a) or under any enactment referred to in paragraph (b) above or under that subordinate legislation and any conditions contained in those consents, licences and permissions.

2.3	Subordinate and EU legislation
	Any reference, express or implied, to enactments generally includes subordinate legislation and any legislation of the European Union that is directly applicable in the United Kingdom and includes existing enactments and those that come into effect during the Term.
2.4	Application
	Clauses 2.1 to 2.3 apply unless the contrary intention appears.

7

2.5	Clause Headings
	The headings in this Lease do not affect its interpretation.
3.	LEASE
3.1	Lease
	The Landlord lets the Property to the Tenant with limited title guarantee together with the rights set out in Schedule 2 but except and reserving to the Landlord the rights set out in Schedule 3 for the term of five years commencing on and including the Term Commencement Date subject to all rights and covenants affecting the Property including (without limitation) the matters contained or referred to in Schedule 4 at a yearly rent ascertained in accordance with Clause 4.
3.2	Ancillary Rights
	Save in respect of the Car Spaces the rights granted to the Tenant are granted in common with the Landlord, any person authorised by the Landlord and everyone else having the like or similar rights.
3.3	Exclusion of Implied Rights
	This Lease does not include any rights other than those set out in Schedule 2.
3.4	Reserved Rights
	The rights excepted and reserved to the Landlord are also excepted and reserved to those authorised by the Landlord and everyone else entitled to them.
4.	RENT
4.1	Rent
	The yearly rent is:

(a)	until but excluding the Rent Commencement Date the rent of one peppercorn (if demanded);
(b)	from and including the Rent Commencement Date the rent of Three Hundred and Two Thousand Three Hundred and Twenty-Eight Pounds (£302,328).

4.2	Rent payment dates
	The yearly rent is payable without any deduction, withholding or set-off by equal quarterly payments in advance on the Quarter Days. The first payment (which is an apportioned sum) is to be made on the Rent Commencement Date in respect of the period commencing on the Rent Commencement Date and ending on the day before the next following Quarter Day.
5.	SERVICE CHARGE
5.1	Payment
	The Tenant must pay to the Landlord the Estate Service Charge and Building Service Charge without any deduction, withholding or set-off by equal quarterly payments in advance on the

8

	Quarter Days. The first payment (which is an apportioned sum) is to be made on the Service Charge Commencement Date in respect of the period commencing on the Service Charge Commencement Date and ending on the next following Quarter Day.
5.2	Variation of Estate Services and Building Services
	The Landlord or the Superior Landlord may add to vary or discontinue any of the Building Services and/or the Estate Services respectively where the Landlord or the Superior Landlord (acting reasonably) consider it necessary to do so having regard to the principles of good estate management Provided that such variation or discontinuance does not materially adversely affect the Tenant’s use and enjoyment of the Property and provided further that in the event of a dispute the same shall be referred to the Independent Surveyor under Clause 5.3.
5.3	Independent Surveyor
	In any case where provision is made for reference to the Independent Surveyor then either party may forthwith give to the other notice of such dispute or question whereupon it shall be referred to the Independent Surveyor and the final decision of the Independent Surveyor (who shall be agreed between the parties or in default of agreement on the application of either party shall be appointed by the President) and this shall be deemed to be a submission to arbitration within the meaning of the Arbitration Act 1996 or any Act amending or replacing the same.
6.	TENANT’S COVENANTS
6.1	Introduction
	The Tenant covenants with the Landlord to comply with its obligations set out in this Clause and in Clauses 5, 8 and 9.
6.2	Rent
	The Tenant must:

(a)	pay the yearly rent to the Landlord at the times and m the manner referred to in Clause 4 without any deduction and (if required by the Landlord) by banker’s standing order or direct debit; and
(b)	not exercise or seek to exercise any right or claim to withhold rent or any right or claim to legal or equitable set-off.

6.3	Outgoings
	The Tenant must:

(a)	pay all present and future Outgoings assessed, charged or imposed on, or payable in respect of the Property or the Car Spaces or assessed, charged or imposed on, or payable by the owner or occupier of the Property or the Car Spaces;
(b)	pay the proportion properly attributable to the Property or the Car Spaces of all Outgoings assessed, charged or imposed on or payable in respect of the Property and other properties or the Car Spaces and other car spaces or assessed, charged or

9

	imposed on or payable by the owner or occupier of the Property and other properties or the Car Spaces and other car spaces;
(c)	pay all charges for the supply to and consumption at the Property of water, gas and electricity and all charges for telecommunications (including equipment rents) and observe and perform all regulations of the supply authorities;
(d)	where such charges as are referred to in paragraph (c) are made in relation to the Property and other properties or upon the owner or occupier of the Property and other properties, pay the suppliers and indemnify the Landlord against the proportion of those charges properly attributable to the Property or its owner or occupier; and
(e)	if the Landlord loses rating relief because it has been allowed to the Tenant or any other person deriving title under the Tenant during the Term, make good that loss to the Landlord.

	In this sub-clause Outgoings means rates, taxes, duties, charges, assessments, impositions and outgoings whether parliamentary, parochial, local or of any other description and whether of the nature of capital or revenue and even though of a wholly novel character except tax payable by the Landlord as a result of the grant of this Lease or of any dealing with the reversion immediately expectant upon the term hereby granted and except tax payable in respect of the rents and other payments arising hereunder. The proportion referred to in paragraphs (b) and (d) will be determined by the Landlord (acting reasonably) whose determination will be conclusive save as to questions of law or manifest error.
6.4	Repair
	The Tenant must:

(a)	put and keep the Property in good and substantial repair and condition, but, subject to paragraph (b), is not obliged to repair damage caused by an Insured Risk and, subject to subclause (c), is not obliged to repair damage caused by Uninsured Terrorism;
(b)	if directed to do so by the Landlord, repair damage caused by an Insured Risk where:

(i)	the damage is not insured because of an exclusion, limitation or excess imposed by the insurers and, in the Landlord’s reasonable opinion, the cost of making good the damage will not exceed the amount resulting from the exclusion, limitation or excess, or
(ii)	the insurance monies are irrecoverable because of the act, default or omission of the Tenant, any person deriving title under the Tenant or anyone at the Property with the express or implied authority of any of them;

(c)	if directed to do so by the Landlord, repair damage caused by Uninsured Terrorism where, in the Landlord’s reasonable opinion, the cost of making good the damage will not exceed the Cap;
(d)	replace all the Landlord’s fixtures and fittings in the Property which become beyond repair during the Term with others of no lesser quality;
(e)	keep all internal windows and other glass in the Property (both inside and out) clean, cleaning them as often as reasonably necessary;

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(f)	enter into and maintain throughout the Term fully comprehensive maintenance contracts in respect of all plant, equipment and machinery in the Property with a reputable company or companies first approved by and in forms approved by the Landlord and produce the contracts to the Landlord on demand with evidence that any payments due under them are paid up to date;
(g)	produce to the Landlord on demand a certificate issued by an electrical contractor first approved by the Landlord that the electrical circuits within the Property comply with the then current regulations of the Institute of Electrical Engineers or other amended standards or recommended current codes of practice, in each case as approved by the Landlord; and
(h)	notify the Landlord of all defects in the Property which are relevant defects for the purpose of Section 4 of the Defective Premises Act 1972.

6.5	Redecoration
	The Tenant must redecorate the Property in the last year of the Term in colours and patterns which must be first approved by the Landlord (such approval not to be unreasonably withheld or delayed). The Tenant must also have all parts of the Property requiring treatment for their preservation and protection treated in accordance with the best approved manner for preserving and protecting them. All works under this sub-clause must be carried out in a good and workmanlike manner and with suitable, good quality materials.
	In this sub-clause the last year of the Term means the period of 12 months ending at the End of the Term.
6.6	Party Matters
	The Tenant must pay a fair and proper proportion of all costs and expenses payable in respect of repairing, lighting, cleansing and maintaining anything used in common by the Property and any other property to the extent that those costs and expenses are not recoverable under clause 5. The proportion must be determined by the Landlord (acting reasonably) whose determination will be conclusive save as to questions of law or manifest error.
6.7	Entry by the Landlord
	The Tenant must:

(a)	permit the Landlord to enter the Property to examine its condition and take inventories;
(b)	permit the Landlord to enter the Property to exercise any of the rights reserved to the Landlord by this Lease and for any other reasonable purpose connected with the management of the Building but not being obliged to compensate the Tenant for any loss suffered by the Tenant or for any nuisance, annoyance, inconvenience, noise or vibration;
(c)	permit the Landlord to enter the Property and inspect and measure the Property for all purposes connected with insurance of the Building or any part of it,; and
(d)	furnish all information relevant for those purposes as the Landlord or anyone having a right of entry under this sub-clause may reasonably request.

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Except in case of emergency the Landlord must give the Tenant reasonable prior notice (being not less than 24 hours except in case of emergency) before exercising the right of entry. After notice or in case of emergency the Landlord may break into the Property. The right of entry must be exercised in a reasonable manner and in such a way as not to prevent the Tenant’s beneficial user and enjoyment of the Property so far as reasonably practicable with the Landlord making good promptly to the reasonable satisfaction of the Tenant any damage to the Property and to the Tenant’s fixtures fittings and effects so caused and carrying out any works referred to in Schedule 3 in such a manner as to cause the least disturbance to the Tenant as is reasonably practicable.

6.8	Remedy Breaches
	The Tenant must remedy all breaches of covenant notified by the Landlord to the Tenant which the Tenant is liable to remedy under this Lease as soon as reasonably possible and in any event within two months after service of the notice. If the Tenant fails to do so, the Landlord may enter the Property and remedy the breach. All costs and expenses incurred by the Landlord must be paid by the Tenant within 5 Business Days of written demand.
6.9	Alterations
	The Tenant must:

(a)	not make any alteration or addition to the Property or to any other part of the Building (other than the erection, alteration, relocation or removal of internal, non-structural, demountable partitioning within the Property, none of which requires consent but the Tenant must provide details to the Landlord prior to commencement of such works) save as permitted by paragraph (b);
(b)	not make any internal, non-structural alteration to the Property (other than, in relation to demountable partitioning, as mentioned in paragraph (a)) without the prior consent of the Landlord which may not be unreasonably withheld or delayed;
(c)	before the End of the Term, if required to do so by the Landlord but not otherwise, remove any alteration or addition (including any made before the beginning of the Term) and make good all damage caused by the removal;
(d)	not enter into any agreement with any operator conferring on the operator any right to do on the Property anything referred to in paragraphs 2(1)(a), (b) or (c) of the telecommunications code or agree to be bound by any such right granted by another person;
(e)	procure that no occupier of the Property or any part of it enters into any such agreement and that no other person with an interest in the Property agrees to be bound by any such right; and
(f)	forthwith notify the Landlord in writing if any operator requests the Tenant or, to the knowledge of the Tenant, any other person to grant the operator any such right or if any operator does anything referred to in those paragraphs without having obtained the agreement of all persons having an interest in the Property.

In this sub-clause a non-structural alteration is one which does not affect the roof, foundations or exterior of the Building or any load-bearing part of it and operator has the meaning given to that expression by paragraph 1 of the telecommunications code and

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	telecommunications code means the code in schedule 2 of the Telecommunications Act 1984.
6.10	Signs
	The Tenant must:

(a)	not display on the Property any signs visible from outside the Property except those which in the Landlord’s opinion are reasonably necessary in connection with the business carried on at the Property which shall include signage on the lobby wall outside the Property on the second floor and which are in a form approved by the Landlord and are affixed in positions approved by the Landlord (such approval in both cases not to b unreasonably withheld or delayed by the Landlord ;
(b)	at the End of the Term remove all signs (including any erected before the beginning of the Term) and make good all damage caused by their removal; and
(c)	not affix any signs to any part of the Building other than the Property save as aforesaid and save that the Tenant is permitted to display its corporate name details on the common signage board on the ground floor of the Building and not affix to the Building any external radio, television or other aerial or satellite dish or any pole, mast, flag or wire.

	In this sub-clause signs includes signs, hoardings, posters, placards, advertisements, bills, inscriptions and letters.
6.11	Use
	The Property must not be used for any purpose other than as offices being a use within subparagraph (a) of Class Bl Business in the Schedule to the Town and Country Planning (Use Classes) Order 1987 as that Order is in force at the date of this Lease.
6.12	Use obligations
	The Tenant must:

(a)	not install in the Property any equipment of any kind (other than normal office equipment);
(b)	not leave the Property unoccupied for more than a month without notifying the Landlord and providing the security arrangements required by the Landlord and its insurers;
(c)	not do anything on the Property which may become an actionable nuisance, damage or annoyance, danger or inconvenience to the Landlord or any occupier of the Estate;
(d)	not allow to pass into the Conduits serving the Property anything that may obstruct them or cause damage, danger or pollution or anything poisonous or radioactive;
(e)	not bring onto or keep in the Property anything dangerous, inflammable, explosive, noxious or offensive;

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(f)	not use the Property for any illegal or immoral purpose or for any dangerous, noxious, noisy or offensive occupation or in any manner so as to be offensive to the occupiers of any nearby property;
(g)	not use the Property for the holding of public meetings or auction sales or as a residence or sleep at the Property or keep any animal on it;
(h)	not overload the Building or its Conduits or interfere with the ventilation, heating or air-conditioning systems in the Building and operate those systems in accordance with the Landlord’s instructions;
(i)	remove all refuse promptly, keep the Property clean, tidy and in good order and not cause the Common Parts or any other area abutting the Property to be untidy;
(j)	not obstruct the Common Parts and not do anything as a result of which reasonable use of the Common Parts by others may be impeded;
(k)	not park vehicles on or load or unload goods onto or from vehicles save in those parts of the Estate designated by the Landlord for that purpose;
(1)	ensure that at all times both the Landlord and (if required by the Landlord) the police know the names, home addresses and home telephone numbers of at least two keyholders of the Property.

