Majesco Entertainment Company Inc., an innovative provider of video games for the mass market, today reported financial results for the fiscal second quarter ended April 30, 2008.
Jesse Sutton, Chief Executive Officer of Majesco Entertainment, said, "We continue to execute on our mass market, family-friendly strategy and build on our presence in one of the industry’s fastest growing genres. Our second quarter results are in line with our expectations and reflect the impact of our release schedule and seasonality of our business. For the first six months of 2008, our combined DS and Wii business, which is at the core of our mass market strategy, is up roughly 50% versus last year. We remain on pace to achieve modest gross margin gains in 2008 and continue to believe that we can achieve cash break even or better at an operating level with full fiscal year net revenue between $53 and $58 million.
"We launched six new titles in the second quarter and 10 titles year to date. Two titles shipped for Nintendo’s Wii system, seven for Nintendo’s DS handheld, and one title for the PSP(R) (PlayStation(R)Portable), aimed to maintain our focus on the family-friendly market," continued Sutton. "We are prudently expanding our portfolio of titles and our studio is on schedule in developing its first titles. With our targeted strategy, improved operating execution and commitment to cost controls we are well positioned to continue improving our financial performance."
Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics
To facilitate a comparison between the three and six months ended April 30, 2008 and 2007, the Company has presented both GAAP and non-GAAP financial results. GAAP financial measures, including operating income, net income, and basic and diluted earnings/loss per share, have been adjusted to report non-GAAP financial measures which exclude gains on the increase in the value of common stock to be issued in settlement of the class action litigation and related charges, net, and the change in the fair value of warrants issued in connection with our September 2007 equity financing. These non-GAAP measures are provided to enhance investors’ overall understanding of the Company’s current financial performance and the Company’s prospects for the future. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to GAAP results.
In the fiscal year ended October 31, 2007, the Company recorded a $2.8 million charge in connection with the expected settlement of class action litigation. The charge was comprised of $2.5 million, representing the fair value, on the date the agreement was executed, of the common stock expected to be distributed when the settlement becomes effective and $0.3 million representing the increase in the value of the shares from that date through October 31, 2007.
The Company will adjust the fair value of the liability to the fair value of the shares expected to be distributed at each balance sheet date and record the resulting change as a non-cash charge, or gain, to earnings in each period until the shares are distributed. Due to fluctuations in the Company’s stock price, this resulted in a non-cash gain of $0.3 million during the six months ended April 30, 2008. The settlement provides that if the fair value of the stock falls below $2.5 million, the Company will issue additional shares, subject to certain limitations, with a fair market value equal to the amount of the decrease. Therefore, the liability will not be adjusted below $2.5 million.
During the fourth quarter of 2007, the Company raised $5.9 million in an equity financing. As part of that transaction, the Company issued warrants that contain a provision that under certain circumstances in which the Company is sold, merged, or otherwise enters into a "fundamental transaction", as defined in the warrant agreement, with a company that is not publicly traded, the warrants may be settled by a cash payment. As a result, the warrants were recorded as a liability at their fair value of $2.1 million, in accordance with FASB statement No. 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity, and FASB Staff position 150-1 Issuers Accounting for Freestanding Financial Instruments Composed of More Than One Option or Forward Contract Embodying Obligations under FASB Statement 150. In addition, the Company will measure the fair value of the warrants at each balance sheet date, and record the change in fair value as a non-cash charge or gain to earnings each period. A reduction in the Company’s stock price since January 31, 2008 resulted in a non-cash gain of $0.1 million during the quarter ended April 30, 2008 and $0.6 million during the six months ended April 30, 2008. The warrants were valued at $0.7 million at April 30, 2008.
Comparison of Three Months Ended April 30, 2008 to April 30, 2007
-- Net revenue was $12.8 million in 2008 compared to $14.6 million in
2007. The decrease is due primarily to the release of our first two
Wii games, Cooking Mama: Cook Off and Bust-a-Move Bash!, in the second
quarter last year.
