Majesco Entertainment Company Reports Second Quarter Fiscal 2014 Financial Results

EDISON, NJ -- (Marketwired) -- 06/09/14 -- 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 2014 ended April 30, 2014.

For the second quarter ended April 30, 2014, Majesco's net revenues were $3.2 million, down 67 percent versus $9.7 million in the same period a year ago. During the second quarter of fiscal 2014, the Company reported an operating loss of $3.4 million, compared to an operating loss of $2.2 million in the second quarter of fiscal 2013. Net loss for the second quarter was $3.6 million compared to net loss of $2.3 million in the second quarter of fiscal 2013. The Company's basic and diluted net loss per share for the quarter ended April 30, 2014 was $(0.08), compared to basic and diluted net loss per share of $(0.06) in the same period last year.

On a non-GAAP basis, the net loss for the second quarter ended April 30, 2014 was $3.3 million compared to non-GAAP net loss of $1.9 million in the second quarter of last year. The non-GAAP diluted net loss per share for the quarter ended April 30, 2014 was $(0.07) compared to diluted net loss per share of $(0.05) 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, 2014, the Company's net revenues were $25.2 million versus $33.2 million in the year ago period, a decline of 24 percent. The Company reported an operating loss of $7.5 million compared to operating loss of $4.2 million in the same period of 2013. For the six months ended April 30, 2014, net loss was $8.1 million compared to net loss of $4.4 million for the six months ended April 30, 2013. 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, 2014 was $(0.18), compared to basic and diluted net loss per share of $ (0.11) for the corresponding period in 2013.

Non-GAAP operating loss for the six month period was $6.8 million compared to non-GAAP operating loss of $2.7 million for the comparable period in 2013. For the same period, non-GAAP net loss was $7.5 million in 2014 compared to non-GAAP net loss of $3.0 million in 2013. The Company's non-GAAP basic and diluted net loss per share for the six months ended April 30, 2014 was $(0.17) compared to diluted net loss per share of $ (0.07) 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

"Majesco's historically seasonally soft second quarter was particularly soft this year because no major new releases were shipped and Zumba catalog sales continued to decline due to the late life cycle of Nintendo's Wii, the dominant platform for these games in the past," said Jesse Sutton, Chief Executive Officer of Majesco Entertainment. "In order to better navigate the industry's evolution during the transition of the past two years, we have right sized our infrastructure and diversified our product strategy to include online gaming and digital lottery through our joint venture in PariPlay as well as distribution of independently developed games through Midnight City. The launch of the popular Bound by Flame on next gen platforms in May, the latest extension of the award winning Cooking Mama franchise for holiday, and a number of additional digital and next gen console games, enhances our belief that Majesco is trending in the right direction to restore profitability in the future."

Announced Product Line-up

To date, the Company has announced the following titles for launch during its fiscal third quarter 2014 and the remainder of the 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. Launched in May.
  • 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 this Halloween.
  • Gone Home on digital consoles is being published under the Midnight City label. The Fullbright Company's runaway hit brings the explorative Greenbriar family experience to a whole new audience. Heralded as one of the best games of 2013, Gone Home extends an invitation into an ordinary family's mysterious past as a young woman who discovers an empty house that's much more than it seems. The game will release on digital consoles later this year.

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, June 9, 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 through June 13, 2014, 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 #10047543.