6.13	Statutory Requirements
	The Tenant must.

(a)	comply with every enactment and with the requirements of every authority relating to or affecting the Property or its use or the employment of anyone at the Property or any equipment or chattels in the Property and whether applicable to the owner, landlord, tenant or occupier of the Property; and
(b)	in particular, comply with the CAW Regulations, insofar as they relate to the Property, unless the Landlord gives the Tenant notice that the Landlord elects to do so;
(c)	if the Landlord gives notice under Clause 6.13(b), pay to the Landlord within 10 Business Days of written demand:

(i)	the cost properly incurred by the Landlord in complying with the CAW Regulations in relation to the Property; and
(ii)	a fair proportion of the cost incurred by the Landlord in complying with the CAW Regulations in relation to the Building as a whole or incurred by the Head Landlord in relation to the Estate; and

(d) comply with all requirements of the appropriate authority and the Landlord’s insurers and all reasonable requirements of the Landlord as to means of escape from the Property in case of fire or other emergency and as to the provision and maintenance of fire detection equipment, fire alarm equipment and fire fighting equipment.

In this sub-clause authority includes every government department, local or other authority and court of competent jurisdiction and the proportion referred to in Clause 6.13(c)(ii) will be

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reasonably determined by the Landlord whose determination will be conclusive save as to questions of law or manifest error.

6.14	Notices
	The Tenant must:

(a)	give the Landlord a copy of every notice or order and of every proposal for a notice or order issued to the Tenant, its subtenants or any occupier of the Property or left at the Property within twenty one Business Days of its service;
(b)	take all steps necessary to comply with every notice or order without delay; and
(c)	at the request of the Landlord and at the cost of the Landlord , make or join with the Landlord in making such objections or representations in respect of the notice, order or proposal as the Landlord reasonably thinks fit.

6.15	Planning Acts
	The Tenant must:

(a)	comply with the Planning Acts in relation to the Property, any operations carried out at the Property and its use and not commit any breach of planning control;
(b)	obtain from the local planning authority planning permission for the carrying out of any operation on the Property or the institution or continuance of any use which may constitute development within the meaning of the Planning Acts;
(c)	not make any application for planning permission without the prior consent of the Landlord such consent not to be unreasonably withheld or delayed to the making of the application, indemnify the Landlord against all charges payable in respect of the application and repay to the Landlord all professional fees and expenses properly incurred by the Landlord in connection with the application;
(d)	promptly after the grant or refusal of any application, give the Landlord a copy of the permission or the refusal;
(e)	not make any alteration or addition to or change of use of the Property (being an alteration or addition or change of use which is prohibited by this Lease or for which the consent of the Landlord must be obtained under this Lease and for which a planning permission must be obtained) before planning permission for it has been produced to the Landlord and acknowledged by the Landlord as satisfactory to it (acting reasonably) but so that the Landlord may refuse to express satisfaction with the planning permission on the grounds that anything contained in it or omitted from it in the reasonable opinion of the Landlord would be or be likely to be prejudicial to the Landlord’s interest in the Property during the Term or after the End of the Term;
(f)	pay any charge imposed under the Planning Acts in respect of the carrying out of any operation or the institution or continuance of any use;
(g)	unless the Landlord directs otherwise, carry out before the End of the Term all works required to be carried out as a condition of any planning permission which may have been implemented during the Term whether or not the date by which the planning permission requires those works to be carried out falls within the Term;

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(h)	produce to the Landlord all drawings, documents and other evidence required by the Landlord to satisfy itself that this sub-clause has been complied with;
(i)	at the request of the Landlord but at the cost of the Tenant to make or join in making any planning application required by the Landlord and not make any objection or adverse representation in respect of any planning application made by or with the consent of the Landlord.

In this sub-clause operation and development each includes works to any listed building which are prohibited by the Planning Acts unless authorised by them and planning permission includes listed building consent.

6.16	Obstruction
	The Tenant must not:

(a)	stop up, darken or obstruct any window or any opening belonging to the Property or the remainder of the Building; or
(b)	give to any third party any acknowledgement that the Tenant enjoys the access of light or air to any of the windows or openings in the Property or in the remainder of the Building by the consent of a third party; or
(c)	pay to any third party any sum of money or enter into any agreement with any third party for the purpose of inducing or binding him to abstain from obstructing the access of light or air to any window or opening.

6.17 Obstruction Proceedings

If any of the owners or occupiers of nearby land or buildings do or threaten to do anything which obstructs or may obstruct the access of light or air to any of the windows or openings in the Property, the Tenant must:

(a)	notify the same promptly to the Landlord; and
(b)	permit the Landlord to bring proceedings in the name and at the cost of the Tenant against any of the owners or occupiers of the nearby land or buildings in respect of the obstruction.

6.18	Acquisition of Rights
	The Tenant must not allow any easement to be acquired over the Property or the remainder of the Building. If any easement is acquired or attempted to be acquired, the Tenant must give immediate notice of it to the Landlord and at the request of the Landlord and at the cost of the Landlord adopt the course required by the Landlord for preventing the acquisition of the easement.

6.19	Costs
	The Tenant must pay on an indemnity basis all proper costs and expenses reasonably incurred by the Landlord:

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(a)	in connection with any proceedings relating to the Property under the Law of Property Act 1925 sections 146 and 147, or the Leasehold Property (Repairs) Act 1938, the preparation and service of any notice under those sections or the taking of steps subsequent to such notice notwithstanding that forfeiture is avoided otherwise than by relief granted by the Court;
(b)	in the preparation and service of any notice to repair or any schedule of dilapidations at any time during the Term or within 6 months after the End of the Term;
(c)	in connection with the recovery of arrears of Rent or other sums properly due to the Landlord under this Lease including the levy or attempted levy of any distress; and
(d)	in respect of any application for consent required by this Lease whether or not the consent is granted including any inspection of works authorised by the consent and of any re-instatement of those works.

Where the Landlord could recover the cost of services or advice under this sub-clause if they were undertaken by a third party but those services or that advice are provided by the Landlord or by a company which is a member of the same group as the Landlord (within the meaning of section 42 of the Landlord and Tenant Act 1954), the Tenant must pay to the Landlord or to that company a reasonable sum (plus VAT if payable) for such services or advice but not more than the amount payable by the Tenant if those services or that advice had been provided by a third party.

6.20	Indemnity
	The Tenant must:

(a)	pay and make good to the Landlord every loss and damage incurred or sustained by the Landlord as a consequence of every breach or non-observance of the covenants by the Tenant in this Lease and indemnify the Landlord against all actions, claims, liabilities, costs and expenses arising by reason of the breach; and
(b)	indemnify and keep the Landlord indemnified from liability in respect of all loss, damage, actions, proceedings, claims, demands, costs, damages and expenses in respect of any injury to or the death of any person or damage to any property or in respect of the infringement, disturbance or destruction of any right by reason of or arising in any way directly or indirectly out of:

(i)	the act, omission or default of the Tenant, any person deriving title under the Tenant or any person at the Property with the express or implied authority of any of them; and
(ii)	any breach by the Tenant or by any person deriving title under the Tenant of any covenant by the Tenant or any condition contained in this Lease.

The Landlord shall promptly after receipt of the same notify the Tenant of any proceedings claims or demands which may be the subject of a claim for indemnity together with details thereof and keep the Tenant reasonably informed of all progress in connection therewith. The Landlord shall afford the Tenant the opportunity to make representations in relation to the handling of such claims but subject to the overriding right of the Landlord to handle settle or compromise any such claims as it shall decide.

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6.21	Notices for Sale and Re-letting
	The Tenant must:

(a)	permit the Landlord during the six months before the End of the Term to affix to the Property a notice for re-letting it; and
(b)	permit all persons with written authority from the Landlord or the Landlord’s agent to view the Property upon giving reasonable notice.

6.22	Regulations
	The Tenant must observe all reasonable regulations made by the Landlord for the proper management of the Building and notified in writing to the Tenant.

6.23	New Guarantor
	If a Guarantor’s event of default occurs, the Tenant must notify the Landlord of the event within 10 Business Days of its occurrence. If the Landlord serves notice on the Tenant under this sub-clause within 30 Business Days of service of the Tenant’s notice, the Tenant must procure that guarantors acceptable to the Landlord acting reasonably covenant by deed as soon as practicable thereafter with the Landlord in the form set out in Schedule 5.
	In this sub-clause a Guarantor’s event of default is any of the following:

(a) in the case of a Guarantor who is an individual:

(i)	the death of the individual;
(ii)	the individual being regarded as a patient under the Mental Health Act 1983 section 94;
(iii)	an application being made for an interim order in respect of the individual or an interim order being made under the Insolvency Act 1986;
(iv)	the making by the individual of a proposal for a voluntary arrangement;
(v)	a petition being presented for a bankruptcy order to be made against the individual or a bankruptcy order being made;

(b) in the case of a Guarantor which is a company:

(i)	a proposal being made to the company and to its creditors for a voluntary arrangement;
(ii)	a petition being presented for an administration order in respect of the company or an administration order being made or documents being filed with the court for the appointment of an administrator of the company or the directors of the company giving notice of their intention to appoint an administrator of the company;
(iii)	the company having an administrative or other receiver or a manager appointed of the whole or any part of its property;

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(iv) the company passing a resolution for winding up or a petition being presented for the winding up of the company or a winding up being made or the company being dissolved other than (in any such case) a voluntary winding up of a solvent company for the purposes of amalgamation or reconstruction;

(c) in the case of a Guarantor who is an individual or which is a company:

(i)

the individual or the company entering into any kind of composition, scheme of arrangement, compromise or arrangement for the benefit of creditors or any class of creditors or permitting or suffering any distress or execution to be levied on his goods at the Property;

(ii)

there occurring in relation to the individual or the company in any country or territory in which he carries on business or to the jurisdiction of whose courts he or any of his property is subject any event which corresponds in that country or territory with any of those mentioned in paragraphs (a)(ii) to (v) or (b) above or the individual or the company otherwise becoming subject in any such country or territory to any law relating to insolvency, bankruptcy or winding up.

6.24	Car Spaces
	The Tenant must:

(a)	not use the Car Spaces otherwise than for the purpose of the parking of one private motor vehicle in each Car Space and not to keep anything else in the Parking Area including, without limitation, plant, equipment, materials, containers of any description or any skip or other receptacle for refuse or any caravan or temporary building;
(b)	not without the express permission of the Landlord carry out any repairs to any vehicle whilst it is in the Parking Area and if permission is granted ensure that any repairs are carried out in such manner as not to cause any nuisance, annoyance, inconvenience or disturbance to the Landlord or any tenant or occupier of the Building or other user of the Parking Area;
(c)	keep the Car Spaces clean, tidy and free from deposits of oil or grease;
(d)	not cause any obstruction in the Parking Area;
(e)	take all reasonable and proper precautions against fire occurring in any vehicle using the Car Spaces;
(f)	not do anything in the Parking Area which causes nuisance, annoyance, inconvenience or disturbance to the Landlord or any tenant or occupier of the Building or other user of the Parking Area.

6.25	Head Lease
	The Tenant must:

(a) perform and observe in respect of the Property the covenants by the tenant contained in the Head Lease except the covenants for payment of rent and for insurance;

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(b)	not do or omit anything whereby the Head Lease may be avoided or forfeited; and
(c)	allow the Landlord to enter the Property and to perform any of the covenants by the tenant in the Head Lease which may be necessary to prevent a forfeiture of the Head Lease upon giving reasonable notice except in the case of emergency.

6.26	Freehold Covenants
	The Tenant must observe and perform the covenants contained in or referred to in the documents specified in Schedule 4 so far as they relate to the Property and are still subsisting and capable of taking effect and must indemnify and keep indemnified the Landlord from and against any non-observance or non-performance of the same.
6.27	Yield Up
	The Tenant must:

(a)	yield up the Property (except tenant’s or trade fixtures) to the Landlord at the End of the Term with vacant possession in accordance with the Tenant’s covenants in this Lease save that the Tenant shall not be obliged to reinstate the Partition Works as defined in the Agreement for Lease pursuant to which this Lease is granted;
(b)	make good to the satisfaction of the reasonable Landlord all damage occasioned by the removal of any tenant’s or trade fixtures; and
(c)	deliver to the Landlord records made by the Tenant under the CAW Regulations either during the Term or during any earlier period of occupation arising out of an agreement to grant the Term.

6.28	Release of Landlord
	If the Landlord or any former landlord applies for release of a covenant under section 8 of the LTC Act 1995, the Tenant must not object unreasonably to the release of the Landlord or the former landlord.
6.29	Land Registry
	The Tenant must:

(a)	if the Tenant provides a copy of this Lease to the Land Registry, submit simultaneously with the copy of this Lease an application signed by or on behalf of the Landlord for the Land Registrar to designate this Lease as an exempt information document;
(b)	if the Tenant, any undertenant or any tenant of any derivative lease provides a copy of any underlease or derivative underlease to the Land Registry, prepare or procure that the undertenant or the tenant of the derivative underlease prepares for approval by the Landlord and submit or procure that the undertenant or the tenant of the derivative underlease submits simultaneously with the copy of the underlease or derivative underlease as appropriate, an Underlease EID Application signed by or on behalf of the Landlord;
(c)	if an application for registration of this Lease is made to the Land Registry, provide to the Landlord official copies of the registers of title relating to this Lease and the

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Landlord’s title to the Property within one month after the registration has been completed; and

(d) use reasonable endeavours to procure forthwith at the end of the Term, the cancellation of any registration at the Land Registry relating to this Lease or the matters contained in this Lease.