-- Net revenue for the second quarter of 2008 was comprised of 26.5
percent from sales of games for console systems, including 25 percent
contributed from Wii. Seventy-three and one-half percent of net sales
were from games for handheld systems with 70.5 percent coming from
games for DS and 3 percent from PSP(R) (PlayStation(R)Portable). This
compares to the second quarter of 2007 when 63 percent of revenue was
contributed from games for console systems, including 55 percent from
Wii. Thirty-seven percent of revenue was generated from handheld
systems, including 33 percent from games developed for DS.
-- In the second quarter of 2008, 89 percent of revenue came from domestic
sales with 11 percent from international. This compares to the second
quarter of 2007 when 98 percent of revenue came from domestic sales
with only 2 percent from international.
-- Gross margin was 34.7 percent, compared to 42.0 percent in 2007. The
decrease was primarily attributable to the introduction of our two Wii
games in the second quarter last year, including Cooking Mama: Cook
Off. These games both had high price points and stronger margins as
compared to our other games.
-- The GAAP operating loss was $0.3 million, which included a $0.4 million
non-cash compensation expense, compared to 2007 operating loss of $0.9
million, which included a non-cash compensation charge of $0.4 million
and a $2.5 million charge for shareholder litigation. Non-GAAP 2008
operating loss was $0.3 million, compared to non-GAAP operating income
of $1.4 million in 2007.
-- GAAP net loss was $0.3 million, or $0.01 per share, which included a
$0.1 million non-cash gain in the fair value of warrants issued,
compared to second quarter 2007 GAAP net loss of $1.3 million, or $0.06
per share, which included a $2.5 million charge for the shareholder
litigation. Non-GAAP net loss was $0.4 million, or $0.1 per share,
compared to a non-GAAP net income of $1.0 million, or $0.04 per share
in 2007.
-- Interest expense and financing costs were $0.1 million in 2008 versus
$0.5 million in 2007, as the Company benefited from the capital raised
last fall, and lower factoring fees.
-- At April 30, 2008, the company had cash and cash equivalents of $8.1
million.
Comparison of Six Months Ended April 30, 2008 to April 30, 2007
-- Net revenue was $31.4 million in 2008 compared to $29.1 million in
2007.
-- Net revenue was comprised of 24 percent from sales of games for console
systems, including 22 percent contributed from Wii. Seventy-six percent
of net sales were from games for handheld systems, virtually all of
which came from games for DS. This compares to the first six months of
2007 when 37 percent of revenue was contributed from games for console
systems, including 28 percent generated by sales of games for Wii.
Almost 50 percent of net sales were from handheld systems, including 42
percent from games developed for DS. DS sales increased 93 percent in
the first six months of 2008 versus the year ago period.
-- In the first six months of fiscal 2008, 95 percent of revenue came from
domestic sales with 5 percent from International. This compares to 92
percent domestic and 8 percent international in the same period last
year. Domestic sales increased 11% over 2007, which included $2.9
million from the sale of Dance Dance Revolution products.
-- Gross margin was 38.0 percent compared to 36.6 percent in the same
period during 2007.
-- The Company’s GAAP operating income was $2.1 million in 2008 versus an
operating loss of $1.1 million during the same period in 2007, which
included a $2.5 million charge for the shareholder litigation. Non-GAAP
operating income for the first six months of 2008 was $1.8 million,
compared to $1.2 million for the same period in 2007.
-- GAAP net income was $2.4 million, or $0.09 per share, compared to a
2007 net loss of $2.3 million, or $0.10 per share, which included a
$2.5 million charge for the shareholder litigation. Non-GAAP net income
was $1.5 million, or $0.06 per share, compared to breakeven in 2007.
-- Interest expense and financing costs were $0.3 million for the first
six months of 2008 versus $1.2 million during the same period in 2007.
The reduction was attributable to the Company’s ability to self finance
all of its purchasing requirements following a financing of $5.9
million in September 2007, in addition to the $2.7 million of net
income earned during the first quarter of 2008.
