Majesco Entertainment Company Reports Second Quarter Fiscal 2013 Financial Results

EDISON, NJ--(Marketwired - Jun 10, 2013) -  Majesco Entertainment Company (NASDAQ: COOL), an innovative provider of video games for the mass market, today reported financial results for the second quarter of fiscal 2013 ended April 30, 2013.

For the second quarter ended April 30, 2013, Majesco's net revenues were $9.7 million, down 68 percent versus $30.4 million in the same period a year ago. During the second quarter of fiscal 2013, the Company reported an operating loss of $2.2 million, compared to operating income of $2.8 million in the second quarter of fiscal 2012. Net loss for the second quarter was $2.3 million compared to net income of $2.7 million in the second quarter of fiscal 2012. The Company's basic and diluted net loss per share for the quarter ended April 30, 2013 was $(0.06), compared to basic and diluted net income per share of $0.07 in the same period last year.

On a non-GAAP basis, the net loss for the second quarter ended April 30, 2013 was $1.9 million compared to non-GAAP net income of $3.0 million in the second quarter of last year. The non-GAAP diluted net loss per share for the quarter ended April 30, 2013 was $(0.05) compared to diluted net income 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.

For the six months ended April 30, 2013, the Company's net revenues were $33.2 million versus $96.6 million in the year ago period, a decline of 66 percent. The Company reported an operating loss of $4.2 million compared to operating income of $10.3 million in the same period of 2012. For the six months ended April 30, 2013, net loss was $4.4 million compared to net income of $10.4 million for the six months ended April 30, 2012. Included in six 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 six months ended April 30, 2013 was $(0.11), compared to basic and diluted net income per share of $0.26 and $0.25, respectively, for the corresponding period in 2012.

Non-GAAP operating loss for the six month period was $2.7 million compared to non-GAAP net income of $11.2 million for the comparable period in 2012. For the same period, non-GAAP net loss was $3.0 million in 2013 compared to non-GAAP net income of $10.3 million in 2012. The Company's non-GAAP basic and diluted net loss per share for the six months ended April 30, 2013 was $(0.07) compared to diluted net income per share of $0.25 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

"In line with our expectations, Majesco's second quarter results reflect the ongoing industry transition to next generation consoles," said Jesse Sutton, Chief Executive Officer of Majesco. "During the second quarter we worked on, and recently announced, a substantial portion of our holiday release slate of new console and mobile games that we are very excited about, including games based on well-known brands like Disney's Phineas and Ferb and Zumba Fitness that will be available on a variety of platforms including next gen consoles and mobile devices. As we announced earlier today, we're also excited to have extended our relationship with Zumba Fitness through 2016. We believe that there are ample opportunities to broaden the leadership of this interactive fitness franchise. With $25.5 million in cash and no debt on our balance sheet, we remain well positioned to weather this industry transition as we continue to implement our fiscal 2014 strategy of releasing a smaller slate of higher profile, branded titles."

Fiscal 2013 Outlook

Given the decline in revenue in the Company's first six 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 during the balance of fiscal 2013:

• Zumba^® Dance is the first ever motion-based fitness experience for mobile tablets based on the global lifestyle brand lets you take the dance-fitness party with you, anywhere you go. (Launches in July)
• Crash City Mayhem on 3DS rewards players for causing mayhem on the rubber-burned roads of Crash City. Players can unlock 15 different vehicles, from monster trucks to F1 racers, as they progress through 36 action-packed missions that challenge their skill behind the wheel. (Launches in July)
• Phineas and Ferb: Quest for Cool Stuff on the Xbox 360® games and entertainment system from Microsoft, Wii U™, Wii™, Nintendo 3DS™ and DS™, 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. (Launches 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 September) 
• 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. (Launches in September)
• Monster High™13 Wishes Shadow Secrets (distributed by Majesco, published by Little Orbit) on Wii U™, Wii™, Nintendo 3DS™ and DS™ 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™. (Launches in October)
• 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 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. (Launches in October and later this year on Xbox One)
• 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. (Launches in November during first quarter of fiscal 2014)

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 #10029659.

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

To facilitate a comparison between the three and six months ended April 30, 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 and family oriented video games on all leading console and handheld platforms as well as mobile devices. Product highlights include Zumba^® Fitness and Cooking Mama™. 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 SIX MONTHS
(Unaudited, in thousands)
		Three months Ended												Six months Ended
		April 30,												April 30,
		2013			%			2012			%			2013			%			2012			%
		(thousands)						(thousands)						(thousands)						(thousands)
Nintendo Wii		$	4,469		46	%		$	12,161		40	%		$	17,053		51	%		$	59,608		62	%
Microsoft Xbox 360			2,538		26	%			14,741		49	%			8,132		25	%			24,338		25	%
Nintendo DS/3DS			2,008		21	%			2,617		8	%			6,748		20	%			10,651		11	%
Sony Playstation 3			304		3	%			258		1	%			476		1	%			690		1	%
Accessories and other			401		4	%			623		2	%			783		3	%			1,293		1	%
TOTAL		$	9,720		100	%		$	30,400		100	%		$	33,192		100	%		$	96,580		100	%

