FUN Technologies Inc.
TSX : FUN
AIM : FUN

FUN Technologies Inc.

March 26, 2007 17:30 ET

FUN Technologies Reports 2006 Year-End Results

TORONTO, ONTARIO--(CCNMatthews - March 26, 2007) - FUN Technologies Inc. ("FUN" or the "Company") (TSX:FUN)(AIM:FUN), one of the world's leading providers of online and interactive casual and fantasy sports games and sports information, announced today its results for the fourth quarter and year ended December 31, 2006. The Company's financial statements, Management Discussion and Analysis and Annual Information Form are available on the Company's website at www.funtechnologies.com and through the System for Electronic Document Analysis and Retrieval at www.sedar.com. All currency amounts are stated in U.S. dollars.

Results of Operations

For the year ended December 31, 2006, FUN's GAAP revenue was $41.6 million. The Company's combined revenue(1) for the year ended December 31, 2006 was $47.1 million, an increase of 84% over the year ended December 31, 2005 revenue of FUN Technologies plc ("Old FUN").

As noted previously, due to the Liberty Transaction, the Company's operations for the year ended December 31, 2006 only includes revenue from the Old FUN assets from March 10, 2006 to December 31, 2006. The table below provides financial information for the three months and year ended and as at December 31, 2006.

(1) 2006 combined revenue includes FUN Technologies plc revenue from January 1, 2006 to March 9, 2006 plus FUN Technologies Inc. revenue from March 10, 2006 to December 31, 2006.



Three Months ended Year ended
December 31, 2006 December 31, 2006

(unaudited)
Revenue $16,121 $41,648
Cost of sales 7,183 17,240
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Gross profit 8,938 24,408

Software development 2,186 7,338
Selling, general and administrative 8,717 26,561
Stock-based compensation 336 483
Depreciation and amortization 4,052 15,853
Restructuring charges 262 625
Impairment of capital assets 449 449
Impairment of goodwill and
indefinite lived intangible assets 103,932 103,932
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119,934 155,241
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(110,996) (130,833)
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Interest income, net (30) (14)
Impairment of investments 917 2,873
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887 2,859
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Loss before income taxes (111,883) (133,692)
Future income tax benefit 1,536 5,519
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Loss for the period $(110,347) $(128,173)
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Basic and diluted loss per common
share $(1.74) $(2.04)
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Adjusted EBITDA $(1,965) $(9,491)
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Commenting on today's results, Lorne Abony, Chief Executive Officer of FUN, said, "2006 was a strong year for FUN and its shareholders. It was a year of transition, meaningful revenue growth, and a year in which we positioned our company for strong performance in the future. In 2006, FUN completed our significant transaction with Liberty Media, which management believes offers great strategic benefits for FUN and its shareholders. Beyond the Liberty transaction, FUN made multiple strategic acquisitions, which we believe will strongly position us for future growth. FUN also focused on consolidation, which resulted in continued momentum throughout the year and a strong fourth quarter."

Revenue from FUN Games totaled $21.4 million for the year. Substantially all of FUN Games' revenue was generated from the cash skill games platforms, which include WorldWinner.com, SkillJam.com and their partner destination sites. Management is focused on maximizing the considerable operating efficiencies and leveraging the synergies from the Company's skill games division. During the fourth quarter, the Company commenced the migration of SkillJam users to the WorldWinner platform. The results of the migration to date have been extremely positive in increasing customer spend, game play and revenue. The Company's fourth quarter skill game revenue growth, treating all skill games net of prizes and other promotions paid, was 6.9% from the third quarter of 2006.

The Company launched SCRABBLE® Cubes, a 3-D adaptation of Hasbro's classic crossword game, and leveraged SkillJam's popular branded games content, including Bejeweled 2®, Big Money, Chuzzle, Dynomite and Zuma, across the WorldWinner platform.

Revenue from FUN Sports totaled $20.2 million for the year. Fourth quarter revenue growth was 32.3% over the division's third quarter revenue. The increase in FUN Sports' quarterly revenue was primarily due to the seasonal impact of the NFL football season, coupled with the full quarter impact of the acquisition of the assets of C.B.C. Distribution and Marketing Inc. (d.b.a. as CDM Fantasy Sports) ("CDM") in August 2006. As with FUN Games, FUN Sports is focused on maximizing and leveraging the synergies inherent in its complementary business units.

Management believes Adjusted EBITDA, which does not have any standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies, is a useful measure that facilitates period-to-period operating comparisons. The Adjusted EBITDA deficit for the year was $9.5 million. The fourth quarter adjusted EBITDA deficit of $2.0 million was $2.2 million or 53% lower than the third quarter primarily due to the increase in revenue and the continued focus on cost containment. Adjusted EBITDA is defined as earnings before interest income, taxes, depreciation and amortization, stock based compensation, restructuring and impairment charges. Adjusted EBITDA is not a measure of performance under GAAP and should not be considered in isolation or as a substitute for net earnings (loss) prepared in accordance with GAAP. The Company has provided a reconciliation of Adjusted EBITDA to GAAP net earnings (loss) below.



Three Months ended Year ended
December 31, 2006 December 31, 2006

Loss for the period $(110,347) $(128,173)
Income tax benefit (1,536) (5,519)
Interest income, net (30) (14)
Stock-based compensation 336 483
Depreciation and amortization 4,052 15,853
Impairment of investments 917 2,873
Impairment of goodwill and
capital assets 104,381 104,381
Restructuring charges 262 625
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Adjusted EBITDA $(1,965) $(9,491)
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2006 Highlights

FUN's 2006 fiscal year was defined by acquisitions that have positioned the Company to harvest considerable operational synergies and strengthen its market position. The acquisition of the Old FUN assets on March 9, 2006, and the addition of Liberty Media Corporation as its majority shareholder, provided the Company with considerable funding and a significant return to its shareholders. As owners or investors in many of North America's preeminent online and interactive media and electronic retail brands, Management believes that Liberty is the ideal strategic partner for FUN.

