Majesco Entertainment Company Reports Fourth Quarter and Full

Majesco Entertainment Company Reports Fourth Quarter and Full Year
Fiscal 2012 Financial Results 
Fiscal 2012 Operating Income of $3.7 Million on Revenue of $132
Million 
EDISON, NJ -- (Marketwire) -- 01/14/13 --  Majesco Entertainment
Company (NASDAQ: COOL), an innovative provider of video games for the
mass market, today reported financial results for the fourth quarter
and full year ended October 31, 2012. 
Fourth Quarter Results 
For the fourth quarter ended October 31, 2012, Majesco's net revenues
were $26.6 million, up 6 percent versus $25.1 million in the same
period a year ago. During the fourth quarter of 2012, the Company
reported an operating loss of $3.0 million, compared to an operating
loss of $3.0 million in the fourth quarter of 2011. Net loss for the
quarter was $2.7 million versus a net loss of $3.9 million in 2011.
On a non-GAAP basis, net loss for the quarter was $2.7 million
compared to a non-GAAP net loss of $2.7 million last year. Please
refer to the Reconciliation of GAAP to Non-GAAP Financial Measures
table included later in this release for additional information and
details on non-GAAP items. 
The Company's basic and diluted net loss per share for the quarter
ended October 31, 2012 was $0.07, compared to a basic and diluted net
loss per share of $0.10 in the same period last year. Non-GAAP
diluted net loss per share for the quarter ended October 31, 2012 was
$0.07 compared to a net loss per share of $0.07 last year. Please
refer to the Reconciliation of GAAP to Non-GAAP Financial Measures
table included later in this release for additional information and
details on non-GAAP items. 
Twelve Month Fiscal 2012 Results 
For the twelve months ended October 31, 2012, the Company's net
revenues increased 6 percent to $132.3 million versus the year ago
period. The Company reported operating income of $3.7 million
compared to $11.4 million of operating income in the same period a
year ago. Non-GAAP operating income for the twelve month period was
$5.4 million compared to non-GAAP operating income of $12.8 million
for the comparable 2011 period. In the twelve months ended October
31, 2012, net income was $4.6 million compared to net income of $6.8
million for the twelve months ended October 31, 2011. Non-GAAP
 net
income was $4.4 million in 2012 compared to non-GAAP net income of
$11.1 million in 2011. 
The Company's basic and diluted earnings per share for the twelve
months ended October 31, 2012 was $0.12 and $0.11, respectively,
compared to basic and diluted earnings per share of $0.18 and $0.17,
respectively, for the corresponding period in 2011. The Company's
non-GAAP diluted earnings per share for the twelve months ended
October 31, 2012 was $0.10 compared to diluted non-GAAP net earnings
per share of $0.28 in the corresponding 2011 period. Non-GAAP
earnings per share of $0.10 for the twelve months of fiscal 2012 was
lower than previously expected due to accelerated amortization and
inventory write-off's related to lower than expected sales of NBA
Baller Beats. 
Management Commentary 
"We met our revenue expectations in fiscal 2012 against the backdrop
of weak industry-wide sales," said Jesse Sutton, Chief Executive
Officer of Majesco. "The Zumba(R) Fitness franchise benefited from
the release of Zumba(R) Fitness 2 in the first quarter, Zumba(R)
Fitness Rush in the second quarter and Zumba(R) Fitness Core in the
fourth quarter. Zumba is now firmly entrenched as the second
bestselling fitness franchise ever with over 8 million units sold
worldwide. We ended the year with $31.3 million in combined cash and
availability from our factor and no long term debt." 
"For fiscal 2013, we expect declining sales as our core products on
legacy platforms decline, and we will be offering a smaller slate of
new handheld and console titles than we introduced in fiscal 2012,"
Sutton added.  
In order to better align operating costs with expected sales trends,
the Company has implemented several initiatives to reduce fixed
operating costs in favor of an outsourced, variable cost model. These
initiatives include the closing of its social game development studio
in Foxboro, Massachusetts, and reduction of game testing personnel in
its New Jersey office. The Company plans to continue to develop
mobile games through its production team in Southern California and
the use of external development studios. In addition, the Company has
eliminated certain marketing and support positions reflecting the
planned reduction of its console game slate in fiscal 2013. The
Company expects to record approximately $0.7 - $1.0 million in
severance and other expenses related to this strategic realignment in
the first quarter of fiscal 2013. These initiatives are expected to
result in reduced operating expenses of approximately $1.5 - $2.0
million on an annual basis. 
"Having successfully navigated through industry transitions and
periods of uncertainty in the past, we believe it is prudent to
preserve our financial resources as new platforms are deployed. We
plan to continue to support our established franchises, look for
opportunities to reach new audiences through mobile devices and
position the Company to capitalize as new platforms grow and gain
consumer acceptance. Our strong balance sheet and liquidity give us
the resources to resume growth as industry dynamics become clear,"
concluded Sutton. 
Fiscal 2013 Outlook 
As a result of the weakness in demand for products on legacy console
platforms and uncertainty around consumer adoption of the next
generation of consoles, management is modifying its practice of
providing quantitative fiscal year revenue and earnings guidance.
Instead, for fiscal 2013, management is presenting a qualitative
assessment of its outlook for financial results.  
Based on early analysis of sell-through during the 2012 holiday
season, management anticipates holiday sales will be at least 50%
lower than last year. Given the Company's dependence on holiday
sales, management anticipates revenue for fiscal 2013 will be
significantly below fiscal 2012. Management expects to report between
a modest non-GAAP EPS loss to breakeven for the first quarter of
fiscal 2013 and a loss for the full year of fiscal 2013.  
Announced Product Line-up  
First Quarter Fiscal 2013 Ending January 31, 2013 
To date, the Company has announced the following titles that were, or
are expected to be, released during its fiscal first quarter 2013,
which includes the recent holiday sales period: 