Announced Product Line-up
Second Quarter 2008 ending April 30, 2008:
All of the following titles were released in North America during the Company’s second quarter:
-- Pet Pals: Animal Doctor for DS invites players to step into the
challenging world of veterinary medicine by diagnosing and treating 30
different medical cases created by real vets.
-- Blokus Portable: Steambot Championship for the PSP(R)
(PlayStation(R)Portable), is based on the world-renowned Blokus board
game and blends its award-winning strategic gameplay with the anime
characters from the Steambot Chronicles series.
-- Eco-Creatures: Save The Forest for DS is a real-time strategy game in
which players control units of woodland creatures through a unique
environmental adventure.
-- Nanostray 2 for DS is the sequel to the very first 3D shooter available
on DS and delivers thrilling non-stop shooting action combined with
stunning graphics.
-- Wild Earth: African Safari for Wii is a first person safari adventure
that challenges players to capture award-winning photos of the
continent’s exotic wild life.
-- Toy Shop for DS puts players at the helm of a struggling toy shop where
they’ll need to create fun toys that sell, while managing store
inventory, customers and budget.
Fiscal 2008
To date, the Company has announced the following titles that are expected for release during the rest of fiscal 2008:
-- Nancy Drew: The Mystery of the Clue Bender Society for DS is the follow
up to The Deadly Secret of Olde World Park and offers mystery buffs and
Nancy Drew fans a fresh interactive caper with new gameplay elements
including snowmobiling and boating.
-- Babysitting Mania for DS is based on the hit online PC simulation from
Gogii Games that challenges players to manage unruly kids, lists of
chores and out-of-control houses without losing their cool.
-- Zoo Hospital for Wii is the first Wii game of its kind that lets
players experience a veterinarian’s job by performing various surgical
procedures on 48 different animals that they can then care for in their
enclosures to ensure a healthy recovery.
-- Three adventure games for younger Wii players from the best-selling,
award-winning Humongous properties catalog: Freddi Fish in Kelp Seed
Mystery, Pajama Sam in Don’t Fear the Dark and SPY Fox in Dry Cereal.
All three integrate the Wii Remote(TM) in point-and-click style
adventure play that the entire family can enjoy together.
-- Rollin’ Rascals for DS challenges players to roll adorable round pets
around obstacles and into identical twos to clear them from the game
board in this addictive puzzler.
-- Air Traffic Chaos for DS lets players take charge as an air traffic
controller at the world’s busiest airports so they can safely maintain
an efficient flight schedule and order on the runways.
-- Blast Works: Build, Trade, Destroy for Wii, is an innovative
interpretation of a geometric shooter that lets players build their own
personalized game experiences and then share their creations with
friends via WiiConnect24.
-- Wonder World Amusement Park for Wii brings to life a fully 3D world of
boardwalk games, rides and prizes across multiple themed areas that
players can explore with personalized avatars.
-- Cake Mania(R) 2 for DS is the sequel to the best-selling DS game based
on Sandlot Games’ award-winning downloadable title. Players lead Jill
Evans through more than 200 different levels of baking and frosting
madness with an all-new customer base, exotic locations, kitchen
upgrades and multiple endings. A playable demo will also be featured in
approximately 10,000 Nintendo DS Download Stations at major retail
locations nationwide this summer.
-- Orchard for online and retail PC is a simulation that challenges
players to manage all facets of a retail business, including planting
and harvesting crops, developing new recipes, buying ingredients and
hiring a workforce.
-- Cooking Mama: World Kitchen for Wii is the sequel to the best-selling
Cooking Mama Cook Off game that has sold more than 430,000 units and
challenges players to use the Wii Remote as the ultimate cooking
utensil.
First Quarter 2009 ending January 31, 2009:
To date, the Company has announced the following titles that are expected for release during the fiscal first quarter of 2009:
-- Major Minor’s Majestic March for Wii marks the return of the creative
team behind the renowned PaRappa the Rapper franchise-legendary game
designer and multimedia musician Masaya Matsuura and famed New York
artist Rodney Alan Greenblat. The game turns the Wii Remote into a
"special" baton the bandleader Major Minor uses to keep tempo, recruit
new band members and pick up valuable items, while marching through
whimsical locations.
