Zoo Entertainment, Inc. Reports FY 2009 Results

Net Revenues Total $48.7 Million, A 34% Increase Over Prior Year

Positive Adjusted Operating EBITDA for FY 2009

Balance Sheet Significantly Improved and Positive Working Capital

Cincinnati - April 8, 2010:  Zoo Entertainment, Inc., (ZOOE.PK), a leading international publisher and developer of interactive entertainment software reported financial results for the fiscal year ended December 31, 2009.

 

Zoo entertainment reports fiscal 2009 results

 

The following discussions reference the company’s operating results from our continuing operations.  For the fiscal year ended December 31, 2009, the company reported $48.7 million of net revenue, a 34% increase over $36.3 million of net revenue for 2008.  The gross margin increased to 18% for 2009, from 15% in 2008.  The company reported a $14.7 million non-cash charge for the impairment of goodwill in 2009.  Other operating expenses decreased to $11.5 million in 2009 from $22.6 million in 2008.  The loss from operations was $17.3 million for 2009 ($2.6 million without the impairment charge) as compared to $17.2 million in 2008.  In 2009, the company recorded a $5.3 million gain on extinguishment of debt, a $4.3 million gain on legal settlement and other income of $860,000 from an insurance recovery.  The resulting loss from continuing operations for 2009 is $13.0 million or $0.39 per common share compared to a loss from continuing operations for 2008 of $15.0 million or $0.59 per common share.

 

Operating EBITDA (Operating Earnings (loss) before Interest Taxes Depreciation and Amortization,  non-cash goodwill impairment and non-cash compensation), a non-GAAP measure, totaled $223,000, or $0.01 per share for 2009 as compared to a loss of $12.7 million, or ($0.05) per share for 2008.  A reconciliation of loss from operations to operating EBITDA is attached to this release.

 

“2009 was generally a difficult year for video game companies but Zoo managed to buck that trend,” said Mark Seremet, CEO of Zoo Entertainment, Inc.  “We grew sales 34%, significantly improved our balance sheet moving from a negative net working capital position of $9.2 million to a positive net working capital position of $5.6 million, and generated positive adjusted operating EBITDA.  Our fourth quarter, in particular, demonstrated the strength of our business model where we achieved record sales of $18.6 million, increased gross margins to 25%, and saw a record adjusted operating EBITDA of $2.6 million. 

During Q4, the company completed a major restructuring which has taken nearly 12 months.  The restructuring has resulted in a better capitalized business with a substantially reduced cost structure that positions the company to deliver better bottom line results. Our momentum is strong and I believe we have a robust release schedule and an innovative, indie-focused digital strategy that will drive meaningful growth for the company in 2010.”

 

About Zoo Entertainment, Inc.:

Zoo Entertainment, Inc. is focused on licensing, developing, and publishing a wide variety of casual and family-friendly video games for Wii™, Nintendo DS™, Playstation®2 system, PSP (PlayStation®Portable) system, iPhone™, and PC through their wholly owned subsidiaries, Zoo Games, Inc. and Zoo Publishing, Inc.  It sells its products primarily to retail chains, video game rental outlets, specialty retail stores, domestic and international distributors. Zoo Entertainment, Inc. has offices in Cincinnati, OH. The company was founded in 2007.

 

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Zoo Entertainment, Inc. Forward-looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of Zoo Entertainment, Inc.'s management, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: general economic conditions; geopolitical events and regulatory changes; requirements or changes adversely affecting the businesses in which Zoo Entertainment is engaged; demand for the products and services that Zoo Entertainment provides, as well as other relevant risks detailed in Zoo Entertainment, Inc.'s filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Zoo Entertainment, Inc. assumes no obligation to update the information contained in this press release.

 

Company Contact:

Zoo Entertainment, Inc.

Mark E. Seremet, Chief Executive Officer

Telephone: 513-824-8297

mseremet@zoogamesinc.com



 

 

Zoo Entertainment, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands except share and per share amounts)

 

 

 

December 31, 2009

 

 

December 31, 2008

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

  Cash

 

$

2,664

 

 

$

849

 

  Accounts receivable and due from factor, net of allowances for returns and discounts of  $835 and  $1,160

 

 

4,022

 

 

 

1,832

 

  Inventory

 

 

2,103

 

 

 

3,120

 

  Prepaid expenses and other current assets

 

 

2,409

 

 

 

2,124

 

  Product development costs, net

 

 

4,399

 

 

 

5,338

 

  Deferred tax assets

 

 

578

 

 

 

688

 

Total Current Assets

 

 

16,175

 

 

 

13,951

 

 

 

 

 

 

 

 

 

 

Fixed assets, net

 

 

141

 

 

 

214

 

Goodwill

 

 

-

 

 

 

14,704

 

Intangible assets, net

 

 

15,733

 

 

 

14,747

 

Total Assets

 

$

32,049

 

 

$

43,616

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

  Accounts payable

 

$

3,330

 

 

$

5,709

 

  Financing arrangements

 

 

1,659

 

 

 

849

 

  Customer advances

 

 

3,086

 

 

 

1,828

 

  Accrued expenses and other current liabilities

 

 

2,333

 

 

 

3,099

 

  Notes payable, net of discount of $0 and $145 – current portion

 

 

120

 

 

 

1,803

 

  Convertible notes payable, net of discount of $0 and $1,576, including accrued interest of $0 and $240

 

 

-

 

 

 

9,814

 

Total Current Liabilities

 

 

10,528

 

 

 

23,102

 

 

 

 

 

 

 

 

 

 

Notes payable, net of discount of $0 and $885 – non current portion

 

 

180

 

 

 

1,772

 