 
--  Maestro Piccolo's Flea Symphony for iPhone, iPad and iPod Touch
    recently received the Editor's Choice Award from Apple. Flea Symphony
    turns players into mini maestros, conducting a tiny orchestra of fleas
    to create beautiful melodies with a range of instruments, including
    tuba cannons, guitar string launchers, and even turntables. Players
    must solve 100 levels of progressively complex musical puzzles through
    five imaginative music box worlds.
--  Monster High: Skultimate Roller Maze(TM) on Nintendo DS(TM) and
    Wii(TM) was released as part of a distribution agreement with Little
    Orbit that includes an additional Nintendo 3DS(TM) sku launching
    this March. Players can pick their favorite Monster High character and
    form a team of friends as they skate through the crypts of Monster
    High. Collect power-ups, avoid monstrous obstacles, scream past the
    competition and use each character's special ability and ghoul power
    to win the race.

  
Fiscal 2013 
To date, the
 Company has announced the following titles that are
expected to be released during the balance of fiscal 2013: 


 
--  Young Justice: Legacy on Xbox 360(R) and PlayStation(R)3
    launches this April as part of the Company's distribution agreement
    with Little Orbit. Based on WB's hit animated series airing on Cartoon
    Network, the game lets players assemble their Young Justice team from
    12 heroes including NightWing, Kid Flash, Robin and more. Track down
    notorious villains and be mentored by powerful superheroes as you
    explore, customize and battle in this action-packed, RPG styled game.
--  Phineas and Ferb (working title) for retail consoles and gaming
    handhelds, including smartphones and tablets, is based on the animated
    hit Disney television series. Additional details will be announced
    shortly.
--  The next iteration of the best-selling Zumba(R) Fitness franchise
    that offers players a fun and effective at home workout solution.
    Specific product details to be announced.

  
The Company expects to announce additional details of its 2013 lineup
in the coming months. 
FISCAL 2013 RELEASE SCHEDULE 


 
                                                                            
----------------------------------------------------------------------------
        Quarter 1                 Quarter 2                 Quarter 4       
----------------------------------------------------------------------------
 Flea Symphony, iPhone,    Monster High Skultimate      Phineas and Ferb,   
     iPad, iPod Touch         Roller Maze, 3DS           platforms to be    
                                                            confirmed       
----------------------------------------------------------------------------
 Monster High Skultimate   Young Justice: Legacy,    Zumba Fitness (working 
   Roller Maze, DS, Wii    Xbox 360, PlayStation 3   title), platforms to be
                                                            confirmed       
----------------------------------------------------------------------------

 
Conference Call  
At 4:30 p.m. ET today, management will host an earnings conference
call to discuss the fourth quarter results. To access the call in the
U.S., please dial 1-800-860-2442. 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 Info" section of the Company's
website at http://ir.majescoentertainment.com. In addition, a replay
of the call will be available via telephone for seven days beginning
approximately one hour 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 #10023438.  
Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics 
To facilitate a comparison between the three and twelve months ended
October 31, 2012 and 2011, the Company has presented both GAAP and
non-GAAP financial results. GAAP financial measures, including
operating income, net income, and basic and diluted earnings per
share, have been adjusted to report certain non-GAAP financial
measures. 
These non-GAAP financial
 measures exclude the following items from
the Company's consolidated statements of operations: 


