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TMCNet:  Majesco Entertainment Company Reports Fourth Quarter and Full Year Fiscal 2013 Financial Results

[January 14, 2014]

Majesco Entertainment Company Reports Fourth Quarter and Full Year Fiscal 2013 Financial Results

(Marketwire Via Acquire Media NewsEdge) EDISON, NJ -- (Marketwired) -- 01/14/14 -- 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 of fiscal 2013 ended October 31, 2013.

Fourth Quarter Results For the fourth quarter ended October 31, 2013, Majesco's net revenues were $10.1 million, down 62 percent versus $26.6 million in the same period a year ago. During the fourth quarter of fiscal 2013, the Company reported an operating loss of $4.5 million, compared to operating loss of $3.0 million in the fourth quarter of fiscal 2012. Net loss for the fourth quarter was $4.6 million compared to net loss of $2.7 million in the fourth quarter of fiscal 2012. The Company's basic and diluted net loss per share for the quarter ended October 31, 2013 was $(0.10), compared to basic and diluted net loss per share of $(0.07) in the same period last year.

On a non-GAAP basis, the net loss for the fourth quarter ended October 31, 2013 was $4.2 million compared to non-GAAP net loss of $2.7 million in the fourth quarter of last year. The non-GAAP diluted net loss per share for the quarter ended October 31, 2013 was $(0.09) compared to diluted net loss per share of $(0.07) 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.

Twelve Month Fiscal 2013 Results For the twelve months ended October 31, 2013, the Company's net revenues were $47.3 million versus $132.3 million in the year ago period, a decline of 64 percent. The Company reported an operating loss of $12.2 million compared to operating income of $3.7 million in the same period of 2012. For the twelve months ended October 31, 2013, net loss was $12.6 million compared to net income of $4.6 million for the twelve months ended October 31, 2012. Included in twelve 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 twelve months ended October 31, 2013 was $(0.30), compared to basic and diluted net income per share of $0.12 and $0.11, respectively, for the corresponding period in 2012.

Non-GAAP operating loss for the twelve month period was $10.0 million compared to non-GAAP operating income of $5.4 million for the comparable period in 2012. For the same period, non-GAAP net loss was $10.5 million in 2013 compared to non-GAAP net income of $4.4 million in 2012. The Company's non-GAAP basic and diluted net loss per share for the twelve months ended October 31, 2013 was $(0.25) compared to diluted net income per share of $0.10 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 "Given the ongoing industry transition in console gaming, 2013 unfolded as we expected," said Jesse Sutton, Chief Executive Officer of Majesco Entertainment. "The casual game market has fragmented as new digital platforms have gained popularity, causing disruption and opportunity for Majesco. In response to the changing landscape, we have implemented a multi-pronged strategy that leverages Majesco's traditional core competencies -- our sales and marketing expertise, strong industry relationships and broad distribution reach -- to diversify our revenue sources and position Majesco for renewed growth. Key elements of the strategy include shifting to an outsourced variable cost business model, focusing on a smaller slate of high-profile branded games based on popular characters or franchises and investing in two strategic growth areas: online casino games and digital lotteries through our partnership in GMS Entertainment and the formation of a new division, Midnight City, to publish and distribute digital games for independent developers." "During the fourth quarter Midnight City released its first set of games and GMS Entertainment completed the acquisition of Pariplay Limited. We also released console and mobile games based on characters with established audiences such as Phineas and Ferb, Agent P Doofendash and Monster High. The rest of our holiday slate was released early in our first fiscal quarter of 2014, including the newest iterations of our Zumba franchise, Zumba Kids and Zumba Fitness World Party, which launched in November and followed the popular release of Zumba Dance, the first ever motion-based fitness experience for mobile tablets," added Mr. Sutton.

