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Majesco Entertainment Company Reports First Quarter Fiscal 2013 Financial Results


Majesco Entertainment Company Reports First Quarter Fiscal 2013 Financial Results

EDISON, NJ -- (Marketwire) -- 03/12/13 -- Majesco Entertainment Company (NASDAQ: COOL), an innovative provider of video games for the mass market, today reported financial results for the first quarter of fiscal 2013 ended January 31, 2013.

For the first quarter ended January 31, 2013, Majesco's net revenues were $23.5 million, down 65 percent versus $66.2 million in the same period a year ago. During the first quarter of fiscal 2013, the Company reported an operating loss of $2.0 million, compared to operating income of $7.6 million in the first quarter of fiscal 2012. Included in first quarter fiscal 2013 operating results is a charge of $0.8 million for severance expenses from the strategic realignment implemented in January 2013.

Net loss for the first quarter was $2.1 million compared to net income of $7.7 million in the first quarter of fiscal 2012. On a non-GAAP basis, the net loss for the quarter was $1.1 million compared to non-GAAP net income of $7.3 million in the first quarter 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 January 31, 2013 was $(0.05), compared to basic and diluted net income per share of $0.19 in the same period last year. The non-GAAP diluted net loss per share for the quarter ended January 31, 2013 was $(0.02) compared to net income per share of $0.18 in the same period 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.

Management Commentary

"As we expected, sales patterns during the holiday period reflected declining demand for products on the Nintendo Wii game platform, including our Zumba Fitness titles," said Jesse Sutton, Chief Executive Officer of Majesco. "As the industry transitions to next generation consoles, we are managing the business conservatively with an eye on cash preservation and relying on our past experience in weathering industry transitions. Already we have taken the nec essary steps to lower our fixed cost base and we plan to introduce a smaller slate of high-profile branded console and mobile games during fiscal 2013."

"With cash of approximately $27 million and no debt, we have the financial flexibility to prepare the company for a resumption of growth as the market for next generation consoles develops," concluded Mr. Sutton.

Fiscal 2013 Outlook

Given the decline in the Company's fiscal first quarter revenue, which encompasses the important holiday selling period, and the light product release slate for the next two quarters, management anticipates revenue for fiscal 2013 will be significantly below fiscal 2012. Management continues to expect to report a loss for the full year of fiscal 2013. The Company is currently compiling its release slate for the 2013 holiday selling period and will provide further product details as the year progresses.

Announced Product Line-up

Second Quarter Fiscal 2013 Ending April 30, 2013

To date, the Company has announced the following titles that were, or are expected to be, released during its fiscal second quarter 2013:


 
--  Monster High: Skultimate Roller Maze(TM) on Nintendo 3DS(TM) is
    being released as part of a distribution agreement with Little Orbit
    that includes the Nintendo DS(TM) and Wii(TM) skus released in the
    Company's fiscal Q1. 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), PlayStation(R)3 and Wii
    U(TM) launches this holiday 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.

Conference Call

At 4:30 p.m. (EDT) today, management will host an earnings conference call. 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 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 #10026095.

Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics

To facilitate a comparison between the three months ended January 31, 2013 and 2012, 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
--  Expenses related to workforce reduction
--  Change in fair value of warrants

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 Mama(TM) and NBA Baller Beats(TM). The company's shares are traded on the Nasdaq Stock Market under the sy mbol: 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. Examples of forward-looking statements include statements relating to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie forward-looking statements. Statements including words such as "anticipate," "believe," "estimate" or "expect" and statements in the future tense are forward-looking statements. These statements are subject to business and economic risk and reflect management's current expectations, and involve subjects that are inherently uncertain and difficult to predict. Some of the risks and uncertainties 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; 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 disclaims 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                    
                         (Unaudited, in thousands)                          
                                                                            