Deferred tax liabilities

 

 

3,461

 

 

 

688

 

Other long-term liabilities

 

 

2,770

 

 

 

620

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

16,939

 

 

 

26,182

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred Stock, par value $0.001, 5,000,000 authorized

 

 

 

 

 

 

 

 

  Series A, 1,389,684 issued and outstanding

 

 

1

 

 

 

-

 

  Series B, 1,188,439 issued and outstanding

 

 

1

 

 

 

-

 

Common  Stock, par value $0.001, 250,000,000 shares authorized, 39,425,755 issued and 31,624,429

outstanding December 31, 2009 and 38,243,937 issued and 36,006,561 outstanding December 31, 2008

 

 

39

 

 

 

38

 

Additional Paid-in-capital

 

 

64,675

 

 

 

52,692

 

Accumulated deficit

 

 

(45,137

)

 

 

(31,940

)

Treasury  Stock, at cost, 7,801,326 shares December 31,2009 and 2,237,376 shares December 31, 2008

 

 

(4,469

)

 

 

(3,356

)

Total Stockholders' Equity

 

 

15,110

 

 

 

17,434

 

Total Liabilities and Stockholders' Equity

 

$

32,049

 

 

$

43,616

 

 

 

 

 

Zoo Entertainment, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31, 2009 and 2008

(in thousands except per share amounts)

 

 

 

Year Ended December 31,

 

 

 

2009

 

 

2008

 

 

 

 

 

 

 

 

Revenue

 

$

48,709

 

 

$

36,313

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

39,815

 

 

 

30,883

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

8,894

 

 

 

5,430

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

6,788

 

 

 

10,484

 

Selling and marketing

 

 

2,484

 

 

 

4,548

 

Research and development

 

 

390

 

 

 

5,857

 

Impairment of goodwill

 

 

14,704

 

 

 

-

 

Depreciation and amortization

 

 

1,875

 

 

 

1,760

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

26,241

 

 

 

22,649

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(17,347

)

 

 

(17,219

)

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,975

)

 

 

(3,638

)

Gain on extinguishment of debt

 

 

5,315

 

 

 

-

 

Gain on legal settlement

 

 

4,328

 

 

 

-

 

Other income – insurance recovery

 

 

860

 

 

 

1,200

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income tax (expense) benefit

 

 

(9,819

)

 

 

(19,657

)

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(3,143

)

 

 

4,696

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

 

(12,962

)

 

 

(14,961

)

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax benefit of $1,390 for the year ended December 31, 2008

 

 

(235

)

 

 

(6,734

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,197

)

 

$

(21,695

)

 

 

 

 

 

 

 

 

 

Loss per common share – basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.39

)

 

$

(0.59

)

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

-

 

 

 

(0.27

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(0.39

)

 

$

(0.85

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic and diluted

 

 

33,495,707

 

 

 

25,394,264

 

 

 

Highlights for the three months ended December 2009 and 2008 are (in thousands):

 

 

 

 

 

Three Months Ended Dec 31

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Revenue

 

 

  

 $         18,573

 

 $         13,949

Gross profit

 

 

               4,645

 

               1,372

Total operating expenses

 

               2,711

 

               9,138

Income (loss) from continuing operations

               3,534

 

              (6,575)

Net income (loss)

 

 

               3,534

 

              (9,030)

 

 

 

NON-GAAP Financial Measures:

 

To comply with Regulation G promulgated pursuant to the Sarbanes-Oxley Act, Zoo Entertainment, Inc. attached to this press release and will post to the company's investor relations web site (www.zoogamesinc.com) any reconciliations of differences between non-GAAP financial information that may be required in connection with issuing the company's year-end financial results.

 

The company, as is common in its industry, uses Operating EBITDA as a measure of performance to demonstrate earnings exclusive of interest and non-cash events. The company manages its business based on its cash flows. The company, in its daily management of its business affairs and analysis of its monthly, quarterly and annual performance, makes its decisions based on cash flows. The company, in managing its current and future affairs, cannot affect the amortization of the intangible assets to any material degree, and therefore uses Operating EBITDA as its primary management guide. Since an outside investor may base its evaluation of the company's performance based on the company's net loss, not its cash flows, there is a limitation to the Operating EBITDA measurement. Operating EBITDA is not, and should not be considered, an alternative to net loss, loss from operations, or any other measure for determining operating performance of liquidity, as determined under accounting principles generally accepted in the United States (GAAP).

 

Reconciliation of Loss from continuing operations to Operating EBITDA:

In addition to other measures, management evaluates operating results based upon operating “EBITDA," which is defined as operating income (loss) before interest, taxes, depreciation and amortization, non-cash goodwill impairment and non-cash compensation, each of which is presented on the company's Consolidated Statements of Operations. The company's presentation of operating EBITDA, a non-GAAP measure, may not be comparable to similarly titled measures used by other companies. Any of these items could be significant to the company’s financial results.

The following table reconciles operating EBITDA to operating income (loss) for the periods indicated.

(in thousands, except per share amounts)

Operating EBITDA Reconciliation

    2009

     2008

 

Loss from operations

 

 $ (17,347)

$ (17,219)

 

Depreciation and amortization

1,875

1,760

 

Operating EBITDA

(15,472)

(15,459)

 

Impairment of goodwill

14,704

-

 

Non-cash compensation

991

2,759

 

Operating EBITDA after non-cash impairment

 

 

 

of goodwill and non-cash compensation

$ 223

$ (12,700)

 

 

 

 

 

Adjusted operating EBITDA income (loss) per common share

$0.01

$(0.05)

 

Weighted average number of common shares outstanding

33,495,707

25,394,264