-- Cake Mania: In the Mix! for Wii marks the first introduction of Sandlot
Games’ best-selling PC title on the Wii system. The game integrates
motion-based control with the series’ signature cake-baking
multi-tasking gameplay style.
-- Our House for Wii turns the Wii Remote into the ultimate creation tool
that lets players design, build and decorate their own personalized
trophy home, and then share it with friends in an online neighborhood
via WiiConnect24.
-- Our House for DS is the first game from Majesco Studios Santa Monica.
This companion game to the Wii version lets players work as contractors
and then use their work-for-hire earnings to design, build and decorate
their own personalized trophy home.
-- Wonder World Amusement Park for DS is the second game from Majesco
Studios Santa Monica. This companion game to the Wii version launching
in July lets players experience a complete day at the park in the palm
of their hands. Using the Touch Screen, players can toss, drive, shoot,
whack, fish and spin in more than two dozen mini-games throughout five
themed zones.
-- Jillian Michaels’ Fitness Ultimatum 2009 for Wii is the first game of
its type to combine a celebrity fitness trainer with the Wii and
innovative Wii Fit Balance Board(TM) accessory to offer players a fun
and entertaining way to get in shape.
Fiscal 2008 Outlook
The Company reconfirmed its outlook for fiscal 2008 full year net revenue to be in the range of $53 million to $58 million. The Company expects 59 percent of its net revenue to be from handheld titles, with virtually all titles for DS, and 41 percent from console titles, almost entirely from titles for Wii. In 2007, 64 percent of its net revenue was from handheld titles, with 56 percent from titles for DS, while 30 percent was from console titles with 20 percent from Wii titles. The Company also expects that its mix of international revenues for the year will approximate 12 percent of worldwide revenues, a slight decline from previous years’ range of 15 to 20 percent. The Company expects full-year 2008 gross margins to show modest improvement over the 33.9 percent reported in 2007. The Company’s guidance assumes the release of approximately 25 titles in 2008 with approximately 9 Wii, 14 DS titles and 2 other. This compares to 19 titles in 2007, comprised of 2 Wii, 13 DS and 4 other. The Company’s results are impacted by seasonality from the December holiday period and variability based on release schedules.
Conference Call
At 4:30 PM ET today, management will host an earnings conference call. To access the call in the U.S., please dial 1-877-317-6701 and international callers please dial 1-412-317-6701. The access code for the call is 4881586. Please dial in approximately 10 minutes prior to the start of the conference call. The conference call will also be broadcast live over the Internet and available for replay for 90 days from the "Investor Relations" section of the company’s Web site at http://www.majescoentertainment.com/. In addition, a replay of the call will be available via telephone for seven business days beginning two hours after the call. To listen to the telephone replay in the U.S., please dial 1-877-344-7529 and for international callers, dial 1-412-317-0088. Enter access code 4881586.
About Majesco Entertainment Company
Majesco Entertainment Company is a provider of video games for the mass market. Building on 22 years of operating history, the Company is focused on developing and publishing a wide range of casual and family oriented video games on leading console and portable systems. Product highlights include Nancy Drew(TM), Cooking Mama(TM) and Zoo Hospital(TM) for Nintendo DS(TM) and Cooking Mama: Cook Off for the Wii(TM) system. The Company’s shares are traded on the Nasdaq Stock Market under the symbol: COOL. Majesco is headquartered in Edison, NJ and has an international office in Bristol, UK. More information about Majesco can be found online at www.majescoentertainment.com.