7.	LANDLORD’S COVENANTS
7.1	Introduction
	Subject to Clause 15.10, the Landlord covenants with the Tenant to comply with its obligations set out in this clause and in Clauses 5 and 9.
7.2	Quiet Enjoyment
	For so long as the Tenant pays the Rent and performs and observes the covenants by the Tenant and the conditions in this Lease, the Tenant may peaceably and quietly hold and enjoy the Property during the Term without any lawful interruption by the Landlord or any person claiming under or in trust for the Landlord or by title paramount.
7.3	Repair of Structure
	The Landlord must repair and, when the Landlord considers necessary (acting reasonably), decorate:

(a)	the roofs and foundations of the Building, the floors and ceilings of the Building (but not suspended ceilings, lighting, floor screed and floor covering in the Lettable Areas), all load-bearing walls, columns and other load-bearing parts of the Building (other than the plaster and surface finish of those within the Lettable Areas) and all external walls including doors, doorframes, windows and window frames (but not the plaster and surface finish of the internal faces of those walls within the Lettable Areas);
(b)	the Common Parts including any walls separating them from the Lettable Areas other than the plaster and surface finish of those walls on the side next to the Lettable Areas; and
(c)	the boundary walls and fences of the Building.

7.4	Repair of Plant
	The Landlord must maintain in good working order and repair:

(a)

all plant serving the Building, including generators, boilers, systems for ventilation, for heating and for air-conditioning and lifts (other than any plant the maintenance of which is the exclusive responsibility of the Tenant or of some other tenant in the Building or would be the exclusive responsibility of a tenant if the whole of the Lettable Areas were let on similar terms to those in this Lease);

(b)

all Conduits in the Building (excluding those the maintenance of which is the exclusive responsibility of the Tenant or of some other tenant in the Building or would be the exclusive responsibility of a tenant if the whole of the Lettable Areas were let on similar terms to those in this Lease).

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7.5	Services in normal business hours
	The Landlord must use all reasonable endeavours to:

(a)	provide a lift service by the lifts now installed in the Building or by any substituted lifts which the Landlord decides to install;
(b)	supply hot and cold water in the toilets of the Building;
(c)	during normal business hours (as determined by the Landlord acting reasonably at all times) supply central heating and air conditioning to the Property and to the Common Parts to such temperatures as the Landlord in its discretion considers adequate;
(d)	keep the Common Parts clean and reasonably well lit;
(e)	clean the outside of the windows in the external walls of the Building as often as the Landlord considers necessary;
(f)	provide security guards on the gatehouse 24 hours a day; and
(g)	between 7am and 7 pm Monday — Friday (inclusive) provide security within the ground floor reception of the Building.

7.6	Head Lease
	The Landlord must:

(a)	pay the rent and other sums reserved by the Head Lease;
(b)	perform the covenant for insurance contained in the Head Lease; and
(c)	use reasonable endeavours to enforce the landlord’s covenants contained in the Headlease upon the reasonable request of the Tenant.

8.	ALIENATION
8.1	Restrictions on Alienation
	Save to the extent permitted by the following sub-clauses of this clause, the Tenant must not part with possession of the whole or any part of the Property or part with or share occupation of the whole or any part of the Property or permit occupation by a licensee of the whole or any part of the Property or hold on any trust the whole or any part of the Property.
8.2	Assignment
	The Tenant must not:

(a)	assign part of the Property as distinct from the whole; nor
(b)	assign the whole of the Property without the prior consent of the Landlord which, subject to Clauses 8.3 and 8.4, may not be unreasonably withheld or delayed.

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8.3	Agreement as to circumstances
	The Landlord and the Tenant agree that the Landlord may withhold its consent to an assignment if any one or more of the following circumstances (which are specified for the purposes of section 19(1A) of the Landlord and Tenant Act 1927) exist:

(a)	the Landlord determines, acting reasonably, that the proposed assignee is not a person who is likely to be able both to comply with the tenant’s covenants in this Lease and to continue to be such a person following the assignment;
(b)	the Landlord determines, acting reasonably, that the proposed assignment may have a materially adverse effect on the value of the Landlord’s reversionary interest in the Property;
(c)	the proposed assignee or any proposed guarantor for it (other than any guarantor under an authorised guarantee agreement) has the benefit of state or diplomatic immunity or the Landlord determines, acting reasonably, that it is likely to acquire that immunity;
(d)	the proposed assignee is a company which is a member of the same group (within the meaning of section 42 of the Landlord and Tenant Act 1954) as the Tenant and the Landlord determines, acting reasonably, that, taking into account the financial strength of any Guarantor for the assignee and the value of any other security to be provided by the assignee for the performance of the tenant covenants in this Lease, the assignee is less likely to be able to comply with the tenant covenants in this Lease than the Tenant was likely to be able to comply with them at the date on which this Lease was vested in the Tenant, taking into account the then financial strength of any Guarantor for the Tenant and the value of any other security then provided by the Tenant for the performance of those covenants;
(e)	the proposed assignee or any proposed guarantor for it (other than any guarantor under an authorised guarantee agreement) is a corporation registered in or an individual resident in a jurisdiction in which a judgement obtained in the courts of England and Wales will not necessarily be enforced without any re-examination of the merits of the case.

8.4	Agreement as to conditions
	The Landlord and the Tenant agree that the Landlord may grant consent to an assignment subject to any one or more of the following conditions (which are specified for the purposes of section 19(1A) of the Landlord and Tenant Act 1927):

(a)

that before the assignment the Tenant enters into and unconditionally delivers to the Landlord an authorised guarantee agreement, such agreement to be a deed and to contain the provisions in Schedule 5 (with the necessary changes) or such other provisions as the Landlord reasonably prescribes and (in either case) such ancillary provisions as the Landlord reasonably prescribes;

(b)

that before the assignment any person (other than a former Tenant) who at the time of the application for the consent is guaranteeing the obligations and liabilities of the Tenant under this Lease covenants by deed with the Landlord that the Tenant will perform its obligations under the authorised guarantee agreement required under paragraph (a), the deed to contain the provisions in paragraphs 1 to 4 and 9 of Schedule 5 (with the necessary changes) and an obligation on the part of the

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	covenantor (in the event of default on the part of the Tenant) to perform any obligation entered into by the Tenant in the authorised guarantee agreement to take up a new lease, and otherwise to be in such form as the Landlord reasonably requires;
(c)	that before the assignment, if the Landlord, acting reasonably, determines it to be necessary, one or more guarantors (not exceeding two) acceptable to the Landlord, acting reasonably, covenant by deed with the Landlord in the form set out in Schedule 5 (with the necessary changes and with such other provisions as the Landlord reasonably requires) or provide a rent deposit of an amount (not exceeding 12 months yearly rent and service charge together with VAT ) required by and to be held on terms acceptable to the Landlord, acting reasonably, in respect of the period ending on the date on which the assignee is released by virtue of the LTC Act 1995;
(d)	that all Rent properly due from the Tenant under this Lease as at the date of the assignment has been paid;
(e)	that if the consent of any Head Landlord is required to the assignment, that consent has been obtained before the assignment;

  and

(f) that on completion of the assignment the Tenant hands over to the assignee all records made by the Tenant under the CAW Regulations either during the Term or during any earlier period of occupation arising out of an agreement to grant the Term.

8.5	Further Agreement
	The Landlord and the Tenant agree that the Landlord may withhold consent to an assignment in circumstances which are not referred to in Clause 8.3 if it is reasonable to do so and may grant consent subject to conditions which are not specified in Clause 8.4 if the conditions are reasonable.
8.6	Underletting
	The Tenant must not:

(a)	underlet part only of the Property;
(b)	underlet the whole of the Property:

(i)	without complying with the provisions of Clauses 8.7 to 8.11 (inclusive); and
(ii)	without the prior consent of the Landlord, which may not be unreasonably withheld or delayed.

8.7	Exclusion Agreement
	The Tenant must not underlet the whole or Permitted Part of the Property without:

(a) a valid agreement between the Tenant and the intended undertenant under section 38A of the Landlord and Tenant Act 1954 excluding the provisions of sections 24 to 28 of that Act in relation to the intended underlease; and

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(b) producing to the Landlord evidence reasonably acceptable to the Landlord of the validity thereof.

8.8	Covenants on Underletting
	The Tenant must procure that any intended undertenant covenants by deed with the Landlord:

(a)

to pay the rent to be reserved by and the other sums to be payable under the underlease and to perform and observe, first, the tenant’s covenants and the conditions to be contained in the underlease and, secondly, the tenant’s covenants and the conditions in this Lease (except the covenant to pay rent and any covenant in this Lease which is inconsistent with the covenants in the underlease as authorised under Clause 8.10) in respect of the period ending on the date on which the undertenant is released by virtue of the LTC Act 1995;

(b)

without prejudice to paragraph (a), not to assign the underlet property without:

(i)

first obtaining a deed of covenant from the intended assignee in favour of the Landlord in the same form (with the necessary changes) as the deed referred to in this sub-clause, including (without limitation) the covenants in this paragraph (b); and

(ii)

if the Landlord reasonably requires, first obtaining a deed from one or more guarantors (not exceeding two) acceptable to the Landlord, acting reasonably, in favour of the Landlord guaranteeing the due and punctual payment and performance of all the obligations and liabilities of the intended assignee under the deed referred to in subparagraph (i), the deed to contain the provisions in paragraphs 1 to 4 and 9 of Schedule 5 (with the necessary changes) and otherwise to be in such form as the Landlord reasonably requires.

8.9

Guarantee on Underletting

If the Landlord reasonably requires, the Tenant must procure that, before the underlease is granted, one or more guarantors (not exceeding two) acceptable to the Landlord, acting reasonably, guarantee (by way of deed) to the Landlord, in respect of the period ending on the date on which the undertenant is released by virtue of the LTC Act 1995, the due and punctual payment and performance of all the obligations and liabilities of the intended undertenant, the guarantee to contain the provisions in paragraphs 1 to 4 and 9 of Schedule 5 (with the necessary changes) and otherwise to be in such form as the Landlord reasonably requires.

8.10	Form of underlease
	The Tenant must procure that every underlease:

(a) contains the same tenant’s covenants and other terms and conditions as are contained in this Lease subject only to:

(i)	such amendments as may be provided for in paragraph (ii); and
(ii)	such amendments as may reasonably be required by the Tenant, having regard only to the duration of the proposed underlease, and as may be approved by the Landlord, such approval not to be unreasonably withheld;

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(b)	does not permit any assignment underlease or other dealing or disposal of the Property which is prohibited by the terms of this Lease and prohibits any further underletting of the whole or any part of the Property;
(c)	provides that where the underlease requires the undertenant to obtain the landlord’s consent, the undertenant must obtain also the consent of the Landlord;

8.11	Underlease Requirements
	The Tenant must:

(a)	not grant any underlease at a fine or premium;
(b)	not grant any underlease at a rent which at the time of the grant of the underlease is less than the open market rent of the Property;
(c)	not accept the surrender of or vary the terms of any underlease or release the undertenant from any covenant or condition in the underlease without the prior consent of the Landlord, which, shall not be unreasonably withheld or delayed;
(d)	not waive any breach of any of the covenants on the part of the undertenant and the conditions contained in any underlease but take all such steps as are lawfully available to the Tenant (including re-entry) to enforce those covenants and conditions;
(e)	procure that on any assignment of any underlease the outgoing undertenant if reasonable so to do in all the circumstances enters into an authorised guarantee agreement and, where appropriate, guarantors enter into a contractual guarantee in each case with the landlord under the underlease in accordance with the provisions of the underlease.

	In paragraphs (c) to (e) of this sub-clause an underlease includes any lease where, by virtue of the grant of this Lease, the Tenant under this Lease becomes the holder of the immediate reversion to that lease.
8.12	Associated Companies
	The Tenant may share the occupation of the whole or any part of the Property with a company which is a member of the same group as the Tenant (within the meaning of section 42 of the Landlord and Tenant Act 1954) for so long as both companies remain members of that group and provided that:

(a)	no relationship of landlord and tenant is created between the two companies and no security of tenure is conferred upon the occupier; and
(b)	within 15 Business Days of the commencement of the sharing the Tenant gives to the Landlord notice of the company sharing occupation and the address of its registered office.

8.13 Charging

(a) The Tenant must notcharge part of the Property as distinct from the whole.

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8.14	Registration of Dealings
	Within 20 Business Days of every assignment, transfer, underlease or charge of the Property or the creation or transfer of any interest derived out of the Term or any devolution of the interest of the Tenant or any person deriving title under the Tenant, the Tenant must:

(a)

produce a certified copy of the assignment, transfer, underlease or charge or (in the case of a devolution) the document evidencing the devolution or under which it arises and, in the case of an underlease in respect of which the provisions of sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 have been excluded, a certified copy of the notice served by the landlord and the tenant’s declaration or statutory declaration in response pursuant to Section 38A of that Act; and

(b)

pay the Landlord a registration fee of a reasonable amount, being not less than £25, in respect of each assignment, transfer, underlease, charge or devolution.

9.	INSURANCE
9.1	Landlord’s Insurance Obligations
	Except to the extent that the insurance is vitiated by any act, default or omission of the Tenant, any person deriving title under the Tenant or any person at the Property with the express or implied authority of any of them the Landlord must keep the Building (other than plate glass and tenant’s or trade fixtures which the Tenant or the tenants of other parts of the Lettable Areas are entitled to remove) insured with insurers or underwriters of repute selected by the Landlord in accordance with the provisions of this clause to the extent to which the Building is insurable and subject to all exclusions, limitations and excesses imposed by the insurers.
9.2	Sum and Risks Insured
	The Building must be insured in a sum not less than its full reinstatement cost (as determined from time to time by the Landlord) against loss or damage by the Insured Risks.
9.3	Fees
	The insurance must extend to:

(a)	architects’ and other professional fees in relation to the reinstatement of the Building for a minimum sum of 15 per cent. of the amount insured in respect of the Building;
(b)	the costs of demolition and removal of debris; and
(c)	loss of rent for such period as the Landlord may decide (being not less than 3 years) in an amount which takes into account the Landlord’s estimate of potential increases in rent.