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
				Apr 30, 2013				October 31, 2012
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	25,535			$	18,038
	Due from factor, net				115				12,501
	Accounts and other receivables, net				1,820				3,936
	Inventory				2,478				7,762
	Advance payments for inventory				213				257
	Capitalized software development costs and license fees, net				5,653				3,489
	Prepaid expenses and other current assets				304				1,724
		Total current assets			36,118				47,707
Property and equipment, net					863				1,003
Other assets					569				588
		Total assets		$	37,550			$	49,298
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses			$	11,973			$	15,490
	Advances from customers and deferred revenue				39				4,454
	Warrant liability				-				17
		Total current liabilities			12,012				19,961
Commitments and contingencies
Stockholders' equity:
	Common stock -- $.001 par value; 250,000,000 shares authorized; 41,781,459 and 41,862,321 shares issued and outstanding at April 30, 2013 and October 31, 2012, respectively				42				42
	Additional paid-in capital				121,413				120,755
	Accumulated deficit				(95,300	)			(90,888	)
	Accumulated other comprehensive loss				(617	)			(572	)
		Net stockholders' equity			25,538				29,337
		Total liabilities and stockholders' equity		$	37,550			$	49,298

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share amounts)
				Three Months Ended								Six months Ended
				April 30								April 30
				2013				2012				2013				2012
Net revenues				$	9,720			$	30,400			$	33,192			$	96,580
Cost of sales
	Product costs				3,851				9,093				12,265				32,931
	Software development costs and license fees				2,834				9,136				10,740				28,464
		Total cost of sales			6,685				18,229				23,005				61,395
Gross profit					3,035				12,171				10,187				35,185
Operating costs and expenses
	Product research and development				1,456				1,671				3,538				3,978
	Selling and marketing				1,467				4,686				5,196				13,672
	General and administrative				2,215				2,679				4,466				5,696
	Workforce reduction				-				-				776				-
	Loss on impairment of software development costs and license fees - cancelled games				-				228				175				1,219
	Depreciation and amortization				95				149				206				307
		Total operating costs and expenses			5,233				9,413				14,357				24,872
Operating (loss) income					(2,198	)			2,758				(4,170	)			10,313
Other expenses (income)
	Interest and financing costs				74				200				257				663
	Change in fair value of warrant liability				-				(165	)			(17	)			(992	)
(Loss) income before income taxes					(2,272	)			2,723				(4,410	)			10,642
	Income taxes				(1	)			20				2				213
Net (loss) income				$	(2,271	)		$	2,703			$	(4,412	)		$	10,429
Net (loss) income per share:
	Basic			$	(0.06	)		$	0.07			$	(0.11	)		$	0.26
	Diluted			$	(0.06	)		$	0.07			$	(0.11	)		$	0.25
Weighted average shares outstanding:
	Basic				40,543,635				39,819,106				40,512,763				39,777,497
	Diluted				40,543,635				41,387,755				40,512,763				41,445,746

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
					Six months Ended April 30,
					2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income					$	(4,412	)		$	10,429
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
	Depreciation and amortization					206				307
	Change in fair value of warrant liability					(17	)			(992	)
	Non-cash compensation expense					665				863
	Provision for price protection					1,170				3,006
	Amortization of capitalized software development costs and license fees					2,689				10,690
	Loss on impairment of software development costs and license fees					175				1,219
	Provision for excess inventory					319				-
	Changes in operating assets and liabilities:
		Due from factor				11,216				(5,940	)
		Accounts and other receivables				2,079				(1,487	)
		Inventory				4,965				6,098
		Capitalized software development costs and license fees				(5,028	)			(4,750	)
		Advance payments for inventory				44				5,712
		Prepaid expenses and other assets				1,421				2,309
		Accounts payable and accrued expenses				(3,438	)			(2,748	)
		Advances from customers and deferred revenue				(4,377	)			(5,222	)
			Net cash provided by operating activities			7,677				19,494
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment						(145	)			(179	)
		Net cash used in investing activities				(145	)			(179	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of inventory financing						-				(1,238	)
		Net cash used in financing activities				-				(1,238	)
Effect of exchange rates on cash and cash equivalents						(35	)			(32	)
Net increase in cash and cash equivalents						7,497				18,045
Cash and cash equivalents -- beginning of period						18,038				13,689
Cash and cash equivalents -- end of period					$	25,535			$	31,734
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and financing costs					$	324			$	663
Cash paid during the year for income taxes					$	-			$	514

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
RECONCILATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except share amounts)
		Three months ended								Six months ended
		April 30,								April 30,
		2013				2012				2013				2012
GAAP operating income		$	(2,198	)		$	2,758			$	(4,170	)		$	10,313
Non-cash compensation (1)			385				429				665				863
Severance (2)			-				-				776				-
Non-GAAP operating (loss) income		$	(1,813	)		$	3,187			$	(2,729	)		$	11,176
GAAP net income		$	(2,271	)		$	2,703			$	(4,412	)		$	10,429
Non-cash compensation (1)			385				429				665				863
Severance (2)			-				-				776				-
Change in fair value of warrants (3)			-				(165	)			(17	)			(992	)
Non-GAAP net (loss) income		$	(1,886	)		$	2,967			$	(2,988	)		$	10,300
GAAP net income per diluted share		$	(0.06	)		$	0.07			$	(0.11	)		$	0.25
Non-cash compensation (1)			0.01				0.01				0.02				0.02
Severance (2)			-				-				0.02				-
Change in fair value of warrants (3)			-				(0.01	)			-				(0.02	)
Non-GAAP net (loss) income per diluted share		$	(0.05	)		$	0.07			$	(0.07	)		$	0.25
Shares used in GAAP and Non-GAAP per diluted share amounts			40,543,635				41,387,755				40,512,763				41,445,746

(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.