Majesco Entertainment Company Reports Third Quarter Fiscal 2013 Financial Results

EDISON, NJ--(Marketwired - Sep 9, 2013) - Majesco Entertainment Company (NASDAQ: COOL), an innovative provider of video games for the mass market, today reported financial results for the third quarter of fiscal 2013 ended July 31, 2013.

For the third quarter ended July 31, 2013, Majesco's net revenues were $4.0 million, down 56 percent versus $9.1 million in the same period a year ago. During the third quarter of fiscal 2013, the Company reported an operating loss of $3.6 million, compared to operating loss of $3.6 million in the third quarter of fiscal 2012. Net loss for the third quarter was $3.6 million compared to net loss of $3.1 million in the third quarter of fiscal 2012. The Company's basic and diluted net loss per share for the quarter ended July 31, 2013 was $(0.09), compared to basic and diluted net loss per share of $(0.08) in the same period last year.

On a non-GAAP basis, the net loss for the third quarter ended July 31, 2013 was $3.3 million compared to non-GAAP net loss of $3.2 million in the third quarter of last year. The non-GAAP diluted net loss per share for the quarter ended July 31, 2013 was $(0.08) compared to diluted net loss per share of $(0.09) 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 nine months ended July 31, 2013, the Company's net revenues were $37.2 million versus $105.7 million in the year ago period, a decline of 65 percent. The Company reported an operating loss of $7.8 million compared to operating income of $6.7 million in the same period of 2012. For the nine months ended July 31, 2013, net loss was $8.1 million compared to net income of $7.3 million for the nine months ended July 31, 2012. Included in nine 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 nine months ended July 31, 2013 was $(0.20), compared to basic and diluted net income per share of $0.18 for the corresponding period in 2012.

Non-GAAP operating loss for the nine month period was $6.0 million compared to non-GAAP net income of $8.0 million for the comparable period in 2012. For the same period, non-GAAP net loss was $6.3 million in 2013 compared to non-GAAP net income of $7.1 million in 2012. The Company's non-GAAP basic and diluted net loss per share for the nine months ended July 31, 2013 was $(0.15) compared to diluted net income per share of $0.17 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

"Consistent with the first half of 2013, our third quarter results reflect the ongoing industry transition to next generation console gaming," said Jesse Sutton, Chief Executive Officer of Majesco Entertainment. "We believe that our holiday release slate, which is focused on high-profile branded games based on popular characters or franchises, is the right approach for the current environment. We are excited about our releases based on Phineas and Ferb, Agent P Doofendash, Barbie and others as well as the evolution of our Zumba franchise that includes the upcoming Zumba Kids and Zumba Fitness World Party releases and the well-received Zumba Dance, the first ever motion-based fitness experience for mobile tablets, which launched in July."

"In light of the current market transition, we're finding innovative ways to leverage Majesco's core competencies including our industry relationships, distribution reach and sales and marketing prowess. We recently announced an online casino games strategy through a 50% stake in GMS Entertainment that will acquire the operations of two established players in this emerging gaming segment. We have also formed a new division to focus on the growing independent games market by offering services and support to independent game developers for digital distribution platforms. We are excited about the growth prospects of these two new focus areas for Majesco. With over $18 million in cash and no debt on our balance sheet, we continue to have the financial flexibility necessary to invest in growth areas of the gaming market."

Fiscal 2013 Outlook
Given the decline in revenue in the Company's first nine 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 for the upcoming holiday season:

• Zumba Dance, the first ever motion-based fitness experience for mobile tablets (Launched 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. (Launched 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 October) 
• 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)
• 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 November during first quarter of fiscal 2014)
• 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 November during first quarter of fiscal 2014 and later in 2013 on Xbox One)
• 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! (Launches in November during first quarter of fiscal 2014)
• 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)

Conference Call

At 4:30 p.m. (EDT) today, September 9, 2013, 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 #10033443.

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

To facilitate a comparison between the three and nine months ended July 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 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 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 NINE MONTHS
(Unaudited, in thousands)
	Three months Ended July 31,												Nine months Ended July 31,
	2013			%			2012			%			2013			%			2012			%
	(thousands)						(thousands)						(thousands)						(thousands)
Nintendo Wii	$	1,720		43	%		$	5,539		61	%		$	18,773		50	%		$	65,147		62	%
Microsoft Xbox 360		945		24	%			2,153		24	%			9,077		24	%			26,491		25	%
Nintendo DS/3DS		605		15	%			948		10	%			7,353		20	%			11,594		11	%
Sony Playstation 3		88		2	%			119		1	%			564		2	%			809		1	%
Accessories and other		640		16	%			386		4	%			1,423		4	%			1,684		1	%
TOTAL	$	3,998		100	%		$	9,145		100	%		$	37,190		100	%		$	105,725		100	%

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
				July 31, 2013				October 31, 2012
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	18,830			$	18,038
	Due from factor, net				-				12,501
	Accounts and other receivables, net				613				3,936
	Inventory				2,362				7,762
	Advance payments for inventory				858				257
	Capitalized software development costs and license fees, net				7,265				3,489
	Prepaid expenses and other current assets				683				1,724
		Total current assets			30,611				47,707
Property and equipment, net					871				1,003
Other assets					569				588
		Total assets		$	32,051			$	49,298
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses			$	8,652			$	15,490
	Advances from customers and deferred revenue				-				4,454
	Due to factor				1,162				-
	Warrant liability				-				17
		Total current liabilities			9,814				19,961
Commitments and contingencies
Stockholders' equity:
	Common stock - $.001 par value; 250,000,000 shares authorized; 41,846,736 and 41,862,321 shares issued and outstanding at July 31, 2013 and October 31, 2012, respectively				42				42
	Additional paid-in capital				121,765				120,755
	Accumulated deficit				(98,944	)			(90,888	)
	Accumulated other comprehensive loss				(626	)			(572	)
		Net stockholders' equity			22,237				29,337
		Total liabilities and stockholders' equity		$	32,051			$	49,298