9.4	Production of Policy
	Whenever reasonably required to do so by the Tenant, but not more often than once a year, the Landlord must produce to the Tenant a copy of the insurance policy or other evidence of it and evidence of payment of the last premium.

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9.5	Reinstatement
	Subject to Clause 9.14, if the Property or the means of access to it within the Building is destroyed or damaged by any of the Insured Risks, the Landlord must use reasonable endeavours to:

(a)	obtain all consents and permissions necessary for reinstatement as soon as reasonably possible;
(b)	subject to obtaining those consents and permissions lay out as soon as practicable all insurance monies received by the Landlord (other than for fees and loss of rent) in reinstating the Property (other than plate glass and tenant’s or trade fixtures which the Tenant is entitled to remove) or the means of access to it within the Building; and
(c)	subject to the Tenant complying with its obligations in Clauses 9.6 to 9.10 inclusive, make good out of the Landlord’s own monies any deficiency (other than one arising from an exclusion, limitation or excess imposed by the insurers).

	In reinstating the Property, the Landlord may make such variations to its design as the Landlord reasonably decides, so long as the Tenant is provided with accommodation reasonably equivalent to that previously comprised in the Property.
9.6	Tenant’s Insurance Obligations
	The Tenant must

(a) pay to the Landlord on within 10 Business Days of written demand a fair proportion (the proportion to be determined by the Landlord acting reasonably whose determination will be conclusive save as to questions of law or manifest error) of:

(i)	every premium payable by the Landlord (including any part of it which the Landlord is entitled to retain by way of commission) for insuring the Building in accordance with its obligations in Clause 9.1 and for effecting insurance in respect of liability to third parties including members of the public and such other insurances as the Landlord considers desirable;
(ii)	where the policy includes the Building and other properties, the proportion properly attributable to the Building of every premium payable by the Landlord (including any part of it which the Landlord is entitled to retain by way of commission) for insuring the Building and the other properties in accordance with its obligations in Clause 9.1 and for effecting (in relation to the Building and the other properties) the other insurances referred to in subparagraph (i), the fair proportion to be determined by the Landlord acting reasonably whose determination will be conclusive save as to questions of law or manifest error;
(iii)	any sum arising from an exclusion, limitation or excess and deducted or deductible by the insurers on any claim made by the Landlord; and
(iv)	all costs and expenses properly incurred by the Landlord in obtaining a valuation of the Building for insurance purposes (but not more frequently than once every year); and

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	All sums payable by the Tenant under paragraph (i) are reserved as rent.
9.7	Vitiation
	The Tenant must not use the Property or carry on any business at the Property or do or omit to do at the Property anything which may make void or voidable any policy for the insurance of the Building or any nearby property of the Landlord.
9.8	Increased Premium
	The Tenant must:

(a)	without the prior consent of the Landlord not use the Property or carry on any business at the Property or do or omit to do at the Property anything which may increase the premium payable for the insurance of the Building; and
(b)	if consent is given, repay within 10 Business Days of written demand to the Landlord any increased insurance premium payable by the Landlord.

9.9	Irrecoverable reinstatement cost
	If the Building is destroyed or damaged by any of the Insured Risks and the insurance money under any insurance effected by the Landlord is wholly or partly irrecoverable because of any act, default or omission of the Tenant, any person deriving title under the Tenant or any person at the Property with the express or implied authority of any of them, the Tenant must:

(a)	pay to the Landlord within 10 Business Days of written demand the whole or the appropriate proportion of the proper cost if reinstating the Building; and
(b)	if required by the Landlord, provide security acceptable to the Landlord, acting reasonably, for the amount referred to in paragraph (a) before the Landlord starts reinstatement.

	Any dispute as to the amount of such proportion must be referred to arbitration.
9.10	Notice of Damage
	If the Property or the means of access to it within the Building is destroyed or damaged by any of the Insured Risks, the Tenant must give notice to the Landlord as soon as the destruction or damage comes to the notice of the Tenant.
9.11	Double Insurance
	The Tenant must not effect any insurance relating to the Property against any of the Insured Risks. If the Tenant is entitled to the benefit of any insurance in respect of the Property, the Tenant must pay to the Landlord all monies received by virtue of the insurance to enable the Landlord to apply them in making good the loss or damage in respect of which they have been received.

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9.12	Relevant matters
	The Tenant:

(a)

must forthwith notify the Landlord in writing of any relevant matter; and

(b)

warrants that all relevant matters existing or arising as regards Glu Mobile Limited on or before today’s date or existing or arising as regards any subsequent person becoming the Tenant on or before the date of assignment or other devolution of title have been or will be notified to the Landlord in writing prior to today’s date or prior to execution of the assignment or the date of the devolution, as the case may be.

	In this sub-clause relevant matter means any matter that a prudent insurer or underwriter might treat as material in deciding whether or on what terms to insure or to continue to insure the Building including (without limitation) the conviction, judgment or adverse finding of any court or tribunal relating to the Tenant or any director, other officer or major shareholder of the Tenant of such a nature that a prudent insurer or underwriter might treat as so material.
9.13	Cesser of Rent
	If the Property or any part of it or the means of access to it within the Building is destroyed or damaged by any of the Insured Risks so as to render the Property unfit for occupation or use or inaccessible the rent referred to in Clause 4.1, and to the extent that the Landlord insures against the loss of the same, the Building Service Charge and the Estate Service Charge or a fair proportion of them according to the nature and extent of the damage sustained will be suspended until the Property has been reinstated and made fit for occupation and use and accessible or until the end of the period for which the Landlord has insured against loss of rent, whichever first occurs. Any dispute as to the amount of the proportion must be referred to arbitration. This sub-clause does not apply if and to the extent that the insurance monies in respect of loss of rent are wholly or partially irrecoverable solely or partly because of the act, default or omission of the Tenant or any person deriving title under the Tenant or any person at the Property with the express or implied authority of any of them.
9.14	Suspension of Reinstatement Obligation
	The Landlord is not obliged to reinstate the Building in accordance with Clause 9.5:

(a)	if and to the extent that the Landlord has given the Tenant notice under Clause 6.4(b) directing the Tenant to repair damage caused by an Insured Risk; or
(b)	if and to the extent that the insurance is vitiated by any act, default or omission of the Tenant, any person deriving title under the Tenant or any person at the Property with the express or implied authority of any of them; or
(c)	while prevented by a supervening event.

9.15	Supervening Event
	In Clauses 9.14 and 10.6 a supervening event means any of the following:

(a) inability of the Landlord to obtain the consents and permissions referred to in Clause 9.5 despite using all reasonable endeavours to do so;

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(b)	grant of any of the consents or permissions subject to a lawful condition with which it would be unreasonable to expect the Landlord to comply or the Landlord being requested as a precondition to obtaining any of the consents or permissions to enter into an agreement with the planning authority or any other authority containing conditions with which it would be unreasonable to expect the Landlord to comply;
(c)	some defect in the site upon which reinstatement is to take place so that it could not be undertaken or could be undertaken only at a cost unacceptable to the Landlord;
(d)	inability of the Landlord to obtain access to the site to reinstate;
(e)	prevention of reinstatement by any cause beyond the control of the Landlord.

9.16	Termination
	9.16.1	If:

(a)	the insurance is vitiated by any act, default or omission of the Tenant, any person deriving title under the Tenant or any person at the Property with the express or implied authority of any of them; or
(b)	the Landlord cannot commence reinstatement within 12 months from the date of destruction or damage because of a supervening event,

and in either case the Building or a substantial part of it is unfit for occupation or use the Landlord may determine the Term by serving notice on the Tenant at any time within six months of the end of the 12 month period. On service of the notice the Term will cease but without prejudice to any rights that the Landlord may have against the Tenant or any Guarantor for breach of any of the covenants by the Tenant or any Guarantor or the conditions in this Lease and all insurance monies will belong to the Landlord.

9.16.2. if the Property has not been reinstated and made fit for occupation and use and accessible within a period of three years following the date of such destruction or damage the Tenant may at any time thereafter determine the Term by serving notice on the Landlord and on the service of the notice the Term will cease but without prejudice to the rights either party may have against the other for breach of any covenants and the insurance monies will belong to the Landlord.

10.	TERMINATION — UNINSURED TERRORISM
10.1	Application
	This clause has effect if the Property or the means of access to it within the Building is destroyed or damaged by Uninsured Terrorism and either:
	(a)   in the Landlords’ reasonable opinion the cost of making good the damage will exceed the Cap; or
	(b)   in the Landlord’s reasonable opinion the cost of making good the damage will not exceed the Cap but the Landlord gives no direction under Clause 6.4(c)
10.2	Non-physical damage
	For the purposes of this Clause:

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(a)	The Property or the means of access to it within the Building is to be treated as having been damaged by Uninsured Terrorism if either the Property suffers physical damage or, as a result of Uninsured Terrorism, the Property is rendered substantially unfit for occupation or use, even if the Property has not suffered any physical damage; and
(b)	repairing damage includes remedying the effects of Uninsured Terrorism.

10.3	Cesser of rent
	If the Property or any part of it or the means of access to it within the Building is destroyed or damaged by Uninsured Terrorism so as to be unfit for occupation or use or inaccessible, the rent referred to in Clause 4.1 and the Building Service Charge and the Estate Service Charge or a fair proportion of them according to the nature and extent of the damage sustained will be suspended at the end of the Initial Period.
10.4	Election
	Not later than the end of the Initial Period, the Landlord may serve notice on the Tenant electing whether or not to reinstate the Property. If the Landlord does not serve the notice within the Initial Period (in respect of which time is of the essence), the Landlord will be deemed to have served notice on the last day of the Initial Period electing not to reinstate the Property.
10.5	Reinstatement

	Subject to Clause 10.6, if the Landlord serves notice electing to reinstate the Property, the Landlord must use reasonable endeavours to:
(a)	obtain all consents and permissions necessary for reinstatement as soon as reasonably possible; and
(b)	subject to obtaining those consents and permissions, at its own cost reinstate the Property (other than tenant’s or trade fixtures which the tenant is entitled to remove).
	In reinstating the Property, the Landlord may make such variations to its design as the Landlord reasonably decides, so long as the Tenant is provided with accommodation reasonably equivalent to that previously comprised in the Property.

10.6 Termination following election to reinstate

	If, having served notice electing to reinstate the Property:
(a)	the Landlord cannot commence reinstatement within 12 months after the date of service of the notice because of a supervening event, the Landlord may determine the Term by serving notice on the Tenant at any time within six months after the end of the 12 month period; or
(b)	the Landlord cannot commence reinstatement within 12 months after the date of service of the notice because of a supervening event, but the Landlord has not served notice to determine the Term under paragraph (a) within 3 months after the end of the 12 month period referred to in that paragraph, the Tenant may determine the Term by serving notice on the Landlord; or

32

	(c)     practical completion of the reinstatement works has not been achieved within three years after the date of service of the notice, the Landlord or the Tenant may determine the Term by serving notice on the other.
10.7	End of cesser of rent
	If the Landlord serves notice electing to reinstate the Property, the rent referred to in Clause 4.1 will start to be payable again when the Property has been reinstated and made fit for occupation and use or at the end of three years from the date of service of the notice electing to reinstate the Property, whichever first occurs.
10.8	Termination following election not to reinstate
	If the Landlord serves a notice electing not to reinstate the Property, or is deemed to have done so, either party may determine the Term by serving notice on the other at any time within six months after the date of service or deemed service of the first mentioned notice. On service of the notice the Term will cease but without prejudice to any right which the Landlord may have against the Tenant or the Guarantor for any breach of any of the covenants by the Tenant or the Guarantor or the conditions of this Lease.
11.	RE-ENTRY
11.1	Re-entry

If an Event of Default occurs then notwithstanding the waiver of any previous right of re-entry the Landlord may re-enter the Property or any part of it when the Term will cease but without prejudice to any rights or remedies which may then have accrued to the Landlord against the Tenant or any Guarantor in respect of any antecedent breach of any of the covenants or obligations of the Tenant or any Guarantor contained in this Lease (including the breach in respect of which re-entry is made).Event of Default

  In this clause an Event of Default is any one of the following:

(a)	the Rent or any part of it being in arrear and unpaid for fourteen Business Days after becoming payable (whether formally demanded or not in the case of the rent reserved at Clause 4.1); or
(b)	a breach by the Tenant of any of the material covenants by the Tenant in this Lease; or
(c)	the Tenant or any Guarantor (being a company) being deemed unable to pay its debts under section 123 of the Insolvency Act 1986 or the Tenant or any Guarantor (being a company) passing a resolution for winding-up or the directors of any of them presenting a petition for winding-up or an order for the winding-up of the Tenant or any Guarantor being made (other than (in any such case) a voluntary winding-up of a solvent company for the purposes of amalgamation or reconstruction) or the Tenant or any Guarantor being dissolved; or
(d)	the Tenant or any Guarantor (being a company) having an administrative or other receiver or a manager appointed of the whole or any part of its property or a petition being presented for an administration order or an administration order being made in respect of the Tenant or any Guarantor or documents being filed with court for the

33

appointment of an administrator of the Tenant or any Guarantor or the directors of the Tenant or any Guarantor giving notice of their intention to appoint an administrator of the Tenant or any Guarantor; or

(e)	the Tenant or any Guarantor (being an individual) presenting a petition for a bankruptcy order to be made against him or a bankruptcy order being made against the Tenant or any Guarantor; or
(f)	in relation to the Tenant or any Guarantor (whether an individual or a company) a proposal being made or the Tenant or any Guarantor for the time being (whether a company or an individual) entering into any kind of composition, scheme of arrangement, compromise or arrangement for the benefit of creditors or any class of creditors or permitting or suffering any distress or execution to be levied on his goods; or
(g)	there occurring in relation to the Tenant or any Guarantor in any country or territory in which any of them carries on business or to the jurisdiction of whose courts any of them or any of the property of any of them is subject any event which corresponds in that country or territory with any of those mentioned in paragraphs (c) to (f) above or the Tenant or any Guarantor otherwise becoming subject in any such country or territory to any law relating to insolvency, bankruptcy or winding up.

