March 12, 2014

Majesco Entertainment Company Reports First Quarter Fiscal 2014 Financial Results

EDISON, NJ -- (Marketwired) -- 03/12/14 -- 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 2014 ended January 31, 2014.

For the first quarter ended January 31, 2014, the Company's net revenues were $21.9 million versus $23.5 million in the year ago period, a decline of 7 percent. The Company reported an operating loss of $4.1 million compared to operating loss of $2.0 million in the same period of 2013. 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 ended January 31, 2014 was $4.5 million compared to net loss of $2.1 million for first quarter ended January 31, 2013. The Company's net loss per share for the quarter ended January 31, 2014 was $(0.10), compared to net loss per share of $(0.05), for the corresponding period in 2013.

Non-GAAP operating loss for the quarter ended January 31, 2014 was $3.7 million compared to non-GAAP operating loss of $0.9 million for the comparable period in 2013. For the first quarter of fiscal 2014, non-GAAP net loss was $4.1 million in 2014 compared to non-GAAP net loss of $1.1 million in 2013. The Company's non-GAAP net loss per share for the quarter ended January 31, 2014 was $(0.09) compared to net loss per share of $(0.02) in the corresponding period of 2013. 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

"The transition to next generation console gaming continues to impact our financial performance," said Jesse Sutton, Chief Executive Officer of Majesco Entertainment. "Holiday sales reflect the expected slow build of the casual gaming installed base on the newest console systems. This ongoing transition, coupled with now entrenched digital platforms which have fragmented the market, have led us to develop opportunities for additional revenue streams. We recently made two strategic investments in GMS Entertainment for online casino games and digital lotteries, and Midnight City, publisher and distributor of digital games for independent developers. We will build our 2014 release slate with a judicious use of resources and, even though we anticipate a loss for the full fiscal year, we are confident that we have the resources necessary to fund our operations and invest for future growth."

Announced Product Line-up

To date, the Company has announced the following titles for launch during its fiscal second quarter 2014 and the remainder of the year:

  • Double Dragon Neon on Steam builds on the highly successful console release with exclusive support for online cooperative play. Iconic arcade brothers Billy and Jimmy Lee are back in this reboot of the classic side-scrolling beat-em-up that fueled a generation of gamers. Available now.
  • Gardening Mama 2: Forest Friends on Nintendo 3DS™ celebrates Mama's return to the garden in a brand new stylus-based experience that challenges players to grow 50 fresh flowers, fruits and vegetables for animal friends to sell in their woodland shops. Launching this April.
  • Cooking Mama 5: Bon Appetit! on Nintendo 3DS™ stars Mama from the best-selling franchise that defined the cooking genre. Create 60+ mouth-watering recipes, from classic fare to exotic cultural dishes and sweet treats. Players will keep busy with new household activities and games set within Mama's bustling Burger Shop. Launching this holiday.
  • Costume Quest 2 on PC and digital consoles is being published under the Midnight City label. Developed by Tim Schafer's Double Fine Productions, the game stars candy-crazed crusaders Wren and Reynold who must once again protect Halloween from untold horrors, and grown-ups! Your favorite trick-or-treaters come armed with a new batch of costumes they wear to transform into giant super-powered fantasy Hallowarriors. Fans of the original can look forward to a sweet upgraded battle system and a story that is unmistakably Double Fine. Costume Quest 2 is slated for PC and digital console release later this year.
  • Bound by Flame (distributed by Majesco) for consoles and PC puts players in the role of mercenary possessed by a flame demon in a desperate world ravaged by seven Ice Lords and their Dead-Army. In this RPG where all your choices lead to consequences, you must choose between unleashing the powers of the beast within and rejecting the demonic influence that wants to claim your humanity. Freely develop your abilities and combat style through three skill trees: swing the heavy weapons of the Fighter, wield the sneaky dual daggers of the Ranger, or use the devastating flame spells of the Pyromancer. Recruit companions who will live, love, hate and fight alongside you against the dreadful creatures of Vertiel, in real-time epic battles based on tactics and reaction. Bound by Flame is slated to release this spring.

The Company expects to announce additional titles in its 2014 product lineup in the coming months.

Conference Call

At 4:30 p.m. ET today, March 12, 2014, 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 #10042324.

