Majesco Entertainment Company Reports Third Quarter Fiscal 2013 Financial Results

Majesco Entertainment Company Reports Third Quarter Fiscal 2013 Financial 
Results 
EDISON, NJ -- (Marketwired) -- 09/09/13 --  Majesco Entertainment
Company (NASDAQ: COOL), an innovative provider of video games for the
mass market, today reported financial results for the third quarter
of fiscal 2013 ended July 31, 2013. 
For the third quarter ended July 31, 2013, Majesco's net revenues
were $4.0 million, down 56 percent versus $9.1 million in the same
period a year ago. During the third quarter of fiscal 2013, the
Company reported an operating loss of $3.6 million, compared to
operating loss of $3.6 million in the third quarter of fiscal 2012.
Net loss for the third quarter was $3.6 million compared to net loss
of $3.1 million in the third quarter of fiscal 2012. The Company's
basic and diluted net loss per share for the quarter ended July 31,
2013 was $(0.09), compared to basic and diluted net loss per share of
$(0.08) in the same period last year. 
On a non-GAAP basis, the net loss for the third quarter ended July
31, 2013 was $3.3 million compared to non-GAAP net loss of $3.2
million in the third quarter of last year. The non-GAAP diluted net
loss per share for the quarter ended July 31, 2013 was $(0.08)
compared to diluted net loss per share of $(0.09) 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. 
For the nine months ended July 31, 2013, the Company's net revenues
were $37.2 million versus $105.7 million in the year ago period, a
decline of 65 percent. The Company reported an operating loss of $7.8
million compared to operating income of $6.7 million in the same
period of 2012. For the nine months ended July 31, 2013, net loss was
$8.1 million compared to net income of $7.3 million for the nine
months ended July 31, 2012. Included in nine month fiscal 2013
operating results is a charge of $0.8 million for severance expenses
from the strategic realignment implemented in January 2013. The
Company's basic and diluted net loss per share for the nine months
ended July 31, 2013 was $(0.20), compared to basic and diluted net
income per share of $0.18 for the corresponding period in 2012. 
Non-GAAP operating loss for the nine month period was $6.0 million
compared to non-GAAP net income of $8.0 million for the comparable
period in 2012. For the same period, non-GAAP net loss was $6.3
million in 2013 compared to non-GAAP net income of $7.1 million in
2012. The Company's non-GAAP basic and diluted net loss per share for
the nine months ended July 31, 2013 was $(0.15) compared to diluted
net income per share of $0.17 in the corresponding period of 2012.
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 
"Consistent with the first half of 2013, our third quarter results
reflect the ongoing industry transition to next generation console
gaming," said Jesse Sutton, Chief Executive Officer of Majesco
Entertainment. "We believe that our holiday release slate, which is
focused on high-profile branded games based on popular characters or
franchises, is the right approach for the current environment. We are
excited about our releases based on Phineas and Ferb, Agent P
Doofendash, Barbie and others as well as the evolution of our Zumba
franchise that includes the upcoming Zumba Kids and Zumba Fitness
World Party releases and the well-received Zumba Dance, the first
ever motion-based fitness experience for mobile tablets, which
launched in July." 
"In light of the current market transition, we're finding innovative
ways to leverage Majesco's core competencies including our industry
relationships, distribution reach and sales and marketing prowess. We
recently announced an online casino games strategy through a 50%
stake in GMS Entertainment that will acquire the operations of two
established players in this emerging gaming segment. We have also
formed a new division to focus on the growing independent games
market by offering services and support to independent game
developers for digital distribution platforms. We are excited about
the growth prospects of these two new focus areas for Majesco. With
over $18 million in cash and no debt on our balance sheet, we
continue to have the financial flexibility necessary to invest in
growth areas of the gaming market." 
Fiscal 2013 Outlook
 Given the decline in revenue in the Company's
first nine months of fiscal 2013, management continues to expect that
revenue for fiscal 2013 will be significantly below fiscal 2012, and
that this will result in a loss for the full year of fiscal 2013.  
Announced Product Line-up  
To date, the Company has announced the following titles that are
expected to be released for the upcoming holiday season: 