12.	GUARANTEE
	The Guarantor covenants with the Landlord in the terms set out in Schedule 5 in respect of the period ending on the date on which Glu Mobile Limited is released by virtue of the LTC Act 1995.
13.	VALUE ADDED TAX
13.1	Payment
	If any VAT is chargeable on any supply under or pursuant to this Lease, the Tenant must pay the amount of that VAT in addition to the consideration for the supply subject to first receiving a VAT Invoice.
13.2	VAT exclusive
	Without limiting Clause 13.1, each sum reserved or payable by the Tenant under this Lease is exclusive of VAT (if any) and is accordingly to be construed as a reference to that sum plus any VAT in respect of it, and where any sum is reserved as rent, the VAT is also reserved as rent.
13.3	Other Supplies
	If VAT is chargeable on any supply made by the Landlord to the Tenant for which a sum is not reserved or payable under this Lease, the Tenant must pay that VAT to the Landlord against issue of a VAT invoice.
13.4	Third Party Payments
	Where under this Lease the Tenant must:

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(a)	make any payment to the Landlord or any other person (including, without limitation, by way of service charge, indemnity or reimbursement) by reference to any amount incurred or which will or may be incurred by the Landlord or any other person; or
(b)	otherwise pay all or part of the consideration for any supply made to the Landlord or any other person,

	then without prejudice to Clauses 13.1 to 13.3, the Tenant must pay an amount equivalent to any VAT in respect of the amount or consideration except to the extent that the VAT is recoverable by the Landlord or any other person as appropriate.
13.5	Recoverability
	For the purposes of Clause 13.4, VAT is recoverable by a person, if that person (or any company treated as a member of the same VAT group as that person) is entitled to credit for it as input tax under sections 25 and 26 VAT Act 1994. For the avoidance of doubt, VAT is not recoverable by a person only because he could elect to waive exemption, but has not done so.
13.6	Estimates
	Where for the purposes of this Lease it is necessary to calculate or estimate the cost or value of anything, including any building, structure, work, item, act or service, the cost or value must be calculated or estimated so as to include any VAT which will or may be incurred in addition.
13.7	Outgoings
	This clause does not affect the generality of Clause 6.3 (Outgoings) of this Lease.
13.8	VAT Invoice
	The Landlord must issue the Tenant with a proper VAT invoice in respect of any supply by the Landlord to the Tenant and the Tenant must issue the Landlord with a proper VAT invoice in respect of any taxable supply by the Tenant to Landlord.
14.	TRUSTEE LIABILITY PROVISION
14.1	Limitation
	The Royal Bank of Scotland plc has entered into this Lease in its capacity as trustee and not otherwise of Schroder Exempt Property Unit Trust (SEPUT) and therefore notwithstanding any other provision contained in this Lease neither The Royal Bank of Scotland plc nor any successor trustee of SEPUT is obliged to meet any liability or claim under this Lease save to the extent that the same can be met by it out of the Trust Assets.
14.2	Trust Assets
	For the purposes of this clause Trust Assets means the assets for the time being held upon the trusts from time to time of SEPUT.

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15.	GENERAL
15.1	Interest and Powers of Recovery
	If any Rent or other sum payable under this Lease is not paid on the day on which it is due it will bear interest from that day until the date of payment at the Default Interest Rate compounded quarterly. Every amount payable under this Lease is reserved as rent and is recoverable as rent in arrear.
15.2	Interest on Breach
	Without prejudice to Clause 15.1 if:

(a)	there is any breach by the Tenant of its obligations under this Lease; and
(b)	the Landlord serves notice on the Tenant that by reason of that breach the Landlord will not for the time being accept any sums (including the Rent) payable by the Tenant under this Lease,

	the Tenant must pay to the Landlord within 5 Business Days of written demand interest at the Default Interest Rate on the sums due to the Landlord under this Lease, in respect of the period from the date of service of the notice, or from the date when the particular sum fell due (whichever is the later), until whichever is the earlier of the date of the acceptance by the Landlord of the sum due, and the date on which the breach is remedied.
15.3	Disputes
	In relation to disputes:

(a)	any statement in this Lease that a dispute must be referred to arbitration means that the dispute must be determined by a single arbitrator agreed by the Landlord and the Tenant or, failing agreement, by a single arbitrator appointed by the president or his deputy for the time being of the Royal Institution of Chartered Surveyors in accordance with the Arbitration Act 1996; and
(b)	any dispute between the Tenant and any tenant or occupier of any other property owned or leased by the Landlord about any right in connection with the use of the Property and the other property or about any boundary structure separating the Property from the other property may be determined by the Landlord, whose determination will be conclusive save as to questions of law.

15.4	Compensation
	Subject to the provisions of section 38(2) of the Landlord and Tenant Act 1954 neither the Tenant nor any person deriving title under the Tenant will be entitled on quitting the Property to any compensation under section 37 of that Act.
15.5	Joint and Several Liability
	Where the Tenant or any Guarantor is more than one person:

(a) those persons are jointly and severally responsible in respect of every obligation undertaken by them under this Lease; and

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(b) the Landlord may release or compromise the liability of any of those persons under this Lease or grant any time or other indulgence without affecting the liability of any other of them.

15.6	Whole Agreement
	This Lease contains the whole agreement between the parties relating to the transaction contemplated by this Lease and supersedes all previous agreements between the parties relating to the transaction.
15.7	Representations
	The Tenant acknowledges that in agreeing to enter into this Lease the Tenant has not relied on any representation, warranty, collateral contract or other assurance. The Tenant waives all rights and remedies which, but for this sub-clause, might otherwise be available to it in respect of any representation, warranty, collateral contract other assurances, but nothing in this sub-clause limits or excludes any liability for fraud.
15.8	Rights of Entry
	All rights of entry exercisable by the Landlord extend to include (without limitation) its employees, agents, surveyors, contractors and licensees with or without plant, equipment, appliances and materials.
15.9	Interpretation of Covenants
	Any covenant by the Tenant not to do or omit anything must be construed as though the covenant were in addition a covenant not to permit or suffer that thing to be done or omitted to be done.
15.10	Landlord’s Covenants
	The Landlord will not be liable to the Tenant for any breach of its obligations in Clauses 7.3 to 7.6:

(a)	unless the Tenant has given the Landlord notice of the breach or the Landlord is aware or should reasonably be aware of the breach and has failed to remedy the breach within a reasonable time of service of the notice; or
(b)	where the breach was caused by something beyond the control of the Landlord, provided that the Landlord uses all reasonable endeavours to remedy the breach, except to the extent that:

(i)	the breach could have been prevented; or
(ii)	the consequences of the breach could have been lessened; or
(iii)	the time during which the consequences of the breach were experienced could have been shortened,

by the exercise of reasonable skill by the Landlord or those undertaking the obligation on its behalf.

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15.11	Head Lease and Charge
	Where there is a Head Lease or where the interest of the Landlord or any Head Landlord is charged:

(a)	any right exercisable by the Landlord is exercisable by every Head Landlord and every Chargee;
(b)	where the Tenant must obtain consent from the Landlord, the Tenant must obtain consent from every Head Landlord and every Chargee where the Head Lease or the Charge so provide and nothing contained in this Lease will be construed as imposing on any Head Landlord or any Chargee an obligation not to refuse consent unreasonably or indicating that such an obligation is imposed on any Head Landlord or any Chargee by virtue of the terms of the Head Lease or the Charge;
(c)	where the Tenant must repay to the Landlord any expenses properly incurred by the Landlord then if any expenses are incurred by any Head Landlord or any Chargee the Tenant must repay those expenses also;
(d)	any indemnities in favour of the Landlord are deemed to incorporate indemnities in favour of every Head Landlord and every Chargee.

	In this sub-clause Charge means any mortgage or charge (fixed or floating, legal or equitable) affecting the interest of the Landlord or any Head Landlord in the Property and Chargee must be construed accordingly.
15.12	Tenant’s Possessions
	If after the Tenant has vacated the Property at the End of the Term any of the Tenant’s possessions remain on the Property and the Tenant fails to remove them within 15 Business Days after being requested to do so by the Landlord then:

(a)	the Landlord may dispose of the possessions as agent for the Tenant;
(b)	(if disposal is by sale) then, subject to paragraph (c), the Landlord must hold the proceeds of sale after deducting the costs and expenses of removal, storage and sale incurred by it to the order of the Tenant;
(c)	if the Tenant fails to claim the proceeds of sale within 60 Business Days of the date of the sale, the Landlord may keep them;
(d)	the Tenant indemnifies the Landlord against:

(i)	any liability incurred by the Landlord to any third party whose possessions have been sold by the Landlord in the mistaken belief (which must be presumed) that the possessions belonged to the Tenant;
(ii)	any damage caused to the Property by the possessions; and
(iii)	all loss, damage, actions, proceedings, claims, demands, costs, damages and expenses properly incurred or suffered by or brought or awarded against the Landlord as a result of the presence of the possessions on the Property after the Tenant has left it at the End of Term.

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15.13	Other Land
	Nothing contained in or implied by this Lease:

(a)	imposes or is deemed to impose any restriction on the use of any property not comprised in this Lease; or
(b)	gives the Tenant:

(i)	the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant, lease, condition or stipulation entered into by any purchaser or tenant from the Landlord or any Head Landlord in respect of any property not comprised in this Lease; or
(ii)	the right to prevent or restrict in any way the development of any land not comprised in this Lease; or

(c) release the Tenant from the covenants by the Tenant in this Lease notwithstanding that the Landlord has waived or released temporarily or permanently, revocably or irrevocably or in any other way a similar covenant or similar covenants affecting any property not comprised in this Lease.

15.14	Perpetuity Period
	The perpetuity period applicable to this Lease is 80 years beginning on the date of this Lease and whenever in this Lease either the Landlord or the Tenant is granted a future interest it must vest within that period and, if it has not, it will be void for remoteness.
15.15	Severance
	To the extent that any provision of this Lease is rendered void by section 25 of the LTC Act 1995, that provision must be severed from the remainder of this Lease which remains in full force and effect. In this sub-clause provision includes a clause, a sub-clause, or a schedule, or any part of any of them.
15.16	Notices in Writing
	Every notice, consent, approval or direction given under this Lease must be in writing.
15.17	Counterparts
	This Lease may be executed in any number of counterparts, all of which, taken together, constitute one and the same lease and any party may enter into this Lease by executing a counterpart.
15.18	Exclusion of Third Party Rights
	A person who is not a party to this lease may not enforce any of its terms under the Contracts (Rights of Third Parties) Act 1999.
15.19	Schedule 8
	The parties agree that the provisions of Schedule 8 shall have effect.

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16.	NOTICES
16.1	Notices
	Any notice or other document served under this Lease may be served in any way in which a notice required or authorised to be served under section 196 of the Law of Property Act 1925 may be served.
16.2	SEPUT Trustee
	During such period as the reversion to this Lease is vested in the trustee of Schroder Exempt Property Unit Trust no notice will be deemed to be validly served on the Landlord unless a copy of the notice is also served on Schroder Property Investment Management Limited, 31 Gresham Street, London EC2V 7QA or such other address as the Landlord notifies to the Tenant.
17.	GOVERNING LAW AND JURISDICTION
17.1	Governing Law
	This Lease is governed by and must be construed in accordance with English law.
17.2	Jurisdiction
	The Tenant and the Guarantor each submit to the jurisdiction of the English courts for all purposes relating to this Lease and irrevocably appoint the Tenant’s solicitors as the agent of each of them for service of process.
18.	EXCLUSION AGREEMENT
18.1	The Tenant confirms that:

(a) before the date of the agreement for lease to which this Lease gives effect:

(i)	the Landlord served on the Tenant a notice (the Notice) dated 15 November 2006 in relation to the tenancy created by this Lease in a form complying with the requirements of Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (the Order); and
(ii)	the Tenant, or a person duly authorised by the Tenant, made in relation to the Notice a statutory declaration (the Declaration) dated 22 November 2006 in a form complying with the requirements of Schedule 2 of the Order; and

(b) if the Declaration was made by a person other than the Tenant, the declarant was duly authorised by the Tenant to make the Declaration on the Tenant’s behalf.

18.2 The Landlord and Tenant agree to exclude the provisions of sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in relation to the tenancy created by this Lease.

IN WITNESS of which this Lease has been executed as a deed and has been delivered on the date which first appears on page 1.

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SCHEDULE 1

THE BUILDING AND THE PROPERTY

PART 1

THE BUILDING

Building means the building known as Beaumont House, Kensington Village, Avonmore Road, London W14 8TS shown edged in blue on the Estate Plan and any or every part of that building and everything from time to time attached to it or used for its benefit and any additions extensions or alterations made to it from time to time during the Term.

PART 2

THE PROPERTY

That Lettable Area on the part second floor of the Building which is shown edged red on the Property Plan having a net internal area (as defined in the Code) of 10,608 square feet and extends from the upper side of the floor slab or the floor joist immediately above that Lettable Area excluding:

(a)	the walls bounding that Lettable Area other than those walls (if any) indicated as party walls on the Property Plan; and
(b)	all load-bearing walls and pillars within that Lettable Area; and
(c)	all structural floor slabs within that Lettable Area; and
(d)	all Conduits and plant within that Lettable Area which do not serve that Lettable Area exclusively,

but including:

(i)	the plaster and other finishes on the inner sides of the walls bounding that Lettable Area and on all faces of all load-bearing walls and pillars wholly within that Lettable Area; and
(ii)	all non-structural ceilings and other interior finishes applied to the floor immediately above that Lettable Area and to any floor slab within that Lettable Area and all floors floor screeds and other finishes applied to the floor slab immediately below that Lettable Area and to any floor slab within that Lettable Area; and
(iii)	all doors and internal parts of all windows of that Lettable Area together with the interior parts of the frames glass and furniture of them; and
(iv)	the whole of all non-load bearing walls or partitions wholly within that Lettable Area; and
(v)	one half in thickness of all non-load bearing or non-structural walls (if any) bounding that Lettable Area and indicated as party walls on the Property Plan; and
(vi)	all Conduits and plant within that Lettable Area and which serve that Lettable Area exclusively.