 
--  Expenses related to non-cash compensation
--  Net proceeds from sale of certain state income tax net operating loss
    carryforwards
--  Change in fair value of warrants
--  Severance costs for workforce reduction

  
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. 
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." 
About Majesco Entertainment Company  
Majesco Entertainment Company is a provider of video games for the
mass market. Building on more than 20 years of operating history, the
company is focused on developing and publishing a wide range of
casual and family oriented video games on all leading console and
handheld platforms as well as mobile devices. Product highlights
include Zumba(R) Fitness, Cooking MamaTM and NBA Baller Beats(TM).
The company's shares are traded on the Nasdaq Stock Market under the
symbol: COOL. Majesco is headquartered in Edison, NJ and has an
office in Brockhampton, UK. More info can be found online at
www.majescoent.com or on Twitter at www.twitter.com/majesco. 
Safe Harbor  
Some statements set forth in this release, including the estimates
under the headings "Fiscal 2013 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; and other factors described in our filings with
the SEC, including our Annual Report on Form 10-K for the year ended
October 31, 2012. The Company does 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 COMPANY AND SUBSIDIARY                
                    UNAUDITED SUPPLEMENTARY PRODUCT DATA                    
             NET SALES BY PLATFORM FOR THREE AND TWELVE MONTHS              
                         (Unaudited, in thousands)                          
                                                   
                         
                          Three Months Ended         Twelve Months Ended    
                              October 31,                October 31,        
                       ------------------------  -------------------------- 
                         2012   %     2011   %     2012    %     2011    %  
                       ------- ---  ------- ---  -------- ---  -------- --- 
Nintendo Wii           $13,867  52% $13,415  53% $ 79,014  60% $ 73,209  59%
Microsoft Xbox 360       8,383  32%   2,901  12%   34,874  26%   23,235  18%
Nintendo DS              3,601  14%   7,569  30%   13,743  10%   22,179  18%
Nintendo 3DS               284   1%       -   -%    1,736   1%        -   -%
Sony Playstation 3          76   0%     232   1%      885   1%    4,670   3%
Other                      351   1%   1,021   4%    2,035   2%    1,998   2%
                       ------- ---  ------- ---  -------- ---  -------- --- 
TOTAL                  $26,562 100% $25,138 100% $132,287 100% $125,291 100%
                       ======= ===  ======= ===  ======== ===  ======== === 
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
                    (In thousands, except share amounts)                    
                                                                            
                                                  October 31,   October 31, 
                                                     2012          2011     
                                                 ------------  ------------ 
                                                  (unaudited)               
ASSETS                                                                      
Current assets:                                                             
  Cash and cash equivalents                      $     18,038  $     13,689 
  Due from factor, net                                 12,501           937 
  Accounts and other receivables                        3,936         3,143 
  Inventory                                             7,762        11,605 
  Advance payments for inventory                          257         5,975 
  Capitalized software development costs and                                
   license fees                                         3,489        12,564 
  Prepaid expenses and other current assets             1,724         3,071 
                                                 ------------  ------------ 
    Total current assets                               47,707        50,984 
Property and equipment, net                             1,003         1,184 
Other assets                                              588           209 
                                                 ------------  ------------ 
    Total assets                                 $     49,298  $     52,377 
                                                 ============  ============ 
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Current liabilities:                                                        
  Accounts payable and accrued expenses          $     15,490  $     20,313 
  Inventory financing payables                              -         1,238 
  Advances from customers and deferred revenue          4,454         5,642 
  Warrant liability - current                              17             - 
                                                 ------------  ------------ 
    Total current liabilities                          19,961        27,193 
Warrant liability - noncurrent                              -         1,949 
Commitments and contingencies                                               
Stockholders' equity:                                                       
  Common stock -- $.001 par value; 250,000,000                              
   shares authorized; 41,862,321 and 41,307,349                             
   shares issued and outstanding at October 31,                             
   2012 and October 31, 2011, respectively                 42            41 
  Additional paid-in capital                          120,755       119,222 
  Accumulated deficit                                 (90,888)      (95,501)
  Accumulated other comprehensive loss                   (572)         (527)
                                                 ------------  ------------ 
    Net stockholders' equity                           29,337        23,235 
                                                 ------------  ------------ 
    Total liabilities and stockholders' equity   $     49,298  $     52,377 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
                    CONSOLIDATED STATEMENTS OF OPERATIONS                   
                      (In thousands, except share data)                     
                                                                            
