Majesco Entertainment Company Reports Fourth Quarter and Full Year Fiscal 2014 Financial Results

EDISON, NJ -- (Marketwired) -- 01/29/15 -- 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 fiscal 2014 ended October 31, 2014.

Fourth Quarter Results

For the fourth quarter ended October 31, 2014, Majesco's net revenues were $6.3 million compared to $10.1 million in the same period a year ago. During the fourth quarter of fiscal 2014, the Company reported an operating loss of $3.5 million, compared to an operating loss of $4.5 million in the fourth quarter of fiscal 2013. Net loss for the fourth quarter was $5.4 million compared to net loss of $4.6 million in the fourth quarter of fiscal 2013. Included in the net loss for the fourth quarter of fiscal 2014 is $1.9 million of impairment and operating losses related to the Company's investment in GMS Entertainment. The Company's net loss per share for the quarter ended October 31, 2014 was $(0.83), compared to net loss per share of $(0.72) in the same period last year.

On a non-GAAP basis, the net loss for the fourth quarter ended October 31, 2014 was $5.0 million compared to non-GAAP net loss of $4.2 million in the fourth quarter of last year. The non-GAAP net loss per share for the quarter ended October 31, 2014 was $(0.77) compared to net loss per share of $(0.66) 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.

As noted in the Company's Report on Form 10-K filed with the Securities and Exchange Commission on January 29, 2015, the Company's financial statements for the fiscal year ended October 31, 2014 contain a going concern modification in the report of its independent accountings, EisnerAmper LLP. Further information regarding the going concern modification can be found in such filing.

Twelve Month Fiscal 2014 Results

For the twelve months ended October 31, 2014, the Company's net revenues were $34.4 million compared to $47.3 million in the prior twelve month period. The Company reported an operating loss of $13.3 million compared to operating loss of $12.2 million in the same period of 2013. For the twelve months ended October 31, 2014, net loss was $16.2 million compared to net loss of $12.6 million for the twelve months ended October 31, 2013. Included in the net loss for the twelve months ended October 31, 2014 is $3.8 million of impairment and operating losses related to the Company's investment in GMS Entertainment and a $1.3 million gain on the extinguishment of liabilities. The Company's net loss per share for the twelve months ended October 31, 2014 was $(2.52), compared to net loss per share of $(2.13) for the twelve months ended October 31, 2013.

Non-GAAP operating loss for the twelve month period ended October 31, 2014 was $11.9 million compared to non-GAAP operating loss of $10.0 million for the comparable period ended October 31, 2013. For the same period, non-GAAP net loss was $16.0 million in 2014 compared to non-GAAP net loss of $10.5 million in 2013. The Company's non-GAAP net loss per share for the twelve months ended October 31, 2014 was $(2.50) compared to net loss per share of $(1.76) 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.