In this Schedule, the Code means the Code of Measuring Practice published by the Royal Institution of Chartered Surveyors and the Incorporated Society of Valuers and Auctioneers (fifth edition).

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SCHEDULE 2

RIGHTS GRANTED TO THE TENANT

PART 1

RIGHTS GRANTED IN COMMON

The right at all times in common with the Landlord and all others for the time being authorised by the Landlord or otherwise entitled for the Tenant and any permitted undertenant or permitted occupier of the Property and those authorised by them:

(a) to connect to and use all Conduits and Plant from time to time serving the Property or provided for the benefit of the Property (but without any right of access to areas outside the Property for this purpose other than areas not let or intended to be let);

(b) to pass and repass over the Common Parts and otherwise to use the Common Parts for the purpose for which they were designed at all times;

(c) of lateral and adjacent support and protection for the Property from the remainder of the Building;

(d) to pass with or without motor vehicles over the access roads ramps and Parking Area forming part of the Estate Common Parts to the adopted highway for the purpose of access to and egress from the Property and the Car Spaces;

(e) to pass on foot only over the paths pavements pedestrian ways precincts and malls forming part of the Estate Common Parts for the purpose of access to and egress from the Property and the Car Spaces;

(f) to load and unload goods in the area reasonably convenient to the Tenant from time to time designated for such purpose by the Landlord (acting reasonably) Provided That such loading shall be carried out with reasonable speed and in such manner as not to cause undue obstruction nuisance or inconvenience to others;

(g) to have the name of the Tenant (and the name of any permitted under-tenant or permitted occupier) to be displayed on the tenants directory boards in so far as the same are provided for on the Estate or in the Building; and

(h) a right of way (in case of emergency only or so as to comply with relevant regulations form time to time in case of practices) over the fire escape staircases shown hatched blue on the Property Plan.

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PART 2

EXCLUSIVE RIGHTS GRANTED

1. The right to park private motor vehicles on 10 (ten) Car Spaces in the Parking Area.

2.	(a)	The Car Spaces shall as from the date hereof be situated in the Parking Area.
	(b)	The Landlord may in the interest of good estate management from time to time by prior notice in writing of at least 28 days (except in emergency) provide or designate substitute Car Spaces inside the Estate in accordance with the following provisions:

(i) the Tenant shall at all times be entitled to no less than 10 Car Spaces in total including such alternative Car Spaces which alternative Car Spaces shall be:

(A)	in groupings of adjoining Car Spaces of not less than three Car Spaces;
(B)	have the benefit of detailed planning consent for their use as Car Spaces (subject to no conditions which are unacceptable to the Landlord and the Tenant (acting reasonably));
(C)	surfaced with tarmacadam or some other reasonable hard standing to a standard appropriate to permanent Car Spaces; and
(D)	capable of access and egress to and from the nearest adopted highway or Estate Common Parts in accordance with a traffic scheme complying with all general principles of good estate management.

Provided that any obstruction of any kind by others of any of the areas or things mentioned in either Part 1 or Part 2 of this Schedule 2 not authorised by the Landlord shall not be deemed to be an infringement of the said rights or the relevant one or more of them as the case may be but the Landlord shall upon receiving notice from the Tenant of any such obstruction use all reasonable endeavours to remove or procure the removal of such obstruction as soon as reasonably practicable.

3.

The Landlord shall be entitled on reasonable prior notice temporarily to close from time to time part of the Parking Area and parts of the access roads paths and pavements for the purpose of repairing the same and shall also be entitled in its absolute discretion to alter the position or line of all or any access roads paths or pavements provided that the Landlord shall if reasonable in all the circumstances provide equivalent alternative facilities for the Tenant and minimise any interruption to such facilities and any inconvenience,

Provided always that the Landlord shall use all reasonable endeavours in the exercise of such rights to avoid impairing the Tenant’s occupation of the Property or its business and so far as practicable give the Tenant 48 hours prior notice in writing of any such intended closure.

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SCHEDULE 3

RIGHTS RESERVED TO THE LANDLORD

The rights for the Landlord and all others from time to time authorised by the Landlord or otherwise entitled and without any liability to pay compensation:

(a)	to carry out works to the Building or to the Estate or to any other property and to use them in whatever manner may be desired and to consent to others doing so whether or not in each case the access of light and air to the Property or any other amenity from time to time enjoyed by it shall be affected in any way or cause nuisance, damage, annoyance or inconvenience to the Tenant or occupiers of the Property by noise, dust, vibration or otherwise provided that it does not materially affect the ability of the Tenant or the occupier to use the Property for any purpose permitted by this Lease;
(b)	to connect to and use all Conduits within or forming part of the Property;
(c)	upon reasonable prior written notice to the Tenant (except in emergency when no notice need be given) to enter and remain on the Property at reasonable times with or without tools appliances scaffolding and materials for the purposes of:

(i)	installing inspecting repairing renewing reinstalling cleaning maintaining removing or connecting up to any Conduits; or
(ii)	inspecting cleaning altering repairing maintaining renewing demolishing or rebuilding any adjoining or adjacent Property or any other things used in common, or
(iii)	carrying out works; or
(iv)	complying with the Landlord’s obligations under this Lease or with any other Legal Obligation of the Landlord; or
(v)	exercising any of the rights referred to in this Schedule or for the purposes set out in Clause 6.7,

	the person entering causing as little damage interference and inconvenience as reasonably practicable and making good at its expense any damage caused to the Property by such entry PROVIDED further that the rights referred to in paragraph (c) of this schedule may only be exercised insofar as such works cannot otherwise reasonably be carried out without such entry;
(d)	in an emergency to pass through the Property in accordance with any regulation or requirement of the Fire Officer or any court or other authority;
(e)	to build, alter and install and afterwards to maintain buildings, structures and fixtures on, into or projecting over or under or taking support from the Property (but those buildings, structures and fixtures will not become party of the Property);
(f)	to erect and use scaffolding outside the Property even if the scaffolding temporarily restricts access to or the use and enjoyment of the Property by the Tenant or the occupier of the Property;

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(g)	to all rights of light or air or other easements or rights over or belonging to any other land or buildings (including other parts of the Building or the Estate);
(h)	to the support and protection from the Property enjoyed by other parts of the Building and the Estate.

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SCHEDULE 4

MATTERS AFFECTING THE FREEHOLD

1. An agreement made pursuant to Section 106 of the Town and Country Planning Act 1990 dated 11th October, 1999 made between (1) Rysbridge Estates Limited, (2) BHF — Bank AG and (3) The London Borough of Hammersmith and Fulham in so far as they relate to the Property.

2. All other easements rights covenants and other matters affecting the Property at the date hereof.

3. All those matters referred to at the date hereof in the titles registered at the Land Registry under title numbers BGL33130 and BGL40150 save for any charges personal to the Landlord or Head Landlord in so far as they relate to the Property.

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SCHEDULE 5

GUARANTEE PROVISIONS

1.	The Guarantor guarantees to the Landlord the due and punctual payment and performance by the Tenant of all the tenant’s obligations and liabilities under this Lease and indemnifies the Landlord against all losses, damages costs and expenses arising or incurred by the Landlord as a result of the non-payment or non-performance of those obligations or liabilities.
2.	The obligations of the Guarantor under this Lease:

(a)	constitute a direct, primary and unconditional liability to pay within 5 Business Days of written demand to the Landlord any sum which the Tenant is liable to pay under this Lease and to perform on demand by the Landlord any obligation of the Tenant under this Lease without the need for any recourse on the part of the Landlord against the Tenant;
(b)	will not be affected by:

(i)	any time or indulgence granted to the Tenant by the Landlord;
(ii)	any legal limitation, disability or other circumstances relating to the Tenant or any irregularity, unenforceability or invalidity of any obligations of the Tenant under this Lease;
(iii)	any licence or consent granted to the Tenant or any variation in the terms of this Lease save as provided in section 18 of the LTC Act 1995;
(iv)	the release of one or more of the parties defined as the Guarantor (if more than one); or
(v)	any other act, omission, matter, event or thing whereby (but for this provision) the Guarantor would be exonerated in whole or in part from the guarantee other than a release by deed given by the Landlord.

3. So long as this guarantee remains in force the Guarantor:

(a)	must not claim or prove as creditor in competition with the Landlord in the event of any bankruptcy, liquidation, rehabilitation, moratorium or other insolvency proceedings relating to the Tenant;
(b)	is not entitled to claim or participate in any security held by the Landlord in respect of the obligations of the Tenant under this Lease;
(c)	must not exercise any right of set-off against the Tenant.

4.	If the Landlord brings proceedings against the Tenant, the Guarantor will be bound by any findings of fact, interim or final award or interlocutory or final judgment made by an arbitrator or the court in those proceedings.
5.	If:

(a) the Tenant (being a company) enters into liquidation and the liquidator disclaims this Lease; or

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(b)	the Tenant (being a company) is dissolved and the Crown disclaims this Lease; or
(c)	the Tenant (being an individual) becomes bankrupt and the trustee in bankruptcy disclaims this Lease; or
(d)	this Lease is forfeited,

	then within six months after the disclaimer or forfeiture the Landlord may require the Guarantor by notice to accept a lease of the Property for a term equivalent to the residue which would have remained of the Term if there had been no disclaimer or forfeiture at the same rents and subject to the same covenants and conditions (including those as to the review of rent) as are reserved by and contained in this Lease.
6.	The new lease and the rights and liabilities under it will take effect as from the date of the disclaimer or forfeiture and the Guarantor will be liable for all payments due under the new lease as from the date of disclaimer or forfeiture as if the new lease had been granted on the date of disclaimer or forfeiture.
7.	The Guarantor or his personal representatives must pay the Landlord’s costs of and accept the new lease and must execute and deliver to the Landlord a counterpart of it.
8.	If the Landlord does not require the Guarantor to take a Lease of the Property, the Guarantor must pay to the Landlord within 5 Business Days of written demand a sum equal to the rent that would have been payable under this Lease but for the disclaimer or forfeiture in respect of the period from the date of the disclaimer or forfeiture until the date which is six months after the date of the disclaimer or forfeiture or the date on which the Property has been re-let by the Landlord, whichever first occurs.
9.	If any VAT is payable by the Tenant to the Landlord under the terms of the Lease, the Guarantor’s obligation extends to that VAT. If the Guarantor makes any payment in respect of VAT, the Landlord’s obligation to issue a VAT invoice to the Tenant under the Lease in respect of that VAT is not affected, and the Landlord is not obliged to issue a VAT invoice to the Guarantor in respect of that VAT.
10.	If the guarantee in this schedule is intended to be authorised guarantee agreement:

(a)	to the extent that any provision of this guarantee does not conform with section 16 of the LTC Act 1995, that provision is severed from the remainder of this guarantee and this guarantee has effect as if it excluded that provision; and
(b)	in particular, but without limitation, paragraph 5 must be read as though subparagraph (d) were omitted from it and paragraphs 5, 6 and 8 must be read as though all references to forfeiture of this Lease were omitted from them.

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SCHEDULE 6

ESTATE SERVICES AND ESTATE SERVICE CHARGE

1.	Estate Services
	The Estate Services are:

(a)	the repair (including the repair of inherent defects and where reasonably necessary renewal) maintenance cleaning decoration supervision and management as and where necessary of the Estate Common Parts;
(b)	the lighting during Estate opening hours and such other times as the Head Landlord may reasonably decide of such Estate Common Parts as require lighting;
(c)	a 24 hour security patrol and/or a switchboard system to prevent vandalism and theft;
(d)	the upkeep of and tending and stocking of any garden areas and landscaping in the Estate and of the forecourts roadways pathways and open areas within the Estate; and
(e)	such other services as the Head Landlord may from time to time reasonably decide to supply for the general benefit of all or substantially all of the tenants occupiers and users of the Estate in the interests of good estate management.

2. Expenditure to be taken into account in calculating the Estate Service Charge

2.1	All reasonable and proper costs and expenses reasonably incurred by the Head Landlord in and about the provision from time to time of services in to or for the benefit of the Estate which without prejudice to such generality shall include those under the following heads listed in paragraphs 2.2 to 2.26 inclusive in providing the Estate Services.
2.2	The cost of and incidental to compliance by the Head Landlord with every notice regulation requirement or order of any competent local or other authority or any enactment affecting the Estate.
2.3	The cost of repairing (including in the context only of repair where reasonably necessary renewing rebuilding or replacement) maintaining decorating or otherwise treating and keeping free from and remedying all defects whatsoever cleaning and keeping free from obstruction but not amending all Estate Common Parts or other conveniences which may belong to or be used for the Estate along or in common with other premises near or adjoining the Estate including any amounts which the Head Landlord may be called upon to pay as a contribution towards such costs.
2.4	The costs of maintaining in proper working order overhauling repairing servicing replacing fuelling acquiring taxing and insuring any vehicles necessarily used by the Head Landlord or any of its employees solely in connection with the provision of the Estate Services to the Estate.
2.5	The cost of taking out and maintaining in force an effective and comprehensive insurance policy against liability of the Head Landlord for injury to or death of any person (including every agent servant and workman of the Head Landlord) and damage to or destruction of the property of any such person arising out of the performance of the Estate Services and/or

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maintenance and/or occupation of the Estate or any part of it and in particular but without limitation:

(a)	employer’s liability; and
(b)	insurance against such injury death damage or destruction as above stated due to the act neglect default or misconduct of the agents servants or workmen of the Head Landlord employed solely in connection with the management and/or maintenance of the Estate Common Parts,

and also such further or other insurances relating to the Estate Common Parts as the Head Landlord shall from time to time reasonably and properly deem necessary

2.6	The charges assessments and other outgoings (if any) payable by the Head Landlord in respect of the Estate Common Parts
2.7	All fees charges expenses and commissions of any person or persons the Head Landlord may from time to time employ in connection with the management and supervision of the Estate Common Parts
2.8	The cost of preparing submitting and settling any insurance claims relating to the Estate Common Parts
2.9	The cost of maintaining and when necessary replacing or renewing a security patrol and security observation system for the Estate (including but not by way of limitation the provision of alarms close circuit television and apparatus and fittings designed to prevent or limit vandalism)
2.10	The cost of the upkeep of the tending and stocking of any garden areas and landscaping in the Estate and of the forecourts roadways pathways and open areas within the Estate
2.11	The cost of providing and maintaining and where necessary replacing appropriate furniture for use:

(a)	in the relevant Estate Common Parts;
(b)	by persons employed by the Head Landlord in or about the provision of the Estate Services.