 
--  Zumba Dance, the first ever motion-based fitness experience for mobile
    tablets (Launched in July)
--  Phineas and Ferb: Quest for Cool Stuff on the Xbox 360(R) games and
    entertainment system from Microsoft, Wii U(TM), Wii(TM), Nintendo
    3DS(TM) and DS(TM), is based on the top-rated Emmy Award-winning
    hit series from Disney. Join Phineas and Ferb as they travel to
    out-of-this-world places in their newest invention, the All-Terrain
    Transformatron, an upgradeable, customizable, ultra-cool amphibious
    ride that lets the boys collect treasures to display in their backyard
    Museum of Cool. (Launched in August)
--  Agent P DoofenDASH on iOS and Android, focuses on Perry the Platypus,
    the breakout star from Disney's Phineas and Ferb. Play as Agent P and
    his fellow O.W.C.A. agents as they battle Dr. Doofenshmirtz, stop his
    evil plot, and save the town of Danville. Players will experience
    unique gameplay every time they play and can challenge friends for the
    top secret agent score. (Launches in October)
--  Monster High(TM)13 Wishes Shadow Secrets (distributed by Majesco,
    published by Little Orbit) on Wii U(TM), Wii(TM), Nintendo
    3DS(TM) and DS(TM) whisks fans away on an amazing adventure with
    their favorite freaky-fab ghouls who jump, climb and swing through
    multiple magical levels to save Monster High(TM). (Launches in
    October)
--  Young Justice: Legacy (distributed by Majesco, published by Little
    Orbit) on PlayStation(R)3, Xbox 360 and Wii U(TM) is based on the
    acclaimed Cartoon Network animated series inspired by the DC Comics
    characters. 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. (Launches
    in November during first quarter of fiscal 2014)
--  Zumba(R)Fitness World Party on Xbox One(R), the all-in-one games
    and entertainment system from Microsoft, Kinect(TM) for Xbox
    360(R), Wii U(TM) and Wii(TM) is the latest game in the
    successful dance fitness franchise that has sold more than 9 million
    units worldwide. This fun, freeing fitness journey embodies Zumba's
    global reach of over 185 countries by taking your work out to exotic
    locations around the world. Burn up to 1,000 calories per hour with
    new modes, dance styles and 40 high-energy new routines set to a
    world-class soundtrack featuring Lady Gaga, Daddy Yankee and Pitbull.
    (Launch
es in November during first quarter of fiscal 2014 and later in
    2013 on Xbox One)
--  Zumba(R)Kids on Kinect(TM) for Xbox 360(R) and Wii(TM) is
    the first brand extension of the best-selling Zumba franchise that is
    custom-designed for younger players. Featuring a range of dance
    styles, creative mini-games, customization and chart-topping hits from
    Justin Bieber and Willow Smith, this engaging interactive experience
    is packed with gameplay to keep kids moving! (Launches in November
    during first quarter of fiscal 2014)
--  Barbie(TM) Dreamhouse Party(TM) (distributed by Majesco, published
    by Little Orbit) on Wii U(TM), Wii(TM), Nintendo 3DS(TM) and
    DS(TM) takes fans behind the pink doors into the fantastic world of
    the Barbie(R) Dreamhouse(R) mansion. (Launches in November
    during first quarter of fiscal 2014)

  
Conference Call 
At 4:30 p.m. (EDT) today, September 9, 2013, 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 #10033443. 
Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics 
To facilitate a comparison between the three and nine months ended
July 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 to
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 video games on all leading console and handheld platforms as
well as mobile devices. Product highlights include Zumba(R) Fitness
and Cooking Mama(TM). Majesco is headquartered in Edison, NJ and the
company's shares are traded on the Nasdaq Stock Market under the
symbol: COOL. More info can be found online at majescoent.com or on
Twitter at 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                    
              NET SALES BY PLATFORM FOR THREE AND NINE MONTHS               
                         (Unaudited, in thousands)                          
                                                                            
                   Three months Ended              Nine months Ended        
                        July 31,                        July 31,            
                2013      %     2012      %     2013      %     2012      % 
             --------- ----  --------- ----  --------- ----  --------- ---- 
            (thousands)     (thousands)     (thousands)      (thousands)        
    
Nintendo Wii $   1,720   43% $   5,539   61% $  18,773   50% $  65,147   62%
Microsoft                                                                   
 Xbox 360          945   24%     2,153   24%     9,077   24%    26,491   25%
Nintendo                                                                    
 DS/3DS            605   15%       948   10%     7,353   20%    11,594   11%
Sony                                                                        
 Playstation                                                                
 3                  88    2%       119    1%       564    2%       809    1%
Accessories                                                                 
 and other         640   16%       386    4%     1,423    4%     1,684    1%
             --------- ----  --------- ----  --------- ----  --------- ---- 
TOTAL        $   3,998  100% $   9,145  100% $  37,190  100% $ 105,725  100%
             ========= ====  ========= ====  ========= ====  ========= ==== 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
                    (In thousands, except share amounts)                    
                                                                            