                             Three Months Ended            Year Ended       
                                 October 31,               October 31,      
                          ------------------------  ------------------------
                              2012         2011         2012         2011   
                          -----------  -----------  -----------  -----------
Net revenues              $    26,562  $    25,138  $   132,287  $   125,291
                          -----------  -----------  -----------  -----------
Cost of sales                                                               
  Product costs                11,155       12,258       46,718       54,939
  Software development                                                      
   costs and license fees      10,593        5,914       42,054       22,151
  Loss on impairment of                                                     
   software development                                                     
   costs and license fees                                                   
   - future releases                -        2,726            -        2,726
                          -----------  -----------  -----------  -----------
                               21,748       20,898       88,772       79,816
                          -----------  -----------  -----------  -----------
Gross profit                    4,814        4,240       43,515       45,475
                          -----------  -----------  -----------  -----------
Operating costs and                                                         
 expenses                                                                   
  Product research and                                                      
   development                  1,894        1,773        7,784        6,992
  Selling and marketing         3,801        2,676       20,157       14,707
  General and                                                               
   administrative               1,989        2,567       10,077       10,506
  Depreciation and                                                          
   amortization                   118          175          566          398
  Loss on impairment of                                                     
   software development                                                     
   costs and license fees                                                   
   - cancelled games                -            -        1,219        1,512
                          -----------  -----------  -
----------  -----------
                                7,802        7,191       39,803       34,115
                          -----------  -----------  -----------  -----------
Operating income (loss)        (2,988)      (2,951)       3,712       11,360
Other expenses (income)                                                     
  Interest and financing                                                    
   costs, net                     193          177          958        1,255
  Change in fair value of                                                   
   warrant liability             (346)         761       (1,932)       2,847
                          -----------  -----------  -----------  -----------
Income (loss) before                                                        
 income taxes                  (2,835)      (3,889)       4,686        7,258
  Income taxes                   (106)           5           73          426
                          -----------  -----------  -----------  -----------
Net income (loss)         $    (2,729) $    (3,894) $     4,613  $     6,832
                          ===========  ===========  ===========  ===========
Net income (loss) per                                                       
 share:                                                                     
  Basic                   $     (0.07) $     (0.10) $      0.12  $      0.18
                          ===========  ===========  ===========  ===========
  Diluted                 $     (0.07) $     (0.10) $      0.11  $      0.17
                          ===========  ===========  ===========  ===========
Weighted average shares                                                     
 outstanding:                                                               
  Basic                    40,440,609   39,601,781   39,973,248   38,527,589
                          ===========  ===========  ===========  ===========
  Diluted                  40,440,609   39,601,781   40,823,197   40,123,968
                          ===========  ===========  ===========  ===========
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                               (In thousands)                               
                                                                            