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

To facilitate a comparison between the three months ended January 31, 2014 and 2013, 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 an innovative developer, marketer, publisher and distributor of interactive entertainment for consumers around the world. Building on more than 25 years of operating history, the company develops and publishes a wide range of video games on console, handheld and mobile platforms, as well as digital networks through its Midnight City label. Majesco also owns 50% of GMS Entertainment, the parent company of online gaming company Pariplay, which specializes in iGaming, iLottery and social gaming. 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 2014 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, 2013. 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)
Three Months Ended January 31,
2014 % 2013 %
(thousands) (thousands)
Nintendo Wii/WiiU $ 9,355 43 % $ 12,584 54 %
Microsoft Xbox 360/Xbox One 8,346 38 % 5,594 24 %
Nintendo DS/3DS 2,584 12 % 4,740 20 %
Sony Playstation 3 892 4 % 172 1 %
Accessories and other 757 3 % 382 1 %
TOTAL $ 21,934 100 % $ 23,472 100 %
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
January 31, 2014 October 31, 2013
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 12,349 $ 13,385
Due from factor, net 1,597 2,134
Accounts and other receivables 1,485 1,169
Inventory 3,003 4,859
Advance payments for inventory 160 1,064
Capitalized software development costs and license fees 2,121 7,825
Prepaid expenses and other current assets 248 2,827
Total current assets 20,963 33,263
Property and equipment, net 1,025 817
Investment in GMS Entertainment Limited 3,316 3,500
Other assets 69 69
Total assets $ 25,373 $ 37,649
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 9,369 $ 8,994
Inventory financing - 1,764
Advances from customers and deferred revenue 30 6,838
Total current liabilities 9,399 17,596
Commitments and contingencies
Stockholders' equity:
Common stock -- $.001 par value; 250,000,000 shares authorized; 46,374,302 and 46,295,969 shares issued and outstanding at January 31, 2014 and October 31, 2013, respectively 46 46
Additional paid-in capital 124,521 124,148
Accumulated deficit (108,042 ) (103,530 )
Accumulated other comprehensive loss (551 ) (611 )
Net stockholders' equity 15,974 20,053
Total liabilities and stockholders' equity $ 25,373 $ 37,649
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended
January 31
2014 2013
Net revenues $ 21,934 $ 23,472
Cost of sales
Product costs 7,542 8,414
Software development costs and license fees 11,003 7,906
Total cost of sales 18,545 16,320
Gross profit 3,389 7,152
Operating costs and expenses
Product research and development 1,246 2,082
Selling and marketing 4,056 3,729
General and administrative 2,107 2,251
Workforce reduction - 776
Loss on impairment of capitalized software development costs and license fees - cancelled games - 175
Depreciation and amortization 81 111
Total operating costs and expenses 7,490 9,124
Operating loss (4,101 ) (1,972 )
Other expenses (income)
Interest and financing costs 162 183
Loss from equity method investment 247 -
Change in fair value of warrant liability - (17 )
Loss before income taxes (4,510 ) (2,138 )
Income taxes 2 3
Net loss $ (4,512 ) $ (2,141 )
Net loss per share:
Basic $ (0.10 ) $ (0.05 )
Diluted $ (0.10 ) $ (0.05 )
Weighted average shares outstanding:
Basic 44,695,611 40,482,898
Diluted 44,695,611 40,482,898
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three months Ended
January 31,
2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,512 ) $ (2,141 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 81 111
Loss from equity method investment 247 -
Non-cash compensation expense 373 280
Provision for price protection 2,722 763
Amortization of capitalized software development costs and license fees 7,226 2,336
Loss on impairment of capitalized software development costs and license fees - 175
Provision for excess inventory 28 229
Change in fair value of warrant liability - (17 )
Changes in operating assets and liabilities:
Due from factor (2,185 ) 7,054
Accounts and other receivables (316 ) 1,912
Inventory 1,828 4,226
Capitalized software development costs and license fees (1,522 ) (2,855 )
Advance payments for inventory 904 15
Prepaid expenses and other assets 2,579 1,311
Accounts payable and accrued expenses 378 (204 )
Advances from customers and deferred revenue (6,808 ) (4,402 )
Net cash provided by operating activities 1,023 8,793
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (289 ) (26 )
Net cash used in investing activities (289 ) (26 )
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of inventory financing (1,767 ) -
Net cash used in financing activities (1,767 ) -
Effect of exchange rates on cash and cash equivalents (3 ) (42 )
Net (decrease) increase in cash and cash equivalents (1,036 ) 8,725
Cash and cash equivalents -- beginning of period 13,385 18,038
Cash and cash equivalents -- end of period $ 12,349 $ 26,763
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest and financing costs $ 137 $ 144
Cash paid during the period for income taxes $ - $ -
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except share amounts)
Three Months Ended
January 31,
2014 2013
GAAP operating loss $ (4,101 ) $ (1,972 )
Non-cash compensation (1) 373 280
Severance (2) - 776
Non-GAAP operating loss $ (3,728 ) $ (916 )
GAAP net loss $ (4,512 ) $ (2,141 )
Non-cash compensation (1) 373 280
Severance (2) - 776
Change in fair value of warrants (3) - (17 )
Non-GAAP net loss $ (4,139 ) $ (1,102 )
GAAP net loss per diluted share $ (0.10 ) $ (0.05 )
Non-cash compensation (1) 0.01 0.01
Severance (2) - 0.02
Change in fair value of warrants (3) - (0.00 )
Non-GAAP net loss per diluted share $ (0.09 ) $ (0.02 )
Shares used in GAAP and Non-GAAP per diluted share amounts 44,695,611 40,482,898
(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.

Source: Majesco Entertainment Company

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