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Majesco Entertainment Company Reports Operating Results (10-Q)

June 14, 2010 | About:
10qk

10qk

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Majesco Entertainment Company (COOL) filed Quarterly Report for the period ended 2010-04-30.

Majesco Entertainment Company has a market cap of $30.92 million; its shares were traded at around $0.8 with and P/S ratio of 0.33. COOL is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Our reserves for price protection and other allowances fluctuate over periods as a result of a number of factors including analysis of historical experience, current sell-through of retailer inventory of our products, current trends in the interactive entertainment market, the overall economy, changes in customer demand and acceptance of our products and other related factors. Significant management judgments and estimates must be made and used in connection with establishing the allowance for returns and price protection in any accounting period. However, actual allowances granted could materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions, technological obsolescence due to new platforms, product updates or competing products. For example, the risk of requests for allowances may increase as consoles pass the midpoint of their lifecycle and an increasing number of competitive products heighten pricing and competitive pressures. While management believes it can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, if our estimates change, this will result in a change in our reserves, which would impact the net revenues and/or selling and marketing expenses we report. For the three month periods ended April 30, 2010 and 2009, we provided allowances for future price protection and other allowances of $1.3 million and $0.5 million, respectively. For the six month periods ended April 30, 2010 and 2009, we provided allowances for future price protection and other allowances of $2.5 million and $1.1 million, respectively. The fluctuations in the provisions reflected our estimates of future price protection based on the factors discussed above. We limit our exposure to credit risk by factoring a portion of our receivables to a third party that buys them without recourse. For receivables that are not sold without recourse, we analyze our aged accounts receivables, payment history and other factors to make a determination if collection of receivables is likely, or a provision for uncollectible accounts is necessary.

General and Administrative Expenses. For the three month period ended April 30, 2010, general and administrative expenses were $2.3 million, an increase of $0.2 million from $2.1 million in the comparable period in 2009. The increase was primarily due to increased Sarbanes-Oxley compliance and investor relations expenses. General and administrative expenses include $0.4 million of non-cash compensation expenses for the three months ended April 30, 2010 and 2009, respectively.

Selling and Marketing Expenses. Total selling and marketing expenses were approximately $4.6 million for the six months ended April 30, 2010 compared to $7.3 million for the six months ended April 30, 2009. The $2.7 million decrease was primarily due to lower advertising media costs of approximately $2.1 million and lower shipping and commission expense related to lower sales. During the six months ended April 30, 2009 we ran several television advertising campaigns. After analyzing the costs and benefits of these programs, we decided to reduce our media-related expenditures during the six months ended April 30, 2010. In addition, during the six months ended April 30, 2010, we reduced sales and production staff in the U.S., and sales staff in the United Kingdom, related to the termination of our direct distribution strategy in Europe. In total, we incurred a total of $0.4 million in severance costs related to the staff reductions during the six months ended April 30, 2010, classified as follows: (i) Product Research and Development Expenses of $0.1 million; (ii) Selling and Marketing Expenses of $0.2 million; and (iii) General and Administrative expenses of $0.1 million. Selling and Marketing expense as a percentage of net sales was approximately 11% for the six months ended April 30, 2010 compared to 14% for the six months ended April 30, 2009.

General and Administrative Expenses. For the six month period ended April 30, 2010, general and administrative expenses were $4.4 million, a decrease of $0.2 million from $4.6 million in the comparable period in 2009. The decrease was primarily due to lower compensation expenses relating to our incentive compensation program. This incentive program is primarily based on net income generated by the Company. General and administrative expenses include $0.9 million and $0.8 million of non-cash compensation expenses for the six months ended April 30, 2010 and 2009, respectively. Non cash compensation expense for the six months ended April 30, 2010 included approximately $0.1 million of expense related to the accelerated vesting of restricted stock upon termination of an employee.

In December 2009 and November 2008, we received proceeds of approximately $1.6 million and $1.1 million, respectively, from the sale of the rights to approximately $21.2 million and $25.9 million of New Jersey state income tax operating loss carryforwards, under the Technology Business Tax Certificate Program administered by the New Jersey Economic Development Authority. After the transfer, we have approximately $32.0 million of net operating loss carryforwards remaining in the state of New Jersey. Net proceeds have been recorded as an income tax benefit during each of the six months ended April 30, 2010 and 2009.

We generated a profit of $2.2 million for the six months ended April 30, 2010. However, our operating results vary significantly from period to period. On an annual basis, we generated a net loss of $7.2 million in 2009, net income of $3.4 million in 2008, and a net loss of $4.8 million in 2007. Historically, we have funded our operating losses through sales of our equity and use of our purchase order financing and factor arrangements to satisfy seasonal working capital needs. We raised approximately $5.8 million in net proceeds from the sale of our equity securities in September 2007, and approximately $8.6 million in September 2009.

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