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

To facilitate a comparison between the three and six months ended April 30, 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
NET SALES BY PLATFORM FOR THREE AND SIX MONTHS
(Unaudited, in thousands)
Three months Ended Six months Ended
April 30, April 30,
2014 % 2013 % 2014 % 2013 %
(thousands) (thousands) (thousands) (thousands)
Nintendo Wii/WiiU $ 703 23 % $ 4,469 46 % $ 10,058 40 % $ 17,053 51 %
Microsoft Xbox 360/Xbox One 1,116 34 % 2,538 26 % 9,462 37 % 8,132 25 %
Nintendo DS/3DS 721 22 % 2,008 21 % 3,305 13 % 6,748 20 %
Sony Playstation 3 5 0 % 304 3 % 897 4 % 476 1 %
Accessories and other 695 21 % 401 4 % 1,452 6 % 783 3 %
TOTAL $ 3,240 100 % $ 9,720 100 % $ 25,174 100 % $ 33,192 100 %
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
April 30,
2014
October 31,
2013
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,947 $ 13,385
Due from factor, net 133 2,134
Accounts and other receivables 863 1,169
Inventory 2,297 4,859
Advance payments for inventory 70 1,064
Capitalized software development costs and license fees 1,717 7,825
Prepaid expenses and other current assets 232 2,827
Total current assets 16,259 33,263
Property and equipment, net 960 817
Investment in GMS Entertainment Limited 3,191 3,500
Other assets 69 69
Total assets $ 20,479 $ 37,649
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,919 $ 8,994
Inventory financing - 1,764
Advances from customers and deferred revenue 864 6,838
Total current liabilities 7,783 17,596
Commitments and contingencies
Stockholders' equity:
Common stock -- $.001 par value; 250,000,000 shares authorized; 46,392,710 and 46,295,969 shares issued and outstanding at April 30, 2014 and October 31, 2013, respectively 46 46
Additional paid-in capital 124,784 124,148
Accumulated deficit (111,627 ) (103,530 )
Accumulated other comprehensive loss (507 ) (611 )
Net stockholders' equity 12,696 20,053
Total liabilities and stockholders' equity $ 20,479 $ 37,649
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
2014 2013 2014 2013
Net revenues $ 3,240 $ 9,720 $ 25,174 $ 33,192
Cost of sales
Product costs 1,673 3,851 9,215 12,265
Software development costs and license fees 1,506 2,834 12,509 10,740
Total cost of sales 3,179 6,685 21,724 23,005
Gross profit 61 3,035 3,450 10,187
Operating costs and expenses
Product research and development 420 1,456 1,666 3,538
Selling and marketing 1,125 1,467 5,181 5,196
General and administrative 1,786 2,215 3,893 4,466
Workforce reduction - - - 776
Loss on impairment of capitalized software development costs and license fees -- cancelled games - - - 175
Depreciation and amortization 106 95 187 206
Total operating costs and expenses 3,437 5,233 10,927 14,357
Operating loss (3,376 ) (2,198 ) (7,477 ) (4,170 )
Other expenses (income)
Interest and financing costs 43 74 205 257
Loss from equity method investment 166 - 413 -
Change in fair value of warrant liability - - - (17 )
Loss before income taxes (3,585 ) (2,272 ) (8,095 ) (4,410 )
Income taxes - (1 ) 2 2
Net loss $ (3,585 ) $ (2,271 ) $ (8,097 ) $ (4,412 )
Net loss per share:
Basic $ (0.08 ) $ (0.06 ) $ (0.18 ) $ (0.11 )
Diluted $ (0.08 ) $ (0.06 ) $ (0.18 ) $ (0.11 )
Weighted average shares outstanding:
Basic 44,782,134 40,543,635 44,738,155 40,512,763
Diluted 44,782,134 40,543,635 44,738,155 40,512,763
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six months Ended
April 30,
2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,097 ) $ (4,412 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 187 206
Loss from equity method investment 413 -
Non-cash compensation expense 643 665
Provision for price protection 2,377 1,170
Amortization of capitalized software development costs and license fees 8,705 2,689
Loss on impairment of capitalized software development costs and license fees - 175
Provision for excess inventory 216 319
Change in fair value of warrant liability - (17 )
Changes in operating assets and liabilities:
Due from factor (601 ) 11,216
Accounts and other receivables 531 2,079
Inventory 2,346 4,965
Capitalized software development costs and license fees (2,597 ) (5,028 )
Advance payments for inventory 994 44
Prepaid expenses and other assets 2,595 1,421
Accounts payable and accrued expenses (2,075 ) (3,438 )
Advances from customers and deferred revenue (5,974 ) (4,377 )
Net cash (used in) provided by operating activities (337 ) 7,677
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (330 ) (145 )
Net cash used in investing activities (330 ) (145 )
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of inventory financing (1,764 ) -
Income tax withholding from stock compensation (7 ) -
Net cash used in financing activities (1,771 ) -
Effect of exchange rates on cash and cash equivalents - (35 )
Net (decrease) increase in cash and cash equivalents (2,438 ) 7,497
Cash and cash equivalents -- beginning of period 13,385 18,038
Cash and cash equivalents -- end of period $ 10,947 $ 25,535
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest and financing costs $ 265 $ 324
Cash paid during the period for income taxes $ - $ -
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,
2014 2013 2014 2013
GAAP operating loss $ (3,376 ) $ (2,198 ) $ (7,477 ) $ (4,170 )
Non-cash compensation (1) 270 385 643 665
Severance (2) - - - 776
Non-GAAP operating loss $ (3,106 ) $ (1,813 ) $ (6,834 ) $ (2,729 )
GAAP net loss $ (3,585 ) $ (2,271 ) $ (8,097 ) $ (4,412 )
Non-cash compensation (1) 270 385 643 665
Severance (2) - - - 776
Change in fair value of warrants (3) - - - (17 )
Non-GAAP net loss $ (3,315 ) $ (1,886 ) $ (7,454 ) $ (2,988 )
GAAP net loss per diluted share $ (0.08 ) $ (0.06 ) $ (0.18 ) $ (0.11 )
Non-cash compensation (1) 0.01 0.01 0.01 0.02
Severance (2) - - - 0.02
Change in fair value of warrants (3) - - - -
Non-GAAP net loss per diluted share $ (0.07 ) $ (0.05 ) $ (0.17 ) $ (0.07 )
Shares used in GAAP and Non-GAAP per diluted share amounts 44,782,134 40,543,635 44,738,155 40,512,763

(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