Majesco Q2 Financial Results
EDISON, N.J., June 16, 2008 /PRNewswire-FirstCall via COMTEX News Network/ — Majesco Entertainment Company Inc. (Nasdaq: COOL), 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 MetricsTo 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.