2.12	The cost of providing maintaining and where necessary replacing such flags decorative lights and other decorations or other like amenities as the Head Landlord shall reasonably think fit to provide for the benefit of the Estate and its occupiers.
2.13	The cost of providing and replacing paladins or other refuse containers for the public in the Estate Common Parts and arranging for the collection and removal of refuse.
2.14	The cost of maintaining and where necessary renewing all directional and other notices posters boards or signs in the Estate or relating to the Estate (whether in or outside the Estate).
2.15	The cost of cleaning repairing maintaining and where necessary renewing any toilets in the Estate Common Parts.
2.16	The cost of providing maintaining and where necessary renewing public telephones on the Estate Common Parts.

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2.17	The cost of taking all steps reasonably deemed desirable or expedient by the Head Landlord for complying with making representations against or otherwise contesting the incidence of the provisions of any Acts of Parliament concerning any matter adversely affecting relating or allegedly relating to the Estate to the detriment of the Tenant.
2.18	The cost of providing to the Estate Common Parts fire fighting equipment appliances and any signs or notices required by the local Fire Officer and the cost of repair maintenance and where necessary renewal of the same.
2.19	The cost (to the extent that such cost is solely in relation to the Estate) of obtaining the necessary management for the Estate with any staff (employed either directly or indirectly by the Head Landlord) required for the performance of duties in connection with the maintenance and/or security of the Estate and the provision of the Estate Services or other matters referred to in this part of Schedule 6 to the tenants occupiers and users of the same and all other incidental expenditure in relation to such employment including contributions to the payment of such state insurance health pension welfare and other contributions and premiums to the extent that the Head Landlord may be required by any enactment to pay the same and uniforms working clothes tools machinery two way radios appliances office equipment or motor vehicles used solely for estate purposes cleaning and other material bins receptacles and other equipment for the proper performance of their duties.
2.20	The rates telephone charges gas electricity and other incidental expenses solely in relation to the Estate of:

(a)	any accommodation provided in the Estate or elsewhere for occupation or use by the persons employed in connection with the provision of the services to and the management and/or the security of the Estate; and
(b)	any accommodation provided for machinery vehicles parts equipment and other things employed solely in connection with the provision of the said services and the management and/or security of the Estate.

2.21	The cost of leasing any item required for the purpose of carrying out any of the matters referred to in this schedule.
2.22	All professional charges fees and expenses incurred and payable by the Head Landlord in respect of the matters mentioned in paragraphs 2.1 to 2.21 above in so far as not already charged under paragraph 2.7 above.
2.23	During any relevant Accounting Period or part in which the Head Landlord does not employ the Head Landlord’s agent to manage the Estate (in the capacity of managing agent) a reasonable and proper sum that would otherwise be payable for the management of the Estate.
2.24	All Value Added Tax or other similar tax payable by the Head Landlord in respect of the matters referred to in paragraphs 2.2, 2.3, 2.4 and 2.5 above in so far as the same is not recoverable by the Head Landlord as an input.
2.25	The cost to the Head Landlord by way of interest commission banking charges commitment fees or otherwise of borrowing any necessary sums to provide the Services under the foregoing paragraphs other than in relation to any such sums payable to any member of the same group of companies (as defined in the Companies Act 1985) as the Head Landlord.
	Provided always that the Head Landlord may at any time add to the heads of expenditure any depreciation or other allowance or provision for future anticipated expenditure on or

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replacement of any installation equipment plant or apparatus used in connection with the provision of the services for the Estate not previously included and from and after the relevant date of the exercise of this right such additional items of depreciation allowance provision expenditure or value shall be included in the calculation of the Estate Service Charge.

2.26 If provided and made available for the Tenant’s use all the costs incurred by the Head Landlord in the operation upkeep repair cleaning decoration management supervision and management of the fitness centre.

3.	Provisions for the payment of Estate Service Charge by the Tenant
3.1	The Landlord or the Landlord’s agent will notify the Tenant before or as soon as reasonably practicable after the Landlord receives notification from the Head Landlord of the estimated Estate Service Charge payable by the Tenant during the Service Charge Year and the Tenant shall pay the estimated Estate Service Charge to the Landlord by four equal quarterly instalments on the Quarter Days beginning with whichever shall be the later of the Quarter day preceding the start of the relevant Accounting Period or the Quarter Day next following the notification as before stated.
3.2	If the Head Landlord shall reasonably incur or imminently anticipate incurring substantial expenditure in any Accounting Period which was not taken into account in notifying the Tenant of the estimated Estate Service Charge for that Accounting Period the Tenant shall within 21 days of written demand pay to the Landlord as a further instalment of the estimated Estate Service Charge the amount as assessed by the Head Landlord’s agent whereby the estimated Estate Service Charge for that Accounting Period is increased by such expenditure
3.3	As soon as reasonably practicable after the end of each Accounting Period the Landlord’s agent will supply the Tenant (provided it has received the same from the Head Landlord and in any event as soon as it does so) with a statement audited by an independent chartered accountant showing:

(a)

the Estate Service Costs including a detailed summary thereof during that Accounting Period due allowance being made for any reimbursement or commission and interest on such sums received by the Head Landlord from any insurer tenant or other person not being a payment of Estate Service Charge or estimated Estate Service Charge and interest received by the Landlord on all sums held by it by way of Estate Service Charge pending expenditure (which shall be credited to the Estate Service Charge);

(b)

the proportion and method of calculation of such service costs which are payable by the Tenant.

3.4

If the amount shown payable by the Tenant in such statement exceeds the amount of the estimated Estate Service Charge paid by the Tenant on account for the relevant Accounting Period the Tenant shall pay the amount of the excess to the Landlord within 28 days of the issue of the said statement. If the amount so shown is less than the amount of the estimated Estate Service Charge so paid the difference shall be credited to the Tenant towards the next estimated Estate Service Charge payment due from the Tenant or repaid to the Tenant at the End of the Term.

3.5

Vouchers evidencing expenditure referred to in any such statement issued by the Head Landlord’s agent shall be made available for inspection by the Tenant at the offices of the Landlord or the Landlord’s agent (provided that the Landlord has received the same from the Head Landlord and in any event as soon as it does so) during his normal business hours during the period of 14 days following the issue of such statement.

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4. The Tenant shall not be responsible whether through the Building Service Charge or the Estate Service Charge for:

(a)

the costs incurred by the Head Landlord in complying with planning agreements in direct or indirect relation to the building, development, redevelopment or refurbishment of the Estate or any building situate therein or in relation to any statutory obligations of the Landlord in relation to either of the Building or the Estate pursuant to the provisions of the Environmental Protection Act 1990 or the Control and Pollution Act 1974 or Environmental Act 1995 or any statutory re-enactment or modification thereof; and/or

(b)

the costs incurred by the Head Landlord or the Landlord in the collection of the Estate Service Charge or the Building Service Charge and the enforcement of covenants or regulations in each case against other tenants of the Estate (including any administration costs incurred in connection with the same).

5.       Any dispute in relation to this Schedule shall be referred to the Independent Surveyor in accordance with clause 5.3.

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SCHEDULE 7

BUILDING SERVICES AND BUILDING SERVICE CHARGE

1.	Basic Services
	The Basic Services are:

(a)	the repair decoration inspection testing maintenance and renewal (where beyond economic repair of the Retained Property including repairs resulting from inherent defects;
(b)	the cleaning of the Common Parts and the exterior of the Building including the exterior of all windows and window frames;
(c)	the provision of lighting to the Common Parts when required;
(d)	the provision of heating to the Building and Common Parts when required;
(e)	the provision of air-conditioning to the Building;
(f)	the provision of hot and cold water to any hot or cold taps in the Common Parts;
(g)	the provision of towels soap and other requisites to any toilets in the Common Parts;
(h)	the repair (whether resulting from an Inherent Defect or not) and maintenance of the structure of the Building including (without limitation) the roof foundations external and load bearing walls structural slabs joists beams columns and girders plant lifts air conditioning heating and other ventilation equipment and conducting media not comprised within the Property;
(i)	the provision and operation in the Common Parts of such fire prevention fire fighting and fire alarm equipment and signs as may be required by any authority or by the Landlord’s insurers;
(j)	the provision and operation of the signboard;
(k)	the provision of refuse bins and the operation of a refuse collection service for the Building; and
(l)	the provision and operation of a security patrol and/or security observation system and/or other security equipment for the Building.

2.	Additional Services
	The Additional Services are:

(a)	the carpeting furnishing and equipping of the Common Parts;
(b)	the provision and operation of any plant not included within the Basic Services;
(c)	the provision either permanently or at times which the Landlord reasonably considers appropriate of pictures floral displays flags decorative lights and other decorations in the Common Parts;

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(d)	the provision and maintenance of appropriate or useful signs or notices in the Common Parts or visible from the Common Parts or from outside the Building; and
(e)	the provision of any other services which the Landlord from time to time reasonably considers appropriate having regard to the principles of good estate management.

3. Building Service Costs

The Building Service Costs are the reasonable and proper costs and expenses incurred by the Landlord in the operation and management of the Building and the provision of the following services to it including without limitation:

(a)	the cost of providing the Building Services (to the extent provided);
(b)	the cost of providing to the Retained Property any service which had it been provided to the Common Parts could have constituted one of the Services;
(c)	the cost of all fuel or other energy sources for the Plant and/or the Retained Property;
(d)	any costs which the Landlord may be required to pay to other parties as a contribution to the cost of the Building Services or to the repair decoration inspecting testing maintenance or renewal of any areas or structures used in common with other parties;
(e)	the Outgoings for and any other property used exclusively in connection with the provision of the Building Services;
(f)	the cost of preparing submitting and settling any insurance claims relating to the Building;
(g)	the cost of employing or retaining the Landlord’s agent for the Building;
(h)	the cost of employing or retaining staff to provide the Building Services including all incidental expenditure relating to that employment but which shall not include expenditure on pensions insurance health welfare industrial training levies redundancy but shall (without limitation) include National Insurance clothing tools machinery equipment and vehicles which in each case the Landlord considers are required for the proper performance by the staff in question for the sole purpose of their duties in relation to the Building Services;
(i)	the cost of complying with making representations against or otherwise contesting the incidence of any Legal Obligation or prospective Legal Obligation which will or may adversely affect the Building;
(j)	the cost of leasing any item required in connection with the Building Services;
(k)	all reasonable and proper professional charges fees and expenses payable by the Landlord in respect of any of the Building Services or the Building Service Costs other than in calculation preparation and issue of certificates accounts and audits;
(1)	during any period for which the Landlord does not employ an independent Landlord’s agent to manage the Building a sum retainable by the Landlord equal to the charges

55

	which a firm of surveyors based in central London might reasonably be expected to make for managing the Building;
(m)	all Value Added Tax payable by the Landlord in respect of the Building Service Costs insofar as it is not recoverable by the Landlord as an input; and
(n)	the cost to the Landlord by way of interest commission banking charges commitment fees or otherwise of borrowing any necessary sums in respect of the Building Service Costs other than in relation to such sums payable to any member of the same group of companies as the Landlord’s group (as defined in the Companies Act 1985).

4. Calculation and Payment of Building Service Charge

4.1	The Landlord or the Landlord’s agent will notify the Tenant before or as soon as reasonably practicable after the start of the relevant Accounting Period of the estimated Building Service Charge payable by the Tenant during that period and the Tenant shall pay the estimated Building Service Charge to the Landlord by four equal quarterly instalments on the Quarter Days beginning with whichever shall be the later of the Quarter Day preceding the start of the relevant Accounting Period or the Quarter Day next following the notification as before stated.
4.2	If the Landlord shall reasonably incur or imminently anticipate incurring substantial expenditure in any Accounting Period which was not taken into account in notifying the Tenant of the estimated Building Service Charge for that Accounting Period the Tenant shall within 21 days of written demand pay to the Landlord as a further instalment of the estimated Building Service Charge the amount as assessed by the Landlord’s agent whereby the estimated Building Service Charge for that Accounting Period is increased by such expenditure.
4.3	As soon as reasonably practicable after the end of each Accounting period the Landlord’s agent will supply the Tenant with a statement audited by an independent chartered accountant showing:

(a)

the Building Service Costs during that Accounting Period due allowance being made for any reimbursement commission discount and interest on such sums received by the Landlord from any insurer tenant or other person not being a payment of Building Service Charge or estimated Building Service Charge and interest received by the Landlord on all sums held by it by way of Building Service Charge pending expenditure (which shall be credited to the Building Service Charge);

(b)

the proportion and method of calculation of such service costs which are payable by the Tenant.