Non-GAAP Measures

To facilitate a comparison between the three and twelve months ended October 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
  • Income related to the extinguishment of liabilities
  • 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 is headquartered in Plainfield, 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 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. The risks and uncertainties which could cause our results to differ materially from our expectations and plans are included in our risk factors described in our filings with the SEC, including our Annual Report on Form 10-K for the year ended October 31, 2014. 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
October 31,
Twelve months Ended
October 31,
2014 % 2013 % 2014 % 2013 %
(thousands) (thousands) (thousands) (thousands)
Nintendo Wii and WiiU $ 944 15 % $ 3,101 31 % $ 11,417 33 % $ 21,874 46 %
Microsoft Xbox 360 and Xbox One 1,291 21 % 1,331 13 % 11,125 32 % 10,408 22 %
Sony Playstation 3 and 4 1,690 27 % 281 3 % 3,655 11 % 845 2 %
Nintendo DS and 3DS 1,341 21 % 4,577 45 % 5,043 15 % 11,930 25 %
Accessories and other 1,017 16 % 787 8 % 3,128 9 % 2,210 5 %
TOTAL $ 6,283 100 % $ 10,077 100 % $ 34,368 100 % $ 47,267 100 %
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
October 31,
2014
October 31,
2013
ASSETS
Current assets:
Cash and cash equivalents $ 7,196 $ 13,385
Due from factor, net - 2,134
Accounts and other receivables 1,597 1,169
Inventory 1,292 4,859
Advance payments for inventory 57 1,064
Capitalized software development costs and license fees 674 7,825
Advances to GMS Entertainment Limited 250 -
Prepaid expenses and other current assets 192 2,827
Total current assets 11,258 33,263
Property and equipment, net 198 817
Investment in GMS Entertainment Limited - 3,500
Other assets - 69
Total assets $ 11,456 $ 37,649
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,427 $ 8,994
Due to distribution partner 1,286 -
Customer credits 171 -
Inventory financing - 1,764
Advances from customers and deferred revenue 21 6,838
Total current liabilities 5,905 17,596
Commitments and contingencies
Stockholders' equity:
Common stock -- $.001 par value; 250,000,000 shares authorized; 6,620,660 and 6,613,710 shares issued and outstanding at October 31, 2014 and October 31, 2013, respectively 7 7
Additional paid-in capital 125,271 124,187
Accumulated deficit (119,727 ) (103,530 )
Accumulated other comprehensive loss - (611 )
Net stockholders' equity 5,551 20,053
Total liabilities and stockholders' equity $ 11,456 $ 37,649
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Three Months ended
October 31
Year Ended
October 31
(unaudited)
2014 2013 2014 2013
Net revenues $ 6,283 $ 10,077 $ 34,368 $ 47,267
Cost of sales
Product costs 1,993 4,694 12,381 18,625
Software development costs and license fees 3,176 4,637 16,282 16,474
Total cost of sales 5,169 9,331 28,663 35,099
Gross profit 1,114 746 5,705 12,168
Operating costs and expenses
Product research and development 220 652 2,263 5,542
Selling and marketing 1,130 1,643 7,264 7,854
General and administrative 2,469 2,328 8,366 9,176
Workforce reduction 323 - 323 776
Loss on impairment of capitalized software development costs and license fees - cancelled games 77 500 77 675
Depreciation and amortization 441 85 745 381
Total operating costs and expenses 4,660 5,208 19,038 24,404
Operating loss (3,546 ) (4,462 ) (13,333 ) (12,236 )
Other expenses (income)
Interest and financing costs 77 118 361 409
Loss from equity method investment 1,873 - 3,780 -
Gain on extinguishment of liabilities (128 ) - (1,287 ) -
Change in fair value of warrant liability - - - (17 )
Loss before income taxes (5,368 ) (4,580 ) (16,187 ) (12,628 )
Income taxes 5 6 10 14
Net loss $ (5,373 ) $ (4,586 ) $ (16,197 ) $ (12,642 )
Net loss per share:
Basic $ (0.83 ) $ (0.72 ) $ (2.52 ) $ (2.13 )
Diluted $ (0.83 ) $ (0.72 ) $ (2.52 ) $ (2.13 )
Weighted average shares outstanding:
Basic 6,490,077 6,360,787 6,420,775 5,943,049
Diluted 6,490,077 6,360,787 6,420,775 5,943,049
MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
October 31,
2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (16,197 ) $ (12,642 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 745 381
Loss from equity method investment 3,780 -
Non-cash compensation expense 1,117 1,416
Provision for price protection 4,648 2,993
Amortization of capitalized software development costs and license fees 10,695 6,460
Impairment losses 1,259 675
Provision for excess inventory 737 675
Foreign currency exchange loss recognized 616 -
Change in fair value of warrant liability - (17 )
Gain on extinguishment of liabilities (1,287 ) -
Changes in operating assets and liabilities, net of acquisition:
Due from factor (2,343 ) 7,374
Accounts and other receivables (428 ) 2,767
Inventory 2,830 2,228
Capitalized software development costs and license fees (4,582 ) (10,971 )
Advance payments for inventory 1,007 (807 )
Prepaid expenses and other assets 2,704 (1,086 )
Accounts payable and accrued expenses (1,993 ) (6,417 )
Advances from customers and deferred revenue (6,817 ) 2,384
Net cash used in operating activities (3,509 ) (4,587 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (347 ) (274 )
Investment in and advances to GMS Entertainment Limited (530 ) (3,500 )
Net cash used in investing activities (877 ) (3,774 )
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock - 2,000
Income tax withholding from exercise of options and warrants (33 ) (19 )
Repayments of borrowings for inventory financing (1,765 ) 1,764
Net cash used in provided by financing activities (1,798 ) 3,745
Effect of exchange rates on cash and cash equivalents (5 ) (37 )
Net decrease in cash and cash equivalents (6,189 ) (4,653 )
Cash and cash equivalents -- beginning of year 13,385 18,038
Cash and cash equivalents -- end of year $ 7,196 $ 13,385
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest and financing costs $ 327 $ 455
Cash paid during the year for income taxes $ 6 $ -
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,
2014 2013 2014 2013
GAAP operating loss $ (3,546 ) $ (4,462 ) $ (13,333 ) $ (12,236 )
Non-cash compensation (1) 189 399 1,117 1,416
Severance (3) 323 - 323 776
Non-GAAP operating loss $ (3,034 ) $ (4,063 ) $ (11,893 ) $ (10,044 )
GAAP net loss $ (5,373 ) $ (4,586 ) $ (16,197 ) $ (12,642 )
Non-cash compensation (1) 189 399 1,117 1,416
Gain on extinguishment of liabilities (2) (128 ) - (1,287 ) -
Severance (3) 323 - 323 776
Change in fair value of warrants (4) - - - (17 )
Non-GAAP net loss $ (4,989 ) $ (4,187 ) $ (16,044 ) $ (10,467 )
GAAP net loss per diluted share $ (0.83 ) $ (0.72 ) $ (2.52 ) $ (2.13 )
Non-cash compensation (1) 0.03 0.06 0.17 0.24
Gain on extinguishment of liabilities (2) (0.02 ) - (0.20 ) -
Severance (3) 0.05 - 0.05 0.13
Change in fair value of warrants (4) - - - -
Non-GAAP net loss per diluted share $ (0.77 ) $ (0.66 ) $ (2.50 ) $ (1.76 )
Shares used in GAAP and Non-GAAP per diluted share amounts 6,490,077 6,360,787 6,420,775 5,943,049

(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 accounts payable balances and claims for which applicable statutes of limitations expired.
(3) Represents severance costs related to workforce reductions. 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. In October 2014, the Company incurred additional severance costs in connection with the termination of development, marketing and other operating personnel.
(4) 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