FUN solidified its position in the fast-growing skill games market by acquiring WorldWinner.com, Inc., SkillJam's largest U.S. competitor prior to the transaction. The acquisition of WorldWinner was a significant strategic achievement for the Company. By consolidating the two businesses, FUN is already realizing significant cost, operational and liquidity synergies under the leadership of Peter Blacklow, president of FUN Games.

Rounding out acquisitions in the FUN Games division, FUN purchased Teagames, a UK-based casual games portal, in the third quarter. Teagames boasts a portfolio of 41 proprietary casual games. Adding Teagames' more than 4.6 million unique visitors per month from 19 countries to FUN's games platform allows the company to leverage the additional traffic for advertising revenue with little incremental cost.

FUN Sports also completed two significant acquisitions in 2006 in the direct-to-consumer fantasy sports market. On April 10, 2006, FUN acquired the assets of Fantasy Sports, Inc. ("Fantasy Sports") a leading provider of direct-to-consumer fee-based NASCAR-related fantasy games. In August 2006, FUN acquired the assets of CDM, a leading direct-to-consumer fee-based fantasy sports operator focusing primarily on major league baseball games. By virtue of these acquisitions, the FUN Sports division is now able to offer its customers and partners a comprehensive suite of fantasy games and leagues across the major fantasy sports and fantasy sports game categories. Management believes that these acquisitions will better position the company to realize incremental operating efficiencies and that its full product suite will create additional opportunities for engaging and monetizing users.

WorldWide Web Games

On September 10, 2006, FUN launched a first-of-its kind initiative, the WorldWide Web Games (W3Games) championship that helped further integrate casual games into the mainstream. Kavitha Yalavarthi of Odessa, TX outplayed 68 of the world's top casual games players, who had reached the event through a qualifying tournament played on a FUN Games site or partner site, and emerged the W3Games million-dollar grand prize champion. The event was televised to a national U.S. audience by GSN, the Network for Games, in December 2006, representing a new milestone in the mainstream growth and popularity of casual gaming.

Outlook

Subsequent to December 31, 2006, the Company entered into a commitment letter for a $15.0 million secured term facility with Liberty Media LLC, a subsidiary of the Company's indirect majority shareholder, Liberty. The negotiated Term Facility will have a term of two years with $5.0 million to be drawn on closing and two incremental available draws within 12 months of closing. The Term Facility will bear interest at three month LIBOR plus five percent per annum and will be secured by substantially all of the Company's operating subsidiary assets and shares. The closing of the Term Facility is subject to, among other things, the execution of definitive loan documents. With the closing of this Term Facility, management believes FUN is fully funded throughout the balance of the fiscal year.

In accordance with applicable regulatory requirements, the directors of the Company consider, having consulted with the Company's nominated adviser, that the terms of the Term Facility are fair and reasonable insofar as the Company's shareholders are concerned. In addition, the independent directors of the Company reviewed the transaction and concurred that in their opinion the terms are fair and reasonable.

Based on the early results of 2007, management continues to anticipate the Company's 2007 revenue will be in line with analysts' expectations and management's annual cost expectations are consistent with those outlined in the Company's trading update of January 11, 2007. As the Company continues to integrate the acquired businesses management is anticipating realizing cost synergies that will help the Company return to positive Adjusted EBITDA in line with analysts' expectations. Lorne Abony commented, "The initial success of the migration under way within FUN Games is an exciting way to launch into 2007. We've kicked off the new year with focus and momentum, and look forward to leveraging synergies within and across the Sports and Games divisions to further grow the company in the years ahead."

Forward Looking Statements

This press release contains forward-looking statements regarding, among other things, FUN's beliefs, plans, objectives, strategies, estimates, intentions and expectations. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "believe", "potential", "expect", "estimate", "would", "could", "intend", "will", "if" and "may". These forward-looking statements are based on a number of assumptions which may prove to be incorrect, involve certain risks and uncertainties that are difficult to predict and, accordingly, are not guarantees of future performance. The future results of the Company or developments may differ materially from those expressed in the forward-looking statements contained in this press release, due to, among other factors, the risks and uncertainties inherent in the business and operations of the Company and the risk factors set out in the "Risk Factors" section of FUN's 2006 Annual Information Form and in other documents published or filed by, or on behalf of, FUN from time to time with the Canadian securities regulatory authorities. Other than as required by law, FUN undertakes no obligation to publicly update or revise any such forward-looking statements or information, whether as a result of new information, future events or otherwise.

About FUN Technologies

FUN Technologies Inc. is one of the world's leading providers of online and interactive casual and fantasy sports games and sports information. FUN is 53% owned by Liberty Media Corporation (NASDAQ:LINTA, LCAPA), and FUN's common shares are listed on both the Toronto Stock Exchange and the Alternative Investment Market (AIM) of the London Stock Exchange under the symbol "FUN". For more information on FUN Technologies' offerings, visit www.funtechnologies.com.

Contact Information

  • FUN Technologies
    Allison Rynak
    VP, Corporate Communications
    (617) 614-3734
    or
    FUN Technologies
    Lorne Abony
    CEO
    (416) 840-0806
    or
    FUN Technologies
    Stephen Tucker
    CFO
    (416) 840-0453
    Website: www.funtechnologies.com
    or
    Panmure Gordon (Nominated Advisor)
    Dominic Morley
    +44 (0) 20 7459 3600