Funcom - Third quarter report 2007 - Things are Just Fine.

Q3-2007 - Third quarter report 2007 - The Funcom Group - Funcom N.V and subsidiaries

Official Forum Linkage: http://forums.ageofconan.com/showthread.php?t=43332

Summary

• In August, the launch of Age of Conan was rescheduled to March 25, 2008.

The Company decided to extend the development time of the game to

improve accessibility to the game and enhance some key game systems,

based on external feedback and internal analysis.



• The development of Age of Conan is on track for the revised launch date.

The planned changes to the game have so far been implemented on time.



• The Age of Conan game is currently in the Beta phase of development with

focus on external game play testing and technical stress testing in addition

to the development and implementation of the changes communicated in

August.



• Age of Conan continues to receive praise and positive feedback from press

and industry and won this year’s official price for `Best Online Game` at

Europe`s largest show for interactive entertainment, GC (Games Convention)

in Leipzig, Germany.



• Funcom launched in-game sales of virtual items in Anarchy Online. Funcom

believes sale of in-game virtual items will be an important additional revenue

source for some future Massively Multiplayer Online games (MMOs).



• Funcom started development of a casual MMO in Q3 2007, targeted at

younger and more casual MMO players.



Financials

Funcom revenues in Q3, 2007 were TUSD 1,764, down from TUSD 2,217 in

Q3, 2006. The higher revenues in Q3, 2006, were due to revenues from

Dreamfall, a game launched in Q2, 2006. Group operating profit (EBIT) was

TUSD –1,774 in Q3, 2007 compared to TUSD -353 in Q3, 2006, mainly due

to increased cost levels related to the build up for the Age of Conan launch

and exchange rate fluctuations. The Group’s financial position remains strong,

and as of September 30, 2007, Funcom had TUSD 58,533 in cash.

The cash flow for the first nine months of 2007 was TUSD -933 from perations

compared to TUSD - 878 in the first nine months of 2006. In the same period,

cash flow from investments, mainly in development of new games, was TUSD

–13,071 in 2007 compared to TUSD –8,662 in 2006.



Company highlights

• Based on external feedback and internal analysis, Funcom concluded that

more development time was required to reduce the entry barrier to Age of

Conan and make the game even more accessible during the first hours of

playtime. This implied making improvements in some core game systems.

The new release date was set to the 25th of March 2008.



• Funcom initiated development of a casual MMO, and is also evaluating

other possible expansion opportunities.



• Hosting centres for the Age of Conan game were set up in Amsterdam

and New Jersey in cooperation with IPSoft and will be expanded towards launch.



• Millennium Films acquired the rights to produce a new series of movies

based on Robert E. Howard`s Conan the Barbarian.



• In July, the Age of Conan game won the IGN award for

“Best PC Persistent Online Game” (MMO) at E3. Marketing materials

including the new CGI video

and retail box design for the game were presented to the market.



• The Secret World, Funcom’s second large scale MMO in development

progressed well and currently has a team size of 40 employees.



• Plutolife, Funcom’s mobile subsidiary, experienced positive development

in the US market, and secured and implemented contracts with several

UStelecom operators.



• Funcom, including Plutolife, grew from 274 employees at the start

of Q3, 2007, to 288 employees as of September 30, 2007.



Market highlights

• Perpetual Entertainment stopped the development of its Gods and Heroes

MMO planned to be released in Q1 2008.



• EA Mythic announced that the Warhammer Online beta servers would

be closed down for two months, starting October 10th 2007 resulting in

speculations regarding a possible delay of the current launch target in

early 2008



• Electronic Arts Inc. acquired BioWare Corp. and Pandemic Studios for

a total of 775 MUSD.

Bioware is recognized for creating some of the highest quality games in the industry,

and has one unannounced MMO title in development.



• ZeniMax Media, owner of Bethesda Softworks, announced that it

will receive $300 million in funding from Providence Equity Partners Inc

to "increase game development and publishing, facilitate acquisitions,

and finance MMOs".



Outlook

Funcom expects a reduction in revenues in the next quarter until the

launch of the Age of Conan game.

There have been no material events after balance sheet date of this

interim report.



The Supervisory Board of Funcom N.V.