                                                    Year Ended October 31   
                                                 -------------------------- 
                                                     2012          2011     
                                                 ------------  ------------ 
CASH FLOWS FROM OPERATING ACTIVITIES                                        
Net income                                       $      4,613  $      6,832 
Adjustments to reconcile net income (loss) to                               
 net cash provided by (used in) operating                                   
 activities:                                                                
  Depreciation and amortization                           565           398 
  Change in fair value of warrant liability            (1,932)        2,847 
  Non-cash compensation expense                         1,686         1,468 
  Loss on disposal of assets                                -             - 
  Provision for price protection and customer                               
   allowances                                           4,324         3,928 
  Amortization of capitalized software                                      
   development costs and license fees                  17,363         6,204 
  Loss on impairment of software development                                
   costs and license fees                               1,219         4,238 
  Impairment of
 Goodwill                                   54             - 
  Provision for excess inventory                        1,515         1,794 
  Changes in operating assets and liabilities,                              
   net of acquisition:                                                      
    Due from factor                                   (15,888)       (2,997)
    Accounts and other receivables, net                  (830)       (3,223)
    Inventory                                           2,328        (4,981)
    Capitalized software development costs and                              
     license fees                                      (9,441)      (18,064)
    Advance payments for inventory                      5,678          (521)
    Prepaid expenses and other assets                     845        (1,918)
    Accounts payable and accrued expenses              (4,868)        8,752 
    Customer billings due to distribution                                   
     partner                                                -             - 
    Advances from customers and deferred revenue       (1,139)        4,660 
                                                 ------------  ------------ 
      Net cash provided by operating activities         6,092         9,417 
                                                 ------------  ------------ 
CASH FLOWS FROM INVESTING ACTIVITIES                                        
Purchases of property and equipment                      (338)         (465)
Purchase of assets of Quick Hit, Inc., net of                               
 acquired cash                                              -          (779)
                                                 ------------  ------------ 
    Net cash used in investing activities                (338)       (1,244)
                                                 ------------  ------------ 
CASH FLOWS FROM FINANCING ACTIVITIES                                        
Proceeds from exercise of options and warrants              9         1,830 
Income tax withholding from exercise of options                             
 and warrants                                            (161)            - 
Inventory financing                                    (1,238)       (4,319)
                                                 ------------  ------------ 
    Net cash used in financing activities              (1,390)       (2,489)
                                                 ------------  ------------ 
Effect of exchange rates on cash and cash                                   
 equivalents                                              (15)            1 
                                                 ------------  ------------ 
Net increase in cash and cash equivalents               4,349         5,685 
Cash and cash equivalents -- beginning of year         13,689         8,004 
                                                 ------------  ------------ 
Cash and cash equivalents -- end of year         $     18,038  $     13,689 
                                                 ============  ============ 
SUPPLEMENTAL CASH FLOW INFORMATION                                          
Cash paid during the year for interest and                                  
 financing costs                                 $        870  $      1,255 
                                                 ============  ============ 
Cash paid during the year for income taxes       $        591  $          3 
                                                 ============  ============ 
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND                             
 FINANCING ACTIVITIES                                                       
Leased assets                                    $         46  $        163 
                                                 ============  ============ 
Warrant liability reclassified to additional                                
 paid-in capital upon exercise                   $     
     -  $      1,042 
                                                 ============  ============ 
Issuance of warrants for license fees            $          -  $         58 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
            RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES           
               (Unaudited, in thousands, except share amounts)              
                                                                            
                             Three Months Ended            Year Ended       
                                 October 31,               October 31,      
                          ------------------------  ------------------------
                              2012         2011         2012         2011   
                          -----------  -----------  -----------  -----------
GAAP operating income                                                       
 (loss)                   $    (2,988) $    (2,951) $     3,712  $    11,360
Non-cash compensation (1)         385          405        1,686        1,468
                          -----------  -----------  -----------  -----------
Non-GAAP operating income                                                   
 (loss)                   $    (2,603) $    (2,546) $     5,398  $    12,828
                          ===========  ===========  ===========  ===========
                                                                            
GAAP net income (loss)    $    (2,729) $    (3,894) $     4,613  $     6,832
Non-cash compensation (1)         385          405        1,686        1,468
Change in fair value of                                                    
 
 warrants (2)                    (346)         761       (1,932)       2,847
                          -----------  -----------  -----------  -----------
Non-GAAP net income                                                         
 (loss)                   $    (2,690) $    (2,728) $     4,367  $    11,147
                          ===========  ===========  ===========  ===========
                                                                            
GAAP net income (loss)                                                      
 per diluted share        $     (0.07) $     (0.10) $      0.11  $      0.17
Non-cash compensation (1)        0.01         0.01         0.04         0.04
Change in fair value of                                                     
 warrants (2)                   (0.01)        0.02        (0.05)        0.07
                          -----------  -----------  -----------  -----------
Non-GAAP net income per                                                     
 diluted share            $     (0.07) $     (0.07) $      0.10  $      0.28
                          ===========  ===========  ===========  ===========
Shares used in GAAP and                                                     
 Non-GAAP per diluted                                                       
 share amounts             40,440,609   39,601,781   40,823,197   40,123,968
                          ===========  ===========  ===========  ===========

 
(1) Represents expenses recorded for stock compensation expense. The
Company does not consider stock-based compensation charges when
evaluating business performance and management does not consider
stock-based compensation expense in evaluating its short and
long-term operating plans.  
(2) Represents the change in the fair value of warrants classified as
a liability. The fair value of the warrants is calculated at each
balance sheet date with a corresponding charge or credit to earnings
for the amount of the change in fair value. 
For additional information, please contact:
Company Contact:
Michael Vesey
Chief Financial Officer
732.476.1956 
Investor Relations Contact:
Stephanie Prince/Jody Burfening
LHA
212.838.3777
sprince@lhai.com 
 
 
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