"Looking ahead, although the next generation of gaming consoles has been launched, the development of an installed user base and casual game market is still a 'work in progress.' Accordingly, in our ongoing relationship with Zumba Fitness, we plan to continue to jointly promote the current popular game titles in the marketplace in 2014, including our recently launched Zumba Fitness World Party, rather than enter into a fixed long-term agreement for new sequels. We will evaluate plans for future motion sensing games on next generation platforms as we gain more visibility in the market and see the installed base grow. Our balance sheet, with approximately $18.2 million of cash and availability from our factor, continues to afford Majesco the financial strength to weather the current industry transition and to invest for renewed growth," concluded Mr. Sutton.

Fiscal 2014 Outlook Due to the continuing lack of clarity on market development and consumer preferences for the recently released video gaming consoles, management is currently not providing sales and earnings guidance for fiscal 2014.

Announced Product Line-up First Quarter Fiscal 2014 Ending January 31, 2014 To date, the Company has announced the following titles that were, or are expected to be, released during its fiscal first quarter 2014, which includes the recent holiday sales period: Zumba®Fitness World Party on Xbox One®, the all-in-one games and entertainment system from Microsoft, Kinect� for Xbox 360®, Wii U� and Wii� is the latest game in the successful dance fitness franchise that has sold more than 10 million units worldwide. This fun, freeing fitness journey embodies Zumba's global reach of over 185 countries by taking your workout to exotic locations around the world. Work your body with new modes, dance styles and 40 high-energy new routines set to a world-class soundtrack featuring Lady Gaga, Daddy Yankee and Pitbull. (Launched in November) Zumba®Kids on Kinect� for Xbox 360® and Wii� 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! (Launched in November) Young Justice: Legacy (distributed by Majesco, published by Little Orbit) on PlayStation®3, Xbox 360 and Wii U� 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. (Launched in November) Barbie� Dreamhouse Party� (distributed by Majesco, published by Little Orbit) on Wii U�, Wii�, Nintendo 3DS� and DS� takes fans behind the pink doors into the fantastic world of the Barbie® Dreamhouse® mansion. (Launched in November) The Bridge on the Xbox Live online entertainment network from Microsoft offers a supremely cerebral 2D puzzle experience. Players join our stalwart, amnesiac protagonist through a journey into his heart, mind and soul to discover the life he's forgotten. Throughout the story, players progress through detail-oriented, hand-drawn environments with aesthetics reminiscent of M.C. Escher's artwork and style. Agent P: Doofendash, on tablets, iOS and Android phones is an action-packed endless runner set in the Phineas and Ferb universe. Featuring Agent P and the top agents of the Organization Without a Cool Acronym (O.W.C.A.), the game transports players onto the rooftops of Danville through Doofenshmirtz Evil Inc., and into the skies above the Tri-State Area to provide an authentic Phineas and Ferb experience.(Launched in November) The motion-based Zumba® Dance for iOS and Android smartphones brings one of the "Best Tablet Fitness Apps of 2013" to millions of mobile phones for the first time. Offering motion-tracking technology that uses the phone's front-facing camera, the game also features global dance styles coupled with chart-topping hits, a progress tracker that counts calories burned, class customization, tutorials and a live class locator. BandFuse: Rock Legends, (distributed by Majesco, published by Mastiff) on Xbox 360® video game and entertainment system from Microsoft and PlayStation® 3 computer entertainment system, features legendary rockers who transform players into real-world guitarists, bassists and vocalists. Reinvigorating the music genre with a stellar lineup of acclaimed talent, exclusive real-guitar and vocal multiplayer, authentic animated tablature and lag-free audio, the game unleashes a full band experience for players of all skill levels with 55 genre-jumping songs ranging from rock to metal and punk to funk. Fiscal 2014 The Company expects to announce details of its 2014 lineup in the coming months.

Conference Call At 4:30 p.m. ET today, January 14, 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 #10038848.