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share amounts)
				Three Months Ended July 31								Nine Months Ended July 31
				2013				2012				2013				2012
Net revenues				$	3,998			$	9,145			$	37,190			$	105,725
Cost of sales
	Product costs				1,666				2,632				13,931				35,563
	Software development costs and license fees				1,097				2,997				11,837				31,461
		Total cost of sales			2,763				5,629				25,768				67,024
Gross profit					1,235				3,516				11,422				38,701
Operating costs and expenses
	Product research and development				1,352				1,912				4,890				5,890
	Selling and marketing				1,015				2,684				6,211				16,356
	General and administrative				2,382				2,392				6,848				8,088
	Workforce reduction				-				-				776				-
	Loss on impairment of capitalized software development costs and license fees - cancelled games				-				-				175				1,219
	Depreciation and amortization				90				141				296				448
		Total operating costs and expenses			4,839				7,129				19,196				32,001
Operating (loss) income					(3,604	)			(3,613	)			(7,774	)			6,700
Other expenses (income)
	Interest and financing costs				34				102				291				765
	Change in fair value of warrant liability				-				(594	)			(17	)			(1,586	)
(Loss) Income before income taxes					(3,638	)			(3,121	)			(8,048	)			7,521
	Income taxes (benefit)				6				(34	)			8				179
Net (loss) income				$	(3,644	)		$	(3,087	)		$	(8,056	)		$	7,342
Net (loss) income per share:
	Basic			$	(0.09	)		$	(0.08	)		$	(0.20	)		$	0.18
	Diluted			$	(0.09	)		$	(0.08	)		$	(0.20	)		$	0.18
Weighted average shares outstanding:
	Basic				40,616,376				39,893,133				40,547,680				39,883,365
	Diluted				40,616,376				39,893,133				40,547,680				41,016,631

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
				Nine months Ended July 31,
				2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income				$	(8,056	)		$	7,342
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization					296				448
Change in fair value of warrant liability					(17	)			(1,586	)
Non-cash compensation expense					1,017				1,301
Provision for price protection					1,295				3,211
Amortization of capitalized software development costs and license fees					2,952				11,103
Loss on impairment of capitalized software development costs and license fees					175				1,219
Provision for excess inventory					417				27
Changes in operating assets and liabilities:
	Due from/to factor				12,368				(2,500	)
	Accounts and other receivables				3,280				631
	Inventory				4,983				5,526
	Capitalized software development costs and license fees				(6,903	)			(7,378	)
	Advance payments for inventory				(601	)			4,467
	Prepaid expenses and other assets				1,036				2,472
	Accounts payable and accrued expenses				(6,759	)			(5,769	)
	Advances from customers and deferred revenue				(4,402	)			(5,367	)
		Net cash provided by operating activities			1,081				15,147
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment					(243	)			(244	)
	Net cash used in investing activities				(243	)			(244	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of inventory financing					-				(1,237	)
	Restricted shares withheld for employee taxes				-				(27	)
	Net cash used in financing activities				-				(1,264	)
Effect of exchange rates on cash and cash equivalents					(46	)			(36	)
Net increase in cash and cash equivalents					792				13,603
Cash and cash equivalents - beginning of period					18,038				13,689
Cash and cash equivalents - end of period				$	18,830			$	27,292
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest and financing costs				$	345			$	715
Cash paid during the period for income taxes				$	-			$	565

MAJESCO ENTERTAINMENT COMPANY AND SUBSIDIARY
RECONCILATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except share amounts)
		Three months ended								Nine months ended
		July 31,								July 31,
		2013				2012				2013				2012
GAAP operating (loss) income		$	(3,604	)		$	(3,613	)		$	(7,774	)		$	6,700
Non-cash compensation (1)			352				438				1,017				1,301
Severance (2)			-				-				776				-
Non-GAAP operating (loss) income		$	(3,252	)		$	(3,175	)		$	(5,981	)		$	8,001
GAAP net (loss) income		$	(3,644	)		$	(3,087	)		$	(8,056	)		$	7,342
Non-cash compensation (1)			352				438				1,017				1,301
Severance (2)			-				-				776				-
Change in fair value of warrants (3)			-				(594	)			(17	)			(1,586	)
Non-GAAP net (loss) income		$	(3,292	)		$	(3,243	)		$	(6,280	)		$	7,057
GAAP net (loss) income per diluted share		$	(0.09	)		$	(0.08	)		$	(0.20	)		$	0.18
Non-cash compensation (1)			0.01				0.01				0.03				0.03
Severance (2)			-				-				0.02				-
Change in fair value of warrants (3)			-				(0.02	)			-				(0.04	)
Non-GAAP net (loss) income per diluted share		$	(0.08	)		$	(0.09	)		$	(0.15	)		$	0.17
Shares used in GAAP and Non-GAAP per diluted share amounts			40,616,376				39,893,133				40,547,680				41,016,631

(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.