Use of Non-GAAP Financial Information
To supplement the Company’s unaudited condensed consolidated financial statements presented in accordance with GAAP, Majesco Entertainment uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Majesco include non-GAAP operating income (loss), non-GAAP net income (loss), and non-GAAP basic and diluted earnings (loss) per share. These non-GAAP financial measures exclude the following items from the Company’s unaudited condensed consolidated statements of operations:
-- Settlement charges related to the settlement of class action litigation
-- Change in fair value of warrants
-- Gains on settlement of liabilities and other gains
For more information on these non-GAAP financial measures, please see the tables in this release captioned "Reconciliation of GAAP and non-GAAP Financial Measures" which includes a reconciliation of the non-GAAP to the GAAP results.
Safe Harbor
Some statements set forth in this release, including the estimates under the headings "Outlook" contain forward-looking statements that are subject to change. Statements including words such as "anticipate", "believe", "estimate" or "expect" and statements in the future tense are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual events or actual future results to differ materially from the expectations set forth in the forward-looking statements. Some of the factors which could cause our results to differ materially from our expectations include the following: consumer demand for our products, the availability of an adequate supply of, current-generation and next-generation gaming hardware, including but not limited to Nintendo’s DS and Wii(TM) platforms; our ability to predict consumer preferences among competing hardware platforms; consumer spending trends; the seasonal and cyclical nature of the interactive game segment; timely development and release of our products; competition in the interactive entertainment industry; developments in the law regarding protection of our products; our ability to secure licenses to valuable entertainment properties on favorable terms; our ability to manage expenses; our ability to attract and retain key personnel; adoption of new accounting regulations and standards; adverse changes in the securities markets; our ability to comply with continued listing requirements of the Nasdaq stock exchange; the availability of and costs associated with sources of liquidity; final resolution of the class action and other litigation on terms acceptable to the company, and other factors described in our filings with the SEC, including our Annual Report on Form 10-K for the year ended October 31, 2007. We do not undertake, and specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
MAJESCO ENTERTAINMENT 2008-2009 RELEASE SCHEDULE*
2008 GAMES
Quarter 1
Furu Furu Park Wii, $19.99
Left Brain Right Brain DS, $19.99
Mega Brain Boost DS, $19.99
Cooking Mama 2: Dinner with Friends DS, $29.99
Quarter 2
Wild Earth: African Safari Wii, $29.99
Eco-Creatures: Save the Forest DS, $29.99
Nanostray 2 DS, $29.99
Blokus Portable: Steambot Championship PSP, $19.99
Pet Pals: Animal Doctor, $19.99
Toy Shop DS, $19.99
Quarter 3
Cake Mania 2 DS, $19.99
Blast Works: Build, Trade, Destroy Wii, $39.99
Nancy Drew: Mystery of the Clue Bender Society DS, $19.99
Wonder World Amusement Park Wii, $39.99
Freddi Fish: Kelp Seed Mystery Wii, $19.99
Quarter 4
Babysitting Mania DS, $19.99
Cooking Mama World Kitchen Wii, $49.99
Rollin’ Rascals DS, $19.99
Air Traffic Chaos DS, $19.99
Pajama Sam in Don’t Fear the Dark Wii, $19.99
Zoo Hospital Wii, Price TBA
Spy Fox in Dry Cereal Wii, $19.99
2009 GAMES
Quarter 1
Jillian Michaels’ Fitness Ultimatum 2009 Wii, Price TBA
Our House DS, Price TBA
Major Minor’s Majestic March Wii, Price TBA
Our House Wii, Price TBA
Wonder World Amusement Park DS, Price TBA
Cake Mania In the Mix! Wii, Price TBA
*Includes all released and announced titles to date. Prices subject to
change for unreleased titles.