                                         2013       %        2012       %   
                                     ------------ -----  ------------ ----- 
                                      (thousands)         (thousands)       
Nintendo Wii                         $     12,584    54% $     47,447    72%
Microsoft Xbox 360                          5,594    24%        9,597    14%
Nintendo DS/3DS                             4,740    20%        8,034    12%
Sony Playstation 3                            172     1%          432     1%
Accessories and other                         382     1%          670     1%
                                     ------------ -----  ------------ ----- 
TOTAL                                $     23,472   100% $     66,180   100%
                                     ============ =====  ============ ===== 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
             (in thousands, except share and per share amounts)             
                                                                            
                                                  January 31,   October 31, 
                                                     2013          2012     
                                                 ------------  ------------ 
                                                  (unaudited)               
ASSETS                                                                      
Current assets:                                                             
  Cash and cash equivalents                      $     26,763  $     18,038 
  Due from factor, net                                  4,684        12,501 
  Accounts and other receivables, net                   2,015         3,936 
  Inventory                                             3,307         7,762 
  Advance payments for inventory                          242           257 
  Capitalized software development costs and                                
   license fees, net                                    3,833         3,489 
  Prepaid expenses and other current assets               428         1,724 
                                                 ------------  ------------ 
    Total current assets                               41,272        47,707 
Property and equipment, net                               840         1,003 
Other assets                                              569           588 
                                                 ------------  ------------ 
    Total assets                                 $     42,681  $     49,298 
                                                 ============  ============ 
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Current liabilities:                                                        
  Accounts payable and accrued expenses          $     15,208  $     15,490 
  Advances from customers and deferred revenue             44         4,454 
  Warrant liability - current                               -            17 
                                                 ------------  ------------ 
    Total current liabilities                          15,252        19,961 
Commitments and contingencies                                               
Stockholders' equity:                                                       
  Common stock -- $.001 par value; 250,000,000                              
   shares authorized; 41,682,615 and 41,862,321                             
   shares issued and outstanding at January 31,                             
   2013 and October 31, 2012, respectively                 42            42 
  Additional paid-in capital                          121,035       120,755 
  Accumulated deficit                                 (93,029)      (90,888)
  Accumulated other comprehensive loss                   (619)         (572)
                                                 ------------  ------------ 
    Net stockholders' equity                           27,429        29,337 
       
                                          ------------  ------------ 
    Total liabilities and stockholders' equity   $     42,681  $     49,298 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
       (Unaudited, in thousands, except share and per share amounts)        
                                                                            
                                                     Three Months Ended     
                                                         January 31         
                                                 -------------------------- 
                                                                            
                                                         2013          2012 
                                                 ------------  ------------ 
Net revenues                                     $     23,472  $     66,180 
                                                 ------------  ------------ 
Cost of sales                                                               
  Product costs                                         8,414        23,838 
  Software development costs and license fees           7,906        19,328 
                                                 ------------  ------------ 
    Total cost of sales                                16,320        43,166 
                                                 ------------  ------------ 
Gross profit                                            7,152        23,014 
                                                 ------------  ------------ 
Operating costs and expenses                                                
  Product research and development                      2,082         2,307 
  Selling and marketing                                 3,729         8,986 
  General and administrative                            2,251         3,017 
  Workforce reduction                                     776             - 
  Loss on impairment of capitalized software                                
   development costs and license fees -                                     
   cancelled games                                        175           991 
  Depreciation and amortization                           111           158 
                                                 ------------  ------------ 
    Total operating costs and expenses                  9,124        15,459 
                                                 ------------  ------------ 
Operating (loss) income                                (1,972)        7,555 
Other expenses (income)                                                     
  Interest and financing costs                            183           463 
  Change in fair value of warrant liability               (17)         (827)
                                                 ------------  ------------ 
(Loss) Income before income taxes                      (2,138)        7,919 
  Income taxes                                              3           193 
                                                 ------------  ------------ 
Net (loss) income                                $     (2,141) $      7,726 
                                                 ============  ============ 
Net (loss) income per share:                                                
  Basic                                          $      (0.05) $       0.19 
                                                 ============  ============ 
  Diluted                                        $      (0.05) $       0.19 
                                                 ============  ============ 
Weighted average shares outstanding:                                        
  Basic                                            40,482,898    39,736,792 
                                                 ============  ============ 
  Diluted                                          40,482,898    41,495,430 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
                         (Unaudited, in thousands)                          
                                                                            