                                                  July 31,     October 31,  
                                                    2013           2012     
                                               -------------  ------------- 
                                                (unaudited)                 
ASSETS                                                                      
Current assets:                                                             
  Cash and cash equivalents                    $      18,830  $      18,038 
  Due from factor, net                                     -         12,501 
  Accounts and other receivables, net                    613          3,936 
  Inventory                                            2,362          7,762 
  Advance payments for inventory                         858            257 
  Capitalized software development costs and                                
   license fees, net                                   7,265          3,489 
  Prepaid expenses and other current assets              683          1,724 
                                               -------------  ------------- 
    Total current assets                              30,611         47,707 
Property and equipment, net                              871          1,003 
Other assets                                             569            588 
                                               -------------  ------------- 
    Total assets                               $      32,051  $      49,298 
                                               =============  ============= 
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Current liabilities:                                                        
  Accounts payable and accrued expenses        $       8,652  $      15,490 
  Advances from customers and deferred revenue             -          4,454 
  Due to factor                                        1,162              - 
  Warrant liability                                        -             17 
                                               -------------  ------------- 
    Total current liabilities                          9,814         19,961 
Commitments and contingencies                                               
Stockholders' equity:                                                       
  Common stock - $.001 par value; 250,000,000                               
   shares authorized; 41,846,736 and                                        
   41,862,321 shares issued and outstanding at                              
   July 31, 2013 and October 31, 2012,                                      
   respectively                                           42             42 
  Additional paid-in capital                         121,765        120,755 
  Accumulated deficit                                (98,944)       (90,888)
  Accumulated other comprehensive loss                  (626)          (572)
                                               -------------  ------------- 
    Net stockholders' equity                          22,237         29,337 
                                               -------------  ------------- 
    Total liabilities and stockholders' equity $      32,051  $      49,298 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
              (Unaudited, in thousands, except share amounts)               
                                                                            
                                                                            
                            Three Months Ended         Nine Months Ended    
                                  July 31                   July 31         
                         ------------------------  ------------------------ 
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
Net revenues             $     3,998  $     9,145  $    37,190  $   105,725 
                         -----------  -----------  -----------  ----------- 
Cost of sales                                                               
  Product costs                1,666        2,632       13,931       35,563 
  Software development                                                      
   costs and license                                                        
   fees                        1,097        2,997       11,837       31,461 
                         -----------  -----------  -----------  ----------- 
    Total cost of sales        2,763        5,629       25,768       67,024 
                         -----------  -----------  -----------  ----------- 
Gross profit                   1,235        3,516       11,422       38,701 
                         -----------  -----------  -----------  ----------- 
Operating costs and                                                         
 expenses                                                                   
  Product research and                                                      
   development                 1,352        1,912        4,890        5,890 
  Selling and marketing        1,015        2,684        6,211       16,356 
  General and                                                               
   administrative              2,382        2,392        6,848        8,088 
  Workforce reduction              -            -          776            - 
  Loss on impairment of                                                     
   capitalized software                                                     
   development costs and                                                    
   license fees -                                                           
   cancelled games                 -            -          175        1,219 
  Depreciation and                                                          
   amortization                   90          141          296          448 
                         -----------  -----------  -----------  ----------- 
    Total operating                                                         
     costs and expenses        4,839        7,129       19,196       32,001 
                         -----------  -----------  -----------  ----------- 
Operating (loss) income       (3,604)      (3,613)      (7,774)       6,700 
Other expenses (income)                                                     
  Interest and financing                                                    
   costs                          34          102          291          765 
  Change in fair value                                                      
   of
 warrant liability            -         (594)         (17)      (1,586)
                         -----------  -----------  -----------  ----------- 
(Loss) Income before                                                        
 income taxes                 (3,638)      (3,121)      (8,048)       7,521 
  Income taxes (benefit)           6          (34)           8          179 
                         -----------  -----------  -----------  ----------- 
Net (loss) income        $    (3,644) $    (3,087) $    (8,056) $     7,342 
                         ===========  ===========  ===========  =========== 
Net (loss) income per                                                       
 share:                                                                     
  Basic                  $     (0.09) $     (0.08) $     (0.20) $      0.18 
                         ===========  ===========  ===========  =========== 
  Diluted                $     (0.09) $     (0.08) $     (0.20) $      0.18 
                         ===========  ===========  ===========  =========== 
Weighted average shares                                                     
 outstanding:                                                               
  Basic                   40,616,376   39,893,133   40,547,680   39,883,365 
                         ===========  ===========  ===========  =========== 
  Diluted                 40,616,376   39,893,133   40,547,680   41,016,631 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
                         (Unaudited, in thousands)                          
                                                                            