MAJESCO ENTERTAINMENT COMPANY
UNAUDITED SUPPLEMENTARY PRODUCT DATA
Net Revenue By Platform - Yearly
FY08 FY07 FY06
Estimate* Actual Actual
CONSOLE:
Wii 39.8% 19.6% 0.0%
PS2 0.8% 6.8% 18.7%
Xbox 0.6% 3.2% 15.7%
41.1% 29.7% 34.4%
HANDHELD:
DS 58.1% 55.5% 24.4%
GBA 0.0% 5.6% 28.0%
PSP 0.8% 3.0% 3.4%
58.9% 64.1% 55.8%
OTHER 0.0% 6.2% 9.8%
TOTAL 100.0% 100.0% 100.0%
*Note: Company estimate as of June 16, 2008
Majesco Entertainment
Net Sales by Platform
Three Months Ended Three Months Ended
April 30, 2008 April 30, 2007
Net Sales % Net Sales %
Console:
Wii $3,204 25.1% $8,046 55.3%
PS2 66 0.5% 1,108 7.6%
XBOX / 360 117 0.9% 73 0.5%
3,387 26.5% 9,227 63.4%
26.5% 63.4%
Handheld:
DS 9,010 70.5% 4,818 33.1%
GBA 3 0.0% 395 2.7%
PSP 375 2.9% 124 0.8%
9,388 73.5% 5,337 36.6%
73.5% 36.6%
Total $12,775 100.0% $14,564 100.0%
Net Sales by Platform
Majesco Entertainment
Six Months Ended Six Months Ended
April 30, 2008 April 30, 2007
Net Sales % Net Sales %
Console:
Wii $6,908 22.0% $8,046 27.6%
PS2 506 1.6% 2,481 8.5%
XBOX / 360 126 0.4% 168 0.6%
7,540 24.0% 10,695 36.7%
24.0% 36.7%
Handheld:
DS 23,440 74.6% 12,139 41.7%
GBA 31 0.0% 1,860 6.4%
PSP 428 1.4% 463 1.6%
23,899 76.0% 14,462 49.7%
76.0% 49.7%
Other - - 3,954 (a) 13.6%
13.6%
Total $31,439 100.0% $29,111 100.0%
(a) DDR, 45/90 minute video.
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except share amounts)
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
2008 2007 2008 2007
Net revenues $12,775 $14,564 $31,439 $29,111
Cost of sales
Product costs 5,765 6,221 13,697 14,392
Software development
costs and license
fees 2,577 2,231 5,797 4,053
8,342 8,452 19,494 18,445
Gross profit 4,433 6,112 11,945 10,666
Operating costs and
expenses
Product research
and development 708 543 1,609 1,151
Selling and marketing 1,915 1,903 4,220 3,721
Gain on settlement of
liabilities and
other gains - (208) - (239)
General and
administrative 2,020 2,170 4,128 4,438
Depreciation and
amortization 86 72 163 145
Settlement of
litigation and
related charges, net - 2,500 (322) 2,500
4,729 6,980 9,798 11,716
Operating (loss) income (296) (868) 2,147 (1,050)
Other expenses (income)
Interest and
financing costs, net 97 467 296 1,211
Change in fair value
of warrants (136) - (594) -
(Loss) income before
income taxes (257) (1,335) 2,445 (2,261)
Income taxes - - - -
Net (loss) income $(257) $(1,335) $2,445 $(2,261)
Net (loss) income
per share:
Basic $(0.01) $(0.06) $0.09 $(0.10)
Diluted $(0.01) $(0.06) $0.09 $(0.10)
Weighted average
shares outstanding:
Basic 27,416,230 23,831,737 27,384,035 23,668,235
Diluted 27,416,230 23,831,737 27,384,035 23,668,235
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
April 30, October 31,
2008 2007
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $8,074 $7,277
Due from factor 518 -
Accounts and other receivables 454 670
Inventory 1,907 3,850
Capitalized software development
costs and license fees, current
portion 4,608 2,171
Prepaid expenses 815 1,128
Total current assets 16,376 15,096
Property and equipment - net 613 568
Capitalized software development
costs and license fees, net of
current portion - 549
Other assets 114 100
Total assets $17,103 $16,313
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued
expenses $7,434 $7,488
Share based litigation settlement 2,500 2,822
Due to factor - 1,527
Advances from customers 530 425
Total current liabilities 10,464 12,262
Warrant liability 866 1,460
Stockholders’ equity:
Common stock - $.001 par value;
250,000,000 shares authorized;
28,773,538 and 28,675,962 issued
and outstanding at April 30, 2008
and October 31, 2007, respectively 29 29
Additional paid in capital 100,987 100,201
Accumulated deficit (95,079) (97,524)
Accumulated other comprehensive loss (164) (115)
Total stockholders’ equity 5,773 2,591
Total liabilities and stockholders’
equity $17,103 $16,313
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
April 30,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $2,445 $(2,261)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 163 145