4.4

If the amount shown payable by the Tenant in such statement exceeds the amount of the estimated Building Service Charge paid by the Tenant on account for the relevant Accounting Period the Tenant shall pay the amount of the excess to the Landlord within 28 days of the issue of the said statement and if the amount so shown is less than the amount of the estimated Building Service Charge so paid the difference shall be credited to the Tenant towards the next estimated Building Service Charge payment due from the Tenant or repaid to the tenant at the End of the Term.

4.5

Vouchers evidencing expenditure referred to in any such statement issued by the Landlord’s agent shall be made available for inspection by the Tenant at the offices of the Landlord or the

56

	Landlord’s agent during his normal business hours during the period of 14 days following the issue of such statement.
5.	Disputes
	Any dispute in relation to Schedule 7 shall be referred to the Independent Surveyor pursuant to Clause 5.3.

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SCHEDULE 8

ADDITIONAL DEFINITIONS AND PROVISIONS

PART 1

ADDITIONAL DEFINITIONS

Acts of Terrorism has the meaning given to that expression by the Reinsurance (Acts of Terrorism) Act 1993;

Cap means £151,614 (exclusive of VAT);

Default Interest Rate means four per cent. per annum above the Interest Rate;

Initial Period means, if the Property is destroyed or damaged by Uninsured Terrorism, the period of 1 year commencing on the date of the destruction or damage;

Insured Risks means fire, lightning, explosion, earthquake, aircraft and other aerial devices and articles dropped from them, escape of oil, impact by vehicles or animals, riot, civil commotion, Acts of Terrorism, strikes and labour disturbances, storm, flood, bursting and overflowing of water tanks, apparatus or pipes and additional risks against which the Landlord from time to time decides to insure subject to such exclusions, limitations and excesses as are imposed by its insurers and to the extent to which the risks mentioned in this definition are insurable with the Landlord’s insurers but includes loss or damage by Acts of Terrorism if and only to the extent that the Landlord has insured against Acts of Terrorism;

Rent Commencement Date means 17 October, 2007 ; and

Service Charge Commencement Date means the 17 October 2006

Terrorism has the meaning given to that expression by the Terrorism Act 2000 and includes Acts of Terrorism;

Uninsured Terrorism means Terrorism to the extent that it is not an Insured Risk.

PART 2

ADDITIONAL PROVISIONS

1.	OPTION TO RENEW
1.1	(a) In this clause:

Contractual Term means the contractual term of this Lease specified in clause 3.1 but excluding any period of holding over or any extension or continuation of it by statute or at common law;

the Tenant’s First Notice means the notice to be given by the Tenant pursuant to clause 1.3(a) of its intention to exercise the right to renew this Lease;

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the New Lease means a further lease of the Property to be granted on the expiry of the Contractual Term pursuant to this clause 1;

the New Lease Guarantor means the guarantor referred to in clause 1.3(b) who is to give the guarantee to be contained in the New Lease;

the Order means the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003;

the Tenant’s Second Notice means the notice to be given by the Tenant pursuant to clause 1.3(e) exercising the right to renew this Lease.

1.2	If all of the conditions set out in clause 1.3 are satisfied the Landlord must grant to the Tenant and the Tenant must take the New Lease in accordance with the provisions of this clause 1.
1.3	The conditions referred to in clause 1.2 are that:

(a)	the Tenant has given the Tenant’s First Notice to the Landlord at any time after the date 8 months before expiry of the Contractual Term and before the date 7 months before expiry date of the Contractual Term;
(b)	if at the date of the Tenant’s First Notice there is a guarantor of the Tenant’s obligations contained in this Lease, then the First Tenant’s Notice must also be signed by or on behalf of that guarantor or must be accompanied by a notice given by that guarantor, in either case confirming the intention of that guarantor to guarantee to the Landlord the Tenant’s obligations of the Tenant in the New Lease;
(c)	before the Tenant’s Second Notice is given (and therefore before the Tenant becomes contractually bound to take the New Lease and before the New Lease Guarantor becomes contractually bound to give the guarantee to be contained in the New Lease):

(i)

the Landlord has given to the Tenant notices in a form complying with the requirements of schedule 1 to the Order relating to the New Lease and to the further lease which the Tenant might be obliged to take pursuant to an authorised guarantee agreement to be given on assignment of the New Lease and to any New Lease Guarantor relating to the further lease which the New Lease Guarantor might be obliged to take pursuant to the guarantee to be contained in the New Lease or pursuant to an authorised guarantee agreement to be given on assignment of that further lease; and

(ii)

the Tenant and any New Lease Guarantor have made declarations or statutory declarations (as required by the Order) relating to such leases in a form complying with schedule 2 to the Order;

(d)

this Lease has not been assigned after the Landlord has given the Tenant and any New Lease Guarantor the notices referred to in clause 1.3(c)(i);

(e)

at any time after the date 7 months before expiry of the Contractual Term and before the date 6 months prior to expiry of the Contractual Term the Tenant has given the Tenant’s Second Notice to the Landlord, such notice also to be signed by or on behalf of any New Lease Guarantor or accompanied by a notice given by the New Lease Guarantor, in either case confirming the agreement of the New Lease Guarantor to guarantee to the Landlord the Tenant’s obligations in the New Lease;

59

(f) on the date of the Tenant’s First Notice and on the date of the Tenant’s Second Notice and at the expiry of the Contractual Term there is no subsisting breach of the covenants and conditions on the part of the Tenant contained in this Lease.

1.4

The New Lease shall be for a term of 5 years commencing on the day after the expiry of the Contractual Term of this Lease and shall reserve the same rents as are reserved by this Lease, except that the yearly rent shall be determined in accordance with clauses 1.5 and 1.6 and the New Lease shall otherwise be in the same form mutatis mutandis as this Lease (including in the event that the revised yearly rent payable under the New Lease has not been agreed or determined by the time the New Lease is granted clauses in the same form as clauses 1.5 and 1.6 mutatis mutandis and as if the first day of the term of the New Lease were a review date and the rent payable immediately before the review date were the rent referred to in clause 1.5(a), including (for the avoidance of doubt) the provision for payment of interest at the Interest Rate on the shortfall from the expiry of the Contractual Term until the revised yearly rent is determined or agreed) but excluding this option to renew.

1.5

The yearly rent reserved by the New Lease shall be a rent equal to the greater of:

	(a)	the yearly rent payable at the expiry of the Contractual Term of this Lease (or which would be payable were it not for any abatement of rent in accordance with this Lease or any statutory restriction or modification); and
	(b)	the revised rent ascertained in accordance with clause 1.6
1.6	(a)	The revised rent payable under the New Lease may be agreed in writing at any time between the Landlord and the Tenant or (in the absence of agreement) determined not earlier than the date two months before the expiry of the Contractual Term ( the Review Date) at the option of the Landlord by an independent valuer (acting as an expert ) of recognised standing and having experience in letting and valuing property of a like kind and character to the Property.
	(b)	In the absence of agreement the independent valuer may be nominated by or on behalf of the president for the time being of the Royal Institution of Chartered Surveyors on the application of either the Landlord or the Tenant made not earlier than two months before the Review Date.
	(c)	In the case of valuation the revised rent to be determined by the valuer will be such as he decides is the full yearly rent at which the Property might reasonably be expected to be let at the Review Date:

(i)

after the expiry of a rent free period or a concessionary rent period given for fitting-out purposes only of such length and the giving of such other inducements (including, without limitation, any rental concession, capital payment or contribution to fitting out costs) given for fitting out purposes only as in either case would be negotiated in the open market between a willing landlord and a willing tenant so that the yearly rent is that payable after the expiry of any such rent free period or concessionary rent period and after the giving of any such inducement; and

(ii)

on the assumptions set out in clause 1.6(d) but disregarding the matters set out in clause 1.6(e).

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(d) The assumptions are that at the Review Date:

(i) the Property:

(A)	is available to let on the open market by a willing landlord to a willing tenant by one lease without a premium from either party and with vacant possession for a term of 10 years commencing on the Review Date with the rent payable from then;
(B)	is to be let as a whole on a lease which is to contain the same terms as this Lease (other than the amount of the rent referred to in clause 4.1 and any rent free or reduced rent period allowed to the Tenant but including the provisions for review of that rent at the fifth anniversary of the relevant Review Date);
(C)	is fit and available for immediate occupation and use and is fitted out for the incoming tenant’s immediate use as authorised by this Lease in accordance with the incoming tenant’s requirements and if then destroyed or damaged that it has been fully reinstated; and
(D)	may be used for any of the purposes permitted by this Lease including any purpose which falls within the same use class (under the Town & Country Planning (Use Classes) Order for the time being in force) as the purpose permitted by this Lease;

(ii)	all the covenants in this Lease by the Landlord and the Tenant have been performed and observed; and
(iii)	no work has been carried out to the Property which has diminished the rental value and in case the Building has been destroyed or damaged it has been fully restored.

(e) The matters to be disregarded are:

(i)	any effect on rent of the fact that the Tenant, its subtenants or their respective
	predecessors in title have been in occupation of the Property;
(ii)	any goodwill attached to the Property by reason of the carrying on at it of the business of the Tenant, its subtenants or their predecessors in title in their respective businesses; and
(iii)	any increase in rental value of the Property attributable to the existence at the Review Date of any voluntary improvement alteration or addition to the Property carried out by and at the cost of the Tenant, its subtenants or their respective predecessors in title during the Term or during any earlier period of occupation arising out of an agreement to grant the Term.

	In this clause a voluntary improvement alteration or addition is one carried out with the consent of the Landlord (where required) but not under an obligation to the Landlord or its predecessors in title.
(f)	In the case of determination by a valuer:

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(i)	the fees and expenses of the valuer including the cost of his appointment must be borne as he decides or in the absence of any decision equally by the Landlord and the Tenant who must otherwise each bear their own costs;
(ii)	the valuer must afford the Landlord and the Tenant an opportunity to make representations to him; and
(iii)	if the valuer dies, delays or becomes unwilling or incapable of acting or if for any other reason the president for the time being of the Royal Institution of Chartered Surveyors or the person acting on his behalf thinks fit he may discharge the valuer and appoint another in his place.

(g)	If the revised rent payable with effect from the Review Date has not been agreed by the Review Date rent will continue to be payable at the rate previously payable. Within 10 Business Days of the revised rent being ascertained the Tenant must pay to the Landlord any shortfall between the rent and the revised rent payable up to and on the preceding Quarter Day together with interest at the Interest Rate calculated on a day to day basis on each part of the shortfall from the date or respective dates on which each part would have been due for payment had the revised rent been ascertained before the Review Date until the date of payment.
	For the purpose of this clause the revised rent will be deemed to have been ascertained on the date when it has been agreed between the Landlord and the Tenant or the date of the determination by the valuer and notified in writing to the Tenant.
(h)	If either the Landlord or the Tenant fails to pay any costs awarded against it in the case of an arbitration or the relevant part of the fees and expenses of the valuer under clause 1.6(f) within 15 Business Days of the same being demanded by the valuer the other may pay the same and the amount so paid must be repaid on demand by the party chargeable and is recoverable from that party as a debt due. If the valuer requires payment of his fees and expenses before releasing his determination, either the Landlord or the Tenant may pay them and recover the other’s share of them from the other.
(i)	Time is not of the essence for the purposes of this clause.

17	The Landlord shall produce the engrossments of the New Lease and the counterpart and the Tenant and the New Lease Guarantor (if any) shall each execute the counterpart and deliver it to the Landlord on completion.
2.	ADDITIONAL RENT FREE PERIOD
	If the Tenant enters into the New Lease pursuant to paragraph 1 above then the Landlord shall grant an additional rent free period of three months commencing on the Term Commencement Date of the New Lease such rent free period to apply (for the avoidance of doubt) only to the yearly rent reserved by Clause 4.1 of the New Lease.

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SIGNATORIES

SIGNED as a DEED by		)
ANN SUSAN WILLIAMS		)
as attorney for THE ROYAL BANK OF		)
SCOTLAND PLC as trustee and not otherwise		)
of Schroder Exempt Property Unit Trust		)
in the presence of:		)
Witness’s
Signature:	/s/ Nicola Emily Jane Deadman
Name:	NICOLA EMILY JANE DEADMAN
Address:	The Royal Bank of Scotland
	Trustee and Depositary Services
	1st Floor, Waterhouse Square
	138-142 Holborn, London EC1N 2TH

63

EX-31.01

Exhibit 31.01

CERTIFICATION OF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) OF THE SECURITIES
EXCHANGE ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, L. Gregory Ballard, President and Chief Executive Officer of registrant, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Glu Mobile Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2007	By:	/s/ L. Gregory Ballard
		L. Gregory Ballard
		President and Chief Executive Officer

EX-31.02

Exhibit 31.02

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) OF THE
SECURITIES EXCHANGE ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Albert A. Pimentel, Executive Vice President and Chief Financial Officer of registrant, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Glu Mobile Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2007	By:	/s/ Albert A. Pimentel
		Albert A. Pimentel
		Executive Vice President and Chief Financial Officer

EX-32.01

Exhibit 32.01

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350

The undersigned, L. Gregory Ballard, the President and Chief Executive Officer of Glu Mobile Inc. (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies that:

     (i) the Quarterly Report on Form 10-Q for the period ended March 31, 2007 of the Company (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

     (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 14, 2007	By:	/s/ L. Gregory Ballard
		L. Gregory Ballard
		President and Chief Executive Officer (Principal Executive Officer)

EX-32.02

Exhibit 32.02

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350

The undersigned, Albert A. Pimentel, Executive Vice President and Chief Financial Officer of Glu Mobile Inc. (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies that:

     (i) the Quarterly Report on Form 10-Q for the period ended March 31, 2007 of the Company (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

     (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 14, 2007	By:	/s/ Albert A. Pimentel
		Albert A. Pimentel
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)