                                                     Three months Ended     
                                                         January 31,        
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
CASH FLOWS FROM OPERATING ACTIVITIES                                        
Net (loss) income                                $     (2,141) $      7,726 
Adjustments to reconcile net (loss)income to net                            
 cash provided by (used in) operating                                       
 activities:                                                                
  Depreciation and amortization                           111           158 
  Change in fair value of warrant liability               (17)         (827)
  Non-cash compensation expense                           280           434 
  Provision for price protection                          763         2,408 
  Amortization of capitalized software                                      
   development costs and license fees                   2,336         9,280 
  Loss on impairment of capitalized software                                
   development costs and license fees                     175           991 
  Provision for excess inventory                          229             - 
  Changes in operating assets and liabilities:                              
    Due from factor                                     7,054       (15,399)
    Accounts and other receivables, net                 1,912        (1,779)
    Inventory                                           4,226         3,407 
    Capitalized software development costs and                              
     license fees                                      (2,855)       (1,893)
    Advance payments for inventory                         15         4,769 
    Prepaid expenses and other assets                   1,311         1,721 
    Accounts payable and accrued expenses                (204)        1,727 
    Advances from customers and deferred revenue       (4,402)       (3,322)
                                                 ------------  ------------ 
      Net cash provided by operating activities         8,793         9,401 
                                                 ------------  ------------ 
CASH FLOWS FROM INVESTING ACTIVITIES                                        
Purchases of property and equipment                       (26)         (117)
                                                 ------------  ------------ 
    Net cash used in investing activities                 (26)         (117)
                                                 ------------  ------------ 
CASH FLOWS FROM FINANCING ACTIVITIES                                        
Repayment of inventory financing                            -        (1,237)
                                                 ------------  ------------ 
    Net c
ash used in financing activities                   -        (1,237)
                                                 ------------  ------------ 
Effect of exchange rates on cash and cash                                   
 equivalents                                              (42)           14 
                                                 ------------  ------------ 
Net increase in cash and cash equivalents               8,725         8,061 
Cash and cash equivalents -- beginning of period       18,038        13,689 
                                                 ------------  ------------ 
Cash and cash equivalents -- end of period       $     26,763  $     21,750 
                                                 ============  ============ 
SUPPLEMENTAL CASH FLOW INFORMATION                                          
Cash paid during the period for interest and                                
 financing costs                                 $        144  $        463 
                                                 ============  ============ 
Cash paid during the period for income taxes     $          -  $        514 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
           RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES            
              (Unaudited, in thousands, except share amounts)               
                                                                            
                                                     Three Months Ended     
                                                         January 31,        
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
GAAP operating income                            $     (1,972) $      7,555 
Non-cash compensation (1)                                 280           434 
Severance (2)                                             776             - 
                                                 ------------  ------------ 
Non-GAAP operating income                        $       (916) $      7,989 
                                                 ============  ============ 
                                                                            
GAAP net income                                  $     (2,141) $      7,726 
Non-cash compensation (1)                                 280           434 
Severance (2)                                             776             - 
Change in fair value of warrants (3)                      (17)         (827)
                                                 ------------  ------------ 
Non-GAAP net income                              $     (1,102) $      7,333 
                                                 ============  ============ 
                                                                            
GAAP net income per diluted share                $      (0.05) $       0.19 
Non-cash compensation (1)                                0.01          0.01 
Severance (2)                                            0.02             - 
Change in fair value of warrants (3)                    (0.00)        (0.02)
                                                 ------------  ------------ 
Non-GAAP net income per diluted share            $      (0.02) $       0.18 
                                                 ============  ============ 
Shares used in GAAP and Non-GAAP per diluted                                
 share amounts                                     40,482,898    41,495,430 
                                                 ============  ============ 
                                                                            
(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 one time severance costs related to a workforce reduction.   
    During January 2013, Company management initiated a plan of             
    restructuring to better align its workforce to its revised operating    
    plans. As part of the plan, the Company reduced its personnel count by  
    approximately 40 employees.                                             
                                                                            
(3) 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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