Change in fair value of warrants (594) -
Share based litigation settlement (322) -
Fair value of common stock purchase warrant
issued for services 77
Non-cash compensation expense 749 775
Gain on settlement of liabilities and
other gains - (239)
Amortization of software development costs
and prepaid license fees 2,441 1,693
Changes in operating assets and liabilities
Due from factor - net (2,045) (1,026)
Other receivables 216 1,715
Inventory 1,943 (352)
Capitalized software development costs
and prepaid license fees (4,329) (1,727)
Prepaid expenses and other 299 2,057
Accounts payable and accrued expenses (54) 916
Advances from customers 105 (641)
Net cash provided by operating
activities 1,094 1,055
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (208) (97)
Net cash used in investing activities (208) (97)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance cost on equity financing (40) -
Proceeds from exercise of stock options - 49
Inventory financing - (594)
Net cash used in financing activities (40) (545)
Effect of exchange rates on cash and cash
equivalents (49) (11)
Net increase in cash 797 402
Cash and cash equivalents - beginning of period 7,277 3,794
Cash and cash equivalents - end of period $8,074 $4,196
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Accounts payable settled through the issuance
of common stock, classified as a mandatory
redeemable liability $- $365
Cash paid for interest $304 $1,265
Majesco Entertainment Company
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except share amounts)
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
2008 2007 2008 2007
GAAP operating (loss)
income $(296) $(868) $2,147 $(1,050)
Litigation valuation (1) - 2,500 (322) 2,500
Gain on settlement of
accounts payable - (208) - (239)
Non-GAAP operating
(loss) income $(296) $1,424 $1,825 $1,211
GAAP net (loss) income $(257) $(1,335) $2,445 $(2,261)
Litigation valuation (1) - 2,500 (322) 2,500
Fair value of warrants (2) (136) - (594) -
Gain on settlement of
accounts payable - (208) - (239)
Non-GAAP net (loss) income $(393) $957 $1,529 $-
GAAP net (loss) income
per diluted share $(0.01) $(0.06) $0.09 $(0.10)
Litigation valuation (1) - 0.10 (0.01) 0.11
Fair value of warrants (2) (0.00) - (0.02) -
Gain on settlement of
accounts payable - (0.01) - (0.01)
Non-GAAP net (loss)
income per diluted share $(0.01) $0.04 $0.06 $-
Shares used in GAAP and
Non-GAAP per diluted
share amounts 27,416,230 23,831,737 27,384,035 23,668,235
(1) During the twelve months ended October 31, 2007, we recorded a $2.8
million charge in connection with the fair value of shares of common
stock that we have agreed to issue in settlement of a class action
securities litigation against the Company. The charge was comprised of
$2.5 million, representing the fair value, on the date the settlement
agreement was executed, of the common stock expected to be distributed
when the settlement becomes effective, and $0.3 million, representing the
increase in the value between the date of the agreement and October 31,
2007. During the three and six months ended April 30, 2008, we recorded a
gain on litigation settlement of $0.1 million and $0.6 million,
respectively, representing the decline in the value of the shares to be
issued under the settlement, as if it occurred on January 31, 2008.
(2) On September 5, 2007 we issued warrants in connection with an equity
financing. The Warrants contain a provision that may require settlement
by transferring assets. Therefore, they are recorded at fair value as
liabilities in accordance with FASB statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities
and Equity, and FASB Staff position 150-1 Issuers Accounting for
Freestanding Financial Instruments Composed of More Than One Option or
Forward Contract Embodying Obligations under FASB Statement 150.
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