Generally Accepted Accounting Principles (GAAP) and Non-GAAP Metrics To facilitate a comparison between the three and twelve months ended October 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 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 through several divisions, including its console and handheld division, its mobile division, and its independent digital label, Midnight City. 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 NET SALES BY PLATFORM FOR THREE AND TWELVE MONTHS (Unaudited, in thousands) Three months Ended Twelve months Ended October 31, October 31, ------------------------------ ------------------------------ 2013 % 2012 % 2013 % 2012 % ---------- --- ---------- --- ---------- --- ---------- --- (thousands) (thousands) (thousands) (thousands) Nintendo Wii/WiiU $ 3,101 31% $ 13,867 52% $ 21,874 46% $ 79,014 60% Microsoft Xbox 360 1,331 13% 8,383 32% 10,408 22% 34,874 26% Nintendo DS/3DS 4,577 45% 3,885 15% 11,930 25% 15,479 11% Sony Playstation 3 281 3% 76 0% 845 2% 885 1% Accessories and other 787 8% 351 1% 2,210 5% 2,035 2% ---------- --- ---------- --- ---------- --- ---------- --- TOTAL $ 10,077 100% $ 26,562 100% $ 47,267 100% $ 132,287 100% ========== === ========== === ========== === ========== === MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) October 31, October 31, 2013 2012 ----------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 13,385 $ 18,038 Due from factor, net 2,134 12,501 Accounts and other receivables 1,169 3,936 Inventory 4,859 7,762 Advance payments for inventory 1,064 257 Capitalized software development costs and license fees 7,825 3,489 Prepaid expenses and other current assets 2,827 1,724 ----------- ----------- Total current assets 33,263 47,707 Property and equipment, net 817 1,003 Investment in GMS Entertainment Limited 3,500 - Other assets 69 588 ----------- ----------- Total assets $ 37,649 $ 49,298 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 8,994 $ 15,490 Inventory financing 1,764 - Advances from customers and deferred revenue 6,838 4,454 Warrant liability - current - 17 ----------- ----------- Total current liabilities 17,596 19,961 Commitments and contingencies Stockholders' equity: Common stock -- $.001 par value; 250,000,000 shares authorized; 46,295,969 and 41,862,321 shares issued and outstanding at October 31, 2013 and 2012, respectively 46 42 Additional paid-in capital 124,148 120,755 Accumulated deficit (103,530) (90,888) Accumulated other comprehensive loss (611) (572) ----------- ----------- Net stockholders' equity 20,053 29,337 ----------- ----------- Total liabilities and stockholders' equity $ 37,649 $ 49,298 =========== =========== MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except share amounts) Three Months Ended Year Ended October 31 October 31 ------------------------ ------------------------ 2013 2012 2013 2012 ----------- ----------- ----------- ----------- Net revenues $ 10,077 $ 26,562 $ 47,267 $ 132,287 ----------- ----------- ----------- ----------- Cost of sales Product costs 4,694 11,155 18,625 46,718 Software development costs and license fees 4,637 10,593 16,474 42,054 ----------- ----------- ----------- ----------- Total cost of sales 9,331 21,748 35,099 88,772 ----------- ----------- ----------- ----------- Gross profit 746 4,814 12,168 43,515 ----------- ----------- ----------- ----------- Operating costs and expenses Product research and development 652 1,894 5,542 7,784 Selling and marketing 1,643 3,801 7,854 20,157 General and administrative 2,328 1,989 9,176 10,077 Workforce reduction - - 776 - Loss on impairment of capitalized software development costs and license fees - cancelled games 500 - 675 1,219 Depreciation and amortization 85 118 381 566 ----------- ----------- ----------- ----------- Total operating costs and expenses 5,208 7,802 24,404 39,803 ----------- ----------- ----------- ----------- Operating (loss) income (4,462) (2,988) (12,236) 3,712 Other expenses (income) Interest and financing costs 118 193 409 958 Change in fair value of warrant liability - (346) (17) (1,932) ----------- ----------- ----------- ----------- (Loss) income before income taxes (4,580) (2,835) (12,628) 4,686 Income taxes (benefit) 6 (106) 14 73 ----------- ----------- ----------- ----------- Net (loss) income $ (4,586) $ (2,729) $ (12,642) $ 4,613 =========== =========== =========== =========== Net (loss) income per share: Basic $ (0.10) $ (0.07) $ (0.30) $ 0.12 =========== =========== =========== =========== Diluted $ (0.10) $ (0.07) $ (0.30) $ 0.11 =========== =========== =========== =========== Weighted average shares outstanding: Basic 44,525,507 40,440,609 41,601,343 39,973,248 =========== =========== =========== =========== Diluted 44,525,507 40,440,609 41,601,343 40,823,197 =========== =========== =========== =========== MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Year Ended October 31, ------------------ 2013 2012 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $(12,642) $ 4,613 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 381 566 Change in fair value of warrant liability (17) (1,932) Non-cash compensation expense 1,416 1,686 Provision for price protection and customer allowances 2,993 4,324 Amortization of capitalized software development costs and license fees 6,460 17,363 Loss on impairment of capitalized software development costs and license fees 675 1,219 Impairment of goodwill - 54 Provision for excess inventory 675 1,515 Changes in operating assets and liabilities, net of acquisition: Due from factor 7,374 (15,888) Accounts and other receivables 2,767 (830) Inventory 2,228 2,328 Capitalized software development costs and license fees (10,971) (9,441) Advance payments for inventory (807) 5,678 Prepaid expenses and other assets (1,086) 844 Accounts payable and accrued expenses (6,417) (4,868) Advances from customers and deferred revenue 2,384 (1,139) -------- -------- Net cash (used in) provided by operating activities (4,587) 6,092 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (274) (338) Investment in GMS Entertainment Limited (3,500) - -------- -------- Net cash used in investing activities (3,774) (338) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock 2,000 - Proceeds from exercise of options and warrants - 9 Income tax withholding from exercise of options and warrants (19) (161) Borrowings for (repayments of) inventory financing 1,764 (1,238) -------- -------- Net cash provided by (used in) financing activities 3,745 (1,390) -------- -------- Effect of exchange rates on cash and cash equivalents (37) (15) -------- -------- Net (decrease) increase in cash and cash equivalents (4,653) 4,349 Cash and cash equivalents -- beginning of period 18,038 13,689 -------- -------- Cash and cash equivalents -- end of period $ 13,385 $ 18,038 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest and financing costs $ 455 $ 870 ======== ======== Cash paid during the period for income taxes $ - $ 591 ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Leased assets $ - $ 46 ======== ======== MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY RECONCILATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited, in thousands, except share amounts) Three months ended Year ended October 31, October 31, ------------------------ ------------------------ 2013 2012 2013 2012 ----------- ----------- ----------- ----------- GAAP operating (loss) income $ (4,462) $ (2,988) $ (12,236) $ 3,712 Non-cash compensation (1) 399 385 1,416 1,686 Severance (2) - - 776 - ----------- ----------- ----------- ----------- Non-GAAP operating (loss) income $ (4,063) $ (2,603) $ (10,044) $ 5,398 =========== =========== =========== =========== GAAP net (loss) income $ (4,586) $ (2,729) $ (12,642) $ 4,613 Non-cash compensation (1) 399 385 1,416 1,686 Severance (2) - - 776 - Change in fair value of warrants (3) - (346) (17) (1,932) ----------- ----------- ----------- ----------- Non-GAAP net (loss) income $ (4,187) $ (2,690) $ (10,467) $ 4,367 =========== =========== =========== =========== GAAP net (loss) income per diluted share $ (0.10) $ (0.07) $ (0.30) $ 0.11 Non-cash compensation (1) 0.01 0.01 0.03 0.04 Severance (2) - - 0.02 - Change in fair value of warrants (3) - (0.01) - (0.05) ----------- ----------- ----------- ----------- Non-GAAP net (loss) income per diluted share $ (0.09) $ (0.07) $ (0.25) $ 0.10 =========== =========== =========== =========== Shares used in GAAP and Non-GAAP per diluted share amounts 44,525,507 40,440,609 41,601,343 40,823,197 (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 Source: Majesco Entertainment Company

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