Dübendorf, October 31, 2007



PROFIT AND LOSS ACCOUNT Full Year

(all numbers in the original report in the link at the top,)



NOTES TO THE INTERIM REPORT



1 Corporate information

Funcom N.V. is a limited company registered in The Netherlands,

and the shares are publicly traded on the Oslo Stock Exchange under

the ticker “FUNCOM”. The principle activity of the company is to develop

market and carry on business in computer games in the broadest sense.

The unaudited interim condensed consolidated financial statements of the

Group for the nine months ended 30 Sep 2007 were approved for issue

by the Funcom Supervisory Board on 31 October 2007.



2 Basis for preparation and selected significant accounting policies

The unaudited interim condensed consolidated financial statements of

the Group for the nine months ended 30 Sep 2007 have been prepared

in accordance with IFRS/IAS 34. This means that these interim financial

statements do not include all information and disclosures required in annual

financial statements but only selected significant information.

The principles applied are consistent to the ones used in the 2006 annual

report and we refer to this report for further details on applied accounting principles.



2.1 Basis of consolidation

The Group’s Interim consolidated financial statements comprise of

Funcom N.V. and companies in which Funcom N.V. has a controlling interest.



2.2 Intangible assets

Intangible assets are recognized in the balance sheet if it can be proven

that there are probable future economic benefits that can be attributed

to the assets which are owned by the Group, and the assets’ cost price

can be reliably estimated. Intangible assets are recognized at their cost

price and evaluated for impairment.

The amortization estimate and method is subject to an assessment based

on the pattern of consumption of future economic benefits. Amortization

of an intangible asset is normally carried out using the straight-line method

over the estimated useful life. Estimated useful lives will normally not

exceed five years.



2.3 Equity

Transaction costs relating to an equity transaction are recognized

directly in equity after deducting tax expenses.



2.4 Deferred revenues

Revenues from subscriptions are recognized over the subscription period

which is from the date of subscription purchase until subscription end,

normally 1 – 12 months. Up front payments for subscriptions and other

revenues are recognized in the balance sheet as a liability.



3 Operating expenses

The increase in operating expenses is mainly due to an increased activity

level prior to launch of Age of Conan. The significant exchange rate

fluctuations between US Dollars and Norwegian kroner have also

contributed to the increase.



4 Depreciation, amortization and write down

The Group amortizes capitalized game investment over the period of

the estimated future economic benefit.



5 Net financial items

Over 95% of Funcom’s cash and cash equivalents are denominated in

Norwegian kroner. Net financial items have been affected by the significant

exchange rate fluctuation between US Dollars and Norwegian kroner.



6 Taxes

Funcom’s assessment is that it will be able to utilize the Group’s accumulated

tax losses against future profits. The accumulated tax income is a result of

a revaluation of tax losses and changes in temporary differences.



7 Cash flows

The increased cash expenditures related to investing activities compared

to 2006 are mainly a result of more personnel working on developing

Age of Conan and The Secret World. Approximately TUSD 600 of the

increased investments is related to the exchange fluctuations between

Norwegian kroner and US Dollars.

During the second quarter 2007 Funcom N.V. issued new shares in

connection with the exercise of share options. The proceeds from this

issuance were TUSD 161. On June 26, 2007, Funcom completed a private

placement of approximately USD 30 million. The private placement was

contingent of an approval by the extraordinary general meeting held

July 16, 2007. The extraordinary general meeting approved the private

placement and Funcom included the proceedings in the accounts from

that day. During the first quarter 2006, Funcom N.V. issued new shares first

related to the green-shoe option from the IPO in 2005, with gross

proceeds of MUSD 3.5, and also through a secondary offering with gross proceeds of MUSD 19.0.



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Ostekake (from link)- Thats that and thats it - earlier a lot of speculations and discussions have come of the financial reports.

This time around it did not contain any goodies in the form of new images or new information that in

some way shape or form or the other have been discussed on the forums.

But maybe i'm missing something...



In any case we now have a forum post that may or may not pop up on

peoples searches and or be referred to in other posts as official information

Avery - waits for Battlekruse to come and post that Funcom are down to their last penny - with some silly reasoning that everything has failed.