                                                       Nine months Ended    
                                                           July 31,         
                                                   ------------------------ 
                                                       2013         2012    
                                                   -----------  ----------- 
CASH FLOWS FROM OPERATING ACTIVITIES                                        
Net (loss) income                                  $    (8,056) $     7,342 
Adjustments to reconcile net (loss) income to net                           
 cash provided by operating activities:                                     
Depreciation and amortization                              296          448 
Change in fair value of warrant liability                  (17)      (1,586)
Non-cash compensation expense                            1,017        1,301 
Provision for price protection                           1,295        3,211 
Amortization of capitalized software development                            
 costs and license fees                                  2,952       11,103 
Loss on impairment of capitalized software                                  
 development costs and license fees                        175        1,219 
Provision for excess inventory                             417           27 
Changes in operating assets and liabilities:                                
  Due from/to factor                                    12,368       (2,500)
  Accounts and other receivables                         3,280          631 
  Inventory                                              4,983        5,526 
  Capitalized software development costs and                                
   license fees                                         (6,903)      (7,378)
  Advance payments for inventory                          (601)       4,467 
  Prepaid expenses and other assets                      1,036        2,472 
  Accounts payable and accrued expenses                 (6,759)      (5,769)
  Advances from customers and deferred revenue          (4,402)      (5,367)
                                                   -----------  ----------- 
    Net cash provided by operating activities            1,081       15,147 
                                                   -----------  ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES                                        
Purchases of property and equipment                       (243)        (244)
                                                   -----------  ----------- 
  Net cash used in investing activities                   (243)        (244)
                                                   -----------  ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES                                        
Repayment of inventory financing                             -       (1,237)
  Restricted shares withheld for employee taxes              -          (27)
                                                   -----------  ----------- 
  Net cash used in financing activities                      -       (1,264)
                                                   -----------  ----------- 
Effect of exchange rates on cash and cash                                   
 equivalents                                               (46)         (36)
                                                   -----------  ----------- 
Net increase in cash and cash equivalents                  792       13,603 
Cash and cash equivalents - beginning of period         18,038       13,689 
                                                   -----------  ----------- 
Cash and cash equivalents - end of period          $    18,830  $    27,292 
                                                   ===========  =========== 
SUPPLEMENTAL CASH FLOW INFORMATION                                          
Cash paid during the period for interest and                                
 financing costs                                   $       345  $       715 
                                                   ===========  =========== 
Cash paid during the period for income taxes       $         -  $       565 
                                                   ===========  =========== 
                                                                            
                                                                            
                                                                            
                MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY                
            RECONCILATION OF GAAP TO NON-GAAP FINANCIAL MEASURES            
              (Unaudited, in thousands, except share amounts)               
                                                                            
                            Three months ended         Nine months ended    
                                 July 31,                  July 31,         
                         ------------------------  ------------------------ 
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
GAAP operating (loss)                                                       
 income                  $    (3,604) $    (3,613) $    (7,774) $     6,700 
Non-cash compensation          
                                             
 (1)                             352          438        1,017        1,301 
Severance (2)                      -            -          776            - 
                         -----------  -----------  -----------  ----------- 
Non-GAAP operating                                                          
 (loss) income           $    (3,252) $    (3,175) $    (5,981) $     8,001 
                         ===========  ===========  ===========  =========== 
                                                                            
GAAP net (loss) income   $    (3,644) $    (3,087) $    (8,056) $     7,342 
Non-cash compensation                                                       
 (1)                             352          438        1,017        1,301 
Severance (2)                      -            -          776            - 
Change in fair value of                                                     
 warrants (3)                      -         (594)         (17)      (1,586)
                         -----------  -----------  -----------  ----------- 
Non-GAAP net (loss)                                                         
 income                  $    (3,292) $    (3,243) $    (6,280) $     7,057 
                         ===========  ===========  ===========  =========== 
                                                                            
GAAP net (loss) income                                                      
 per diluted share       $     (0.09) $     (0.08) $     (0.20) $      0.18 
Non-cash compensation                                                       
 (1)                            0.01         0.01         0.03         0.03 
Severance (2)                      -            -         0.02            - 
Change in fair value of                                                     
 warrants (3)                      -        (0.02)           -        (0.04)
                         -----------  -----------  -----------  ----------- 
Non-GAAP net (loss)                                                         
 income per diluted                                                         
 share                   $     (0.08) $     (0.09) $     (0.15) $      0.17 
                         ===========  ===========  ===========  =========== 
                                                                            
Shares used in GAAP and                                                     
 Non-GAAP per diluted                                                       
 share amounts            4
0,616,376   39,893,133   40,547,680   41,016,631 
                                                                            
(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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