Sigh, LOL. No getting away from EVE today.
Curious if CCP's sudden dive into "macro-transactions" was the result of financial trouble, some folks on Failheap Challenge that are familiar with Icelandic law drafted an accomplice to go into the local tax office and request a copy of CCP's public financial statements. I'm not a lawyer, but apparently, even privately-held companies are required, in Iceland, to post these statements.
Want to see the report yourself? Download it here.
I'm still going through it between my own business commitments this morning, but the statement is a tiny bit troubling. Here's the tl;dr version:
CCP, as I said, is privately held, in this case by a group of investors. Those investors purchased additional shares of the company on what was essentially a two-year loan in 2009. That loan was funded to CCP early in 2010, and was presumably intended to fund DUST 514 development. That loan comes due in October of this year, and is just under 12 million USD. This in and of itself is no big deal; every company in the world maintains its liquidity with short-term loans from creditors. CCP is no exception. At the end of the loan term, those loans are repaid from your cash reserves to ensure viability, at which point, the same creditors will almost always reissue the loan.
In short, I give you 12 million dollars. You put that money in a bank account somewhere, and use it to make a profit. At the end of the two years, you get to keep the profit as long as you give me my 12 million dollars back, presumably with some profit for me. Once you do that, I have the option of giving the 12 million dollars right back to you: you're a solid investment. However, if you can't pay back the 12 million dollars on schedule, then I have to question the soundness of my investment. Got it so far?
From the financial statement, CCP currently seems unable to pay off this loan due in October. I can see only a little bit under six million USD cash-on-hand. So, they don't have the cash-on-hand to repay this due loan. How their investors would react to this is anybody's guess. I'm not all that familiar with their investors. What they bought with that money is a large code base (presumably the code for DUST 514 and WoD), but that code base isn't making them any money yet. And my first impression is that they're burning through cash at a slightly faster rate than the 12 million USD two-year loan should allow them to, indicating this pattern is not sustainable even if they got an extension.
Anyway, still looking into it, but this was my first impression.
EDIT (27/Jun/2011): OK, as I was typing this and busy with other meetings, Herschel Yamamoto on FHC has come to the same conclusions I have, and has written a much more detailed analysis. In particular, he had time to do the burn-rate calc that I didn't, and came up with an $8.6 million burn rate for last year.
EDIT #2 (27/Jun/2011): Let me be completely clear: CCP is a profitable company. They're making a profit every year in this report, and are even getting very decent tax breaks (presumably from Iceland) which would allow them to continue being profitable. They're just having a liquidity problem: they're burning through cash at a rate a bit higher than their profit, and as a result, have low cash-on-hand at any given moment.
EDIT #3 (27/Jun/2011): Also, keep in mind that with DUST's release being imminent, despite some comments I'm seeing on Twitter, this isn't going to sink CCP. They could make up the cash reserve difference with a trivial number of DUST 514 sales, 200k copies if my math is accurate. They may have already made up the difference. Who knows if Sony paid them some amount of money for DUST PS3 exclusivity, after all...
This financial statement just reaffirms the belief that Incarna/DUST are bet-the-company moves by CCP. Page 23 of the report confirms that they've capitalized a big chunk of their development costs. Those are costs that would have to be written off the books if DUST fails. That might sink CCP. So